Manhattan’s 111 Eighth Avenue Trades for $1.9B

December 23, 2010
By Barbra Murray, Contributing Editor

Leave it to the Big Apple to lead the pack. The city just scored the biggest non-portfolio commercial real estate deal in the U.S. this year with Google Inc.’s $1.9 billion acquisition of the 2.9 million square-foot building at 111 Eighth Ave., home of the company’s New York City headquarters, from a partnership involving Taconic Investment Partners, Jamestown Properties and the New York State Common Retirement Fund.

“It’s a brilliant move by Google,” Dan Fasulo, managing director with global research and consulting firm Real Capital Analytics, told CPE “They just wanted to control their own destiny to grow in New York.”

Taconic and partners had owned the block-long building at 111 Eighth Avenue, originally developed in 1932 as the headquarters for the Port Authority of New York, since acquiring it in early 1998. The team submitted the property to a $68 million upgrade that transformed the structure, which anchors the Chelsea and Meatpacking District neighborhoods, into a premier office location that has since attracted top tenants in the advertising, fashion, media and technology industries. Google has called 111 Eighth Avenue home since 2006 and has been expanding ever since; it is now the largest occupant in the building. Other businesses on the tenant roster include Armani AX, Deutsche Advertising, Lifetime TV, Nike and WebMD, which also maintains its headquarters at the location.

The sellers relied on Howard Shapiro of Greenberg Traurig to serve as legal counsel, while commercial real estate firm Eastdil Secured provided them with representation in the transaction. CB Richard Ellis represented Google. Taconic will maintain a connection to 111 Eighth Avenue, as its subsidiary, Taconic Management Company, will spearhead leasing and management activities on Google’s behalf.

“Many growing companies in New York City have struggled with the commercial real estate market; Google couldn’t have been more smart in being proactive in ensuring they will be able to grow where they want,” Fasulo said.

The big-ticket deal speaks volumes about the Manhattan office market, he added. “It is in solid recovery mode in terms of investments. We saw a steady upward trend and we expect it to continue in 2011 and open up even more.” In the third quarter alone, the list of transactions included SL Green Realty’s acquisition of 125 Park Ave. for $330 million, Boston Properties’ purchase of 510 Madison Ave. in a $275 million deal and TIAA-CREF’s purchase of 685 Third Ave. for $190 million.

“The stars are aligned for big sales in 2011,” Fasulo added. “Lenders are back competing to make loans and CMBS will be back in a big way next year. The diversity of capital sources available for commercial real estate so early in this cycle is incredible. Public REITs are flush with cash; equity funds are loaded. And since the debt markets are looking up, privates investors are starting to get active again–and then there are foreign investors. There is a tremendous amount of capital that will be chasing commercial real estate next year.”