Sony to Sell Manhattan HQ to Chetrit, Partners in $1B Sale-Leaseback

By Barbra Murray, Contributing Editor

With commercial real estate investment brokerage and banking firm Eastdil Secured leading the marketing effort, Sony Corporation of America has settled on a buyer for its Manhattan headquarters building at 550 Madison Ave. Acting as 550 Madison Fifth L.L.C, a consortium spearheaded by commercial property owner The Chetrit Group won the bid to acquire the 850,000-square-foot high-rise and will fork over $1.1 billion to close the sale-leaseback transaction. The group was not the only one that was willing to shell out a billion-dollars-plus.

“It was a wonderful process I must say,” Benjamin V. Lambert, chairman of Eastdil, told Commercial Property Executive. “We started with a truly magnificent piece of real estate–Philip Johnson created a real icon at 550 Madison–so it was not difficult to sell. Our own reading of the market indicated that there would be enormous interest.”

And so there was– approximately 22 bidders, serious bidders in the form of national and international real estate owners and developers, came forward with offers meeting or exceeding the set $900 million minimum. But it wasn’t just about a commitment to cough up the big bucks for the three-decade-old office destination.

“The other issue was the certainty,” said Lambert. “We wanted to know that there was serious capital–ready capital, deep-pocket capital, conversant capital–so we could assure the client that we were dealing with groups that would end up being able not only to put up the rather large deposit, but also to close.” With that criterion in mind, Eastdil whittled down the proposals to seven.

Sony, which has called 550 Madison home since 1992, had acquired the 37-story tower from AT&T in 2002 for a reported $236 million. The company has since submitted the Midtown Manhattan building to upgrades, including the multi-million-dollar redevelopment of its 14,000-square-foot entertainment museum, the Sony Wonder Technology Lab, in 2009.

After all is said and done, Sony will pocket approximately $770 million on the deal with Chetrit and, as per terms of the sale-leaseback transaction, will continue to occupy the property for three years. As Nicole Seligman, president of Sony Corporation of America, noted in an internal message to the company’s staff, “Given the opportunities and challenges in the current economic and real estate landscape, selling 550 Madison now is a timely and logical strategic move.”

The sale is on track to close in March of this year. In the meantime, Sony is hunting for alternative digs. “Regarding our new headquarters, we continue to look at a number of spaces in Manhattan but have not yet made a decision about where to lease,” Seligman wrote. She did not specify the size requirements, but in terms of options, many big-space occupiers Midtown are staying put these days. 

“The trend of tenants renewing in place continued in [the fourth quarter of 2012], with renewal and renewal-and-expansion activity accounting for three of Midtown’s top five transactions,” according to a report by commercial real estate firm CBRE Group Inc., which, in the 1990s, facilitated Sony’s original lease agreement with AT&T at 550 Madison. Last quarter, UBS Financial Services Inc. signed an approximately 890,000-square-foot renewal and expansion lease at 1285 Avenue of the Americas; law firm Davis Polk & Wardwell recommitted to 650,000 square feet at 450 Lexington Ave.; and Macy’s Inc. saw no reason to abandon its nearly 200,000 square feet at 1440 Broadway.

Despite any challenges in the market, Lambert is confident in Sony’s ability to find exactly what the company desires in office accommodations “The people at Sony are extremely creative and very, very capable, and they’re great people,” he asserted.   With Eastdil having successfully orchestrated a mega-deal for the sale of 550 Madison, Sony has turned to another team to guide it through the searching process. However, that doesn’t mean that Eastdil is necessarily out of the game just yet. Lambert noted, “If we had a good idea, we wouldn’t hesitate to bring it to their attention. It’s not our responsibility but we would love to have the right idea.”

A major office transaction is a fine way to kick off a new year, and the Sony office sale-leaseback may be one of many such contracts to come in 2013. “We’re very aware of several situations where something like what Sony is doing is being considered because we’re being asked to be involved,” Lambert concluded. “I think there are some [similar deals] that are very definitely being looked at right now.”