Silverstein Brings Back the Billion-Dollar Building Buy

Given the tight credit market and an uncertain economic future, it might seem highly unlikely that downtown developer Larry Silverstein, already occupied with the $7 billion project of building, then filling, three towers at the World Trade Center site, would make one of the largest property buys of the year.

But Mr. Silverstein has armed himself with a powerful financial partner, the California State Teachers’ Retirement System (CalSTRS), a pension fund that is proving a valuable crutch, allowing him to be aggressive at a time when others are yielding to an inclement financial climate.

Silverstein Properties, in a joint venture with CalSTRS, last week won negotiations to buy the Paramount Group’s one million-square-foot tower at 1177 Avenue of the Americas for more than $1 billion, a source confirmed for The Observer, beating out at least four other bidders.

The details are yet to be worked out, but should Mr. Silverstein and CalSTRS seal the deal, it would mark the first 10-figure purchase in Manhattan since the start of the credit crunch, with the last $1 billion-plus sale coming some six months ago, when Deutsche Bank agreed to sell 60 Wall Street to Paramount Group for $1.2 billion.

Both Silverstein Properties and the Paramount Group declined to comment for this article.

The acquisition would bring Mr. Silverstein’s holdings in midtown up to almost three million square feet of office space, suggesting a growing presence outside of Lower Manhattan, where he owns over four million square feet.

In both the 1177 Avenue of the Americas agreement and Mr. Silverstein’s two other purchases since 2006, the aid of CalSTRS seems to have been a crucial factor, allowing him the financial muscle to put in competitive bids.

Between the time when the Silverstein-owned World Trade Center was destroyed in 2001 and the second half of last year, Mr. Silverstein was inactive with respect to property acquisitions, too occupied with the political and financial imbroglio at Ground Zero to look elsewhere.

But with turmoil around the World Trade Center development winding down and the commitment of a $2 billion fund from CalSTRS, Mr. Silverstein again became a buyer, scooping up 575 Lexington Avenue for $400 million in October 2006. The following month, the joint venture bought the Moody’s Corporation building downtown at 99 Church Street for $170 million, with a Robert A.M. Stern-designed luxury condo and hotel planned in the place of the 11-story boxy building.

With a more long-term view than many investors, the pension fund makes a good sidekick during turbulent times, real estate experts say, allowing Mr. Silverstein to reach high when bidding on Manhattan office properties.

“If you have patient money—which pension funds are—then you can afford to bring more equity to the table,” giving Mr. Silverstein an edge, said Michael Pollack, an attorney with Reed Smith who works in commercial real estate.

The final price for 1177 Avenue of the Americas will be a telling sign of the market, as many had speculated it would hit about $1.2 billion.

Perhaps expecting a big return on the building, seller Paramount, led by CEO Albert Behler, has been trading properties all around town recently. Earlier this month, the German-owned firm, wielding the mighty euro, agreed to buy the Deutsche Bank-owned 700,000-square-foot tower at 31 West 52nd Street for more than $500 million. That deal came just days after Paramount, in a partnership with Sherwood Equities, agreed to buy a 320,000-square-foot Class B office building at 440 Ninth Avenue from SL Green for $160 million.

Silverstein Brings Back the Billion-Dollar Building Buy