Canadian Pensioners Pour Money into New York Real Estate

canadianflag 0 Canadian Pensioners Pour Money into New York Real EstateSL Green, New York’s largest commercial landlord, has found some deep-pocketed funders north of the border.

The Canada Pension Plan Investment Board, which manages a staggering $123.9 billion in pension money, is SL Green’s joint investment partner in two of the three significant transactions annouced this morning (press release below).

SL Green is selling a 45 percent interest in 1221 Avenue of the Americas to the fund for $576 million; and the fund is taking a 45 percent stake in 600 Lexington Avenue, the scraper SL Green just bought from the California-based Hines for $180 million.

In the statement, SL Green’s CEO Marc Holliday made a point of acknowledging the firm’s new partnership with the Canadians: “In the case of 600 Lexington Avenue, we hope that this transaction marks the beginning of a long and mutually beneficial relationship with CPPIB.”

The beginning of a beautiful friendship?

The press release is below.

SL Green Announces Three Major Transactions in Midtown Manhattan
Agreement to Acquire 125 Park Avenue

Agreement to Sell Ownership Stake in 1221 Avenue of the Americas

Formation of Joint Venture at 600 Lexington Avenue
May 10, 2010 – New York, New York – SL Green Realty Corp. (NYSE: SLG), New York City’s largest owner of commercial office properties, today announced three major property transaction agreements that will enhance its market leading position in the Midtown Manhattan market.

The Company reported that it has entered into an agreement to acquire 125 Park Avenue, a prime office tower renovated to a Class A standard, overlooking New York City’s Grand Central Terminal, for $330 million.

In addition, SL Green has reached an agreement to sell its 45% non-managing ownership interest in 1221 Avenue of the Americas to the Canada Pension Plan Investment Board, (“CPPIB”), for a total consideration of approximately $576 million.

Also, the Company said that it has sold a 45% joint venture ownership stake at 600 Lexington Avenue to CPPIB in connection with the previously announced acquisition of that property. The joint venture agreement will provide that SL Green will be the managing partner and receive typical fees.

Subject, in each case, to the satisfaction of certain closing conditions, the proposed transactions at 600 Lexington Avenue and 1221 Avenue of the Americas are expected to close this month and the proposed transaction at 125 Park Avenue is expected to close during the third quarter of 2010.

The Company indicated that the estimated $500 million in net proceeds from the proposed sale of its 1221 Avenue of the Americas ownership stake will be re-deployed to provide equity for the proposed acquisitions of 125 Park Avenue and 600 Lexington Avenue, with the remainder used for corporate debt reduction and additional investments.

SL Green’s Chief Executive Officer, Marc Holliday said, “We are excited about each of these transactions and believe that they are terrific deals for all parties. In the case of 600 Lexington Avenue, we hope that this transaction marks the beginning of a long and mutually beneficial relationship with CPPIB. We believe the New York City commercial office market is finally turning the corner after a few difficult years, and that we have repositioned our balance sheet effectively to take advantage of emerging opportunities.”

SL Green’s President and Chief Investment Officer, Andrew Mathias, commented, “For SL Green, the 1221 Avenue of the Americas deal will enable us to dispose of a non-managing ownership interest, monetize our investment gain, free up a significant amount of cash for future investments and further improve our balance sheet. Likewise, the joint venture structure for 600 Lexington Avenue will give us more flexibility to pursue other near-term market opportunities. Also, as Manhattan’s largest commercial landlord, with a commanding presence in the Grand Central submarket, we see 125 Park Avenue as a perfect fit with our other area properties.”

Mr. Holliday added, “Of the three major midtown office properties coming to the market this year, we have entered into agreements to acquire two of them,” he continued. “Not only do we have our own equity capital needed to make these deals, but we continue to be able to take advantage of excellent relationships with many lenders and institutional joint-venture partners who are eager to invest in Manhattan. As a result, we believe we are well-positioned to take advantage of market opportunities now beginning to emerge from the difficulties of the past few years.”

Originally known as the Pershing Square Building, 125 Park Avenue is a 26-story, 651,000-square-foot office tower that spans the entire block between 41st and 42nd streets, directly across from the main entrance of Grand Central Terminal. It is home to several large tenants, including Meredith Corporation, FGIC Holdings, Reed Elsevier, Newmark Knight Frank and Canon Business Solutions, and is currently 99% leased. Prior ownership made value-enhancing improvements in the institutional-quality property, including extensive lobby and building systems renovations and façade restoration.

SL Green acquired its ownership interest in 1221 Avenue of the Americas in December 2003. The Company said that when the proposed transaction is consummated, SL Green expects to generate a gain of approximately $130 million. As the building is extremely lightly levered, the Company will effectively realize an unlevered internal rate of return of approximately 12%.

On April 15, 2010, SL Green announced that it had entered into an agreement to acquire 600 Lexington Avenue for $193.0 million, or approximately $636 per square foot. 600 Lexington Avenue is a 303,515 square foot, 36-story, glass and steel Class A office building situated on the Northwest corner of Lexington Avenue and 52nd Street, which currently is 93.6% leased. With floorplates ranging from approximately 6,800 square feet to 11,700 square feet, stunning views, a modern lobby, excellent access to transportation and recently remodeled elevators, SL Green believes 600 Lexington Avenue is perfectly tailored for full floor boutique tenants.

SL Green was represented by Fried, Frank, Harris, Shriver & Jacobson LLP in connection with the 1221 Avenue of the Americas transaction and by Greenberg Traurig in connection with the 125 Park Avenue transaction and joint venture with CPPIB. Darcy Stacom and William Shanahan from CBRE acted on behalf of the seller in connection with the 125 Park Avenue transaction.

 

drubinstein@observer.com