March 9 (Bloomberg) -- The New York Times Co. agreed to sell the space it occupies in its Manhattan headquarters for $225 million to pay debt as print advertising revenue declines.

The newspaper publisher will lease the building for 15 years from new owner W.P. Carey & Co., a New York-based real estate investment bank, and retain the option to buy back its stake in 2019 for $250 million, according to a statement today.

The transaction covers 21 floors, or about 750,000 square feet, of the 52-story building on Eighth Avenue between 40th and 41st streets. The publisher, which has cut jobs and stopped paying dividends, is trying to sell assets to cope with an accelerating decline in revenue.

“It definitely looks like W.P. Carey is getting a great deal,” based on the long-term outlook for rents and occupancy, Victor Calanog, director of research at Reis Inc., a real estate research firm, said in an interview.

W.P. Carey is paying $300 a square foot for an initial capitalization rate of 10.6 percent, compared with less than 5 percent during the real estate market’s peak in early 2007. The cap rate is calculated by dividing net operating income by purchase price. The higher the cap rate, the lower the price.

The rental income works out to $32 a square foot net, or about $55 a foot gross, including operating expenses, said W.P. Carey Chief Executive Officer and President Gordon DuGan. By contrast, gross leases in the same market today range from $70 to $90 a foot, he said.

‘Good Price’

“We’re willing to trade a low purchase price and good yield for future appreciation,” DuGan said. “This is a key, key building for them and it houses the crown jewels of the New York Times Co.”

The New York Times, which also owns the Boston Globe newspaper, will pay rent of $24 million in the first year, with increases in later years. The company will keep the six floors it leases to Boston-based law firm Goodwin Procter LLP, plus one floor occupied by Times personnel, said New York Times spokeswoman Catherine Mathis.

“Basically it’s a secured loan” for the Times, said Craig Evans, a broker with Colliers ABR Inc., a New York-based real estate services firm. “It’s a way for them to borrow significant amounts of money against the value of their offices. And they’re paying a pretty significant price to do that.”

The New York Times will continue to treat the building as an asset for accounting and tax purposes, said Mathis. The rental payment flows through the income statement as interest expense and is tax-deductible, she said.

“Because we have a fixed purchase option, the benefits of any appreciation in the value of the building over ten years will be ours,” Mathis said.

Falling Rents

Office rents are falling and vacancy rates are rising in major U.S. markets amid the collapse of the banking industry. The vacancy rate at U.S. office buildings will rise to 16.7 percent this year and could reach an 18-year high next year as tenants cut jobs and try to sublet space, Reis forecast last month.

Sales prices for Class A office buildings in New York averaged $815 per square foot in 2008, according to Reis.

New York Times fell 17 cents, or 4.2 percent, to $3.90 at 4:02 p.m. in New York Stock Exchange composite trading. The shares have dropped 77 percent in the past 12 months.

The New York Times moved to the building in July 2007 after selling its former headquarters to Tishman Speyer Properties LP for $175 million in 2004. Tishman Speyer later sold the building to Africa Israel Investments Ltd. for $525 million.

Last month, the New York Times reported 2008 weekday circulation declines at the Times and Globe of 3.1 percent and 11 percent, respectively. In January, the publisher obtained $250 million in financing from Mexican billionaire Carlos Slim in exchange for warrants and a 14 percent interest rate on six- year notes.

The New York Times, controlled by the Ochs-Sulzberger family, owns 58 percent of the building. The remainder of the 1.6 million square-foot property is owned by Forest City Ratner Cos. New York-based W.P. Carey manages more than $10 billion in investments worldwide, according to its Web site.

Cushman & Wakefield Inc. advised New York Times on the deal.

To contact the reporters on this story: Hui-yong Yu in Seattle at hyu@bloomberg.net; Greg Bensinger in New York at gbensinger1@bloomberg.net.

Last Updated: March 9, 2009 16:12 EDT