A midtown Manhattan office tower majority owned by Carlyle Group LP is attracting bids of as much as $1.4 billion in what may be the biggest U.S. real estate deal since 2010, two people familiar with the sale process said.
Final offers are due tomorrow for 650 Madison Ave., a 27-story building in the heart of Midtown’s upscale shopping district. Bidders include a venture of General Growth Properties Inc. (GGP) and Brookfield Office Properties Inc. (BPO); Vornado Realty Trust; HFZ Capital Group, a New York-based condominium and hotel owner; and Crown Acquisitions LLC, a retail and office landlord, said the people, who asked not to be named because the details of the transaction are private.
The sale is poised to surpass Chetrit Group’s $1.1 billion purchase of New York’s Sony Corp. tower as the largest in the U.S. this year, and be the biggest since Google Inc. (GOOG)’s $1.8 billion acquisition of its West Chelsea building in December 2010. The price, which may set a record on a per-square-foot basis, reflects the property’s lucrative retail space and investor demand for well-located trophy real estate, said Dan Fasulo, managing director at Real Capital Analytics Inc.
“We’re getting into some really big numbers,” Fasulo, whose New York-based firm tracks commercial-property sales, said in a telephone interview. “You have to hope everything stays good in the capital markets.”
Randall Whitestone, a spokesman for Washington-based Carlyle, declined to comment on the sale.
A $1.4 billion deal for the 600,000-square-foot (55,700-square-meter) building would exceed $2,300 a square foot, easily surpassing the record among large office towers of $1,583 a square foot paid for 450 Park Ave. in October 2007. That was close to the peak of the real estate market, which crashed the following year when banks were too heavily invested in overvalued mortgage securities.
Prices for office buildings in Midtown, the priciest part of New York City, rebounded 85 percent from their 2009 low as of April 1, according to an index compiled by Green Street Advisors Inc. Values remain 16 percent below their 2007 high, data from the Newport Beach, California-based firm show.
The tower at 650 Madison Ave. is between East 59th and East 60th streets, one block north of the General Motors Building. A Ralph Lauren Corp. (RL) unit is the largest office tenant in the building, which is fully leased. The street-level retail portion is home to a Crate & Barrel housewares store.
Part of the value of 650 Madison is being driven by its roughly 70,000 square feet of retail space, making it one of the largest selling floors in Manhattan’s high-end Plaza District, Fasulo said. Ground-floor retail in Midtown’s strongest shopping corridors typically have the highest value of any property type, he said.
Crate & Barrel is paying a rent that is well below market rates, the two people said. That means a buyer should have an opportunity to greatly increase revenue when the retailer’s lease expires in 2019, they said.
Some of the bidders are planning to redevelop the tower into residences as prices for luxury condominiums surge, according to one of the people. Much of the building offers Central Park views, Fasulo said.
For Chicago-based General Growth, the No. 2 U.S. mall owner, a deal for the property would mark its entrance into the Manhattan street retail market. Reuters reported General Growth’s partnership with Brookfield on the bid late last week. Brookfield (BPO)’s parent company, Brookfield Asset Management Inc. (BAM/A), is the mall landlord’s largest stockholder, with about 39 percent of its shares, according to data compiled by Bloomberg.
Doug Harmon, the broker who is marketing the building with Adam Spies for Eastdil Secured LLC, didn’t respond to a phone call.
Mark Semer, a spokesman for New York-based Vornado, declined to comment, as did Harriet Weintraub, a spokeswoman for HFZ. Roxanne Donovan, a spokeswoman for Crown, confirmed the company is bidding on the tower and said she had no further details.
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