Carlyle Sets Record With $1.3 Billion Sale of NYC Tower

Carlyle Group LP (CG)’s $1.3 billion deal to sell 650 Madison Ave. will set a record based on the per-square-foot price for the office tower, driven by its retail space in the heart of midtown Manhattan’s Plaza district.

Crown Acquisitions Inc., based in New York, and Highgate Holdings Inc. agreed to buy the 600,000-square-foot (55,700-square-meter) building, Crown said June 1. The property between East 59th and 60th streets has about 75,000 square feet of retail space in a prime tourist and office area.

The purchase is the largest of an entire building in the U.S. since Google Inc.’s $1.8 billion acquisition of 111 Eighth Ave. in Manhattan in late 2010, and on a square-foot basis it exceeds the record of $1,583 paid for 450 Park Ave. in 2007. In another deal for a trophy Plaza district property, a 40 percent stake in the General Motors Building was sold to the families of Chinese real estate developer Zhang Xin and Brazil’s Safra banking empire, a person familiar with the transaction said.

“The true trophy properties are in a league of their own,” Robert Stuckey, managing director and head of U.S. real estate at Washington-based Carlyle, said in a telephone interview. “There’s just a quantum leap in both rents and building values when you’re in that category.”

Photographer: Victor J. Blue/Bloomberg

The 650 Madison Avenue building stands in New York. Close

The 650 Madison Avenue building stands in New York.

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Photographer: Victor J. Blue/Bloomberg

The 650 Madison Avenue building stands in New York.

The area is known as the Plaza district because of its proximity to the landmark Plaza Hotel, two blocks west of 650 Madison. It commands some of the priciest office rents in the U.S., and is home to notable retail stores including Bergdorf Goodman, Tiffany & Co., FAO Schwarz and Apple Inc.’s outlet at the bottom of the GM Building.

GM Building

The GM Building stake sale, completed May 31, valued the 50-story tower at about $3.4 billion, according to the person with knowledge of the deal, who asked not to be named because the details are private. That works out to roughly $1,700 a square foot for the tower, located at 767 Fifth Ave. between 58th and 59th streets.

The biggest value of 650 Madison was its retail space, said Haim Chera, managing principal of Crown. The tower isn’t comparable to 450 Park because of its location at the center of a “retail triangle” created by Barneys to the north, Bergdorf Goodman to the west and Bloomingdale’s flagship Lexington Avenue store to the east, Chera said. Those stores, as well as the Apple store across the street, combine for about $2 billion of annual sales, he said in a telephone interview.

“We expect to achieve a retail value of close to $1 billion on this asset, giving us a basis of about $300 million in a trophy office building,” Chera said.

Lease Deal

The building’s current retail tenant is a Crate & Barrel housewares store, under a lease that runs until 2019. As part of the deal, Carlyle agreed to pay Crate & Barrel $55 million in return for paying a higher rent, thereby expediting Highgate and Crown’s return on its investment, according to two people with knowledge of the transaction.

“In that building, you could get easily $2,000 to $2,500 a square foot,” in rent, said Faith Hope Consolo, chairman of retail leasing for Douglas Elliman Real Estate. Crate & Barrel “was one of the first big boxes on the street.”

Vicki Lang, a spokeswoman for Northbrook, Illinois-based Crate & Barrel, declined to comment on the company’s lease at 650 Madison.

The new owners will discuss “reconfiguring” the Crate & Barrel space in an effort to unlock some of the value, according to Chera.

‘Savvy Group’

“You’re not going to find a more savvy group of investors than Highgate and Crown,” said Howard Michaels, chairman of Carlton Group, a New York-based real estate investment bank. “This deal just affirms the desirability of the New York office and retail market. I’m sure they’ve got a plan to maximize the value of the property’s retail and office.”

Adam Spies and Douglas Harmon, of New York-based Eastdil Secured LLC, were the brokers on the tower sale. Bidders included Vornado Realty Trust (VNO), HFZ (GGP) Capital Group and a venture of General Growth Properties Inc. and Brookfield Office Properties Inc. (BPO), according to people with knowledge of the sale.

Carlyle and a partner paid $680 million for the 27-story building in 2008, according to research firm Real Capital Analytics Inc. The owners finished renovating the building earlier this year, improving the lobby and installing a glass entrance and new elevators. They also completed more than 400,000 square feet of leases.

“This is a great outcome for our investors and validates our opportunistic approach,” Stuckey said in a statement.

666 Fifth

The sale of 650 Madison marks the second profitable exit of a 2008 investment for Carlyle. The private-equity firm teamed up with Crown in July of that year to buy a controlling stake in the retail portion of 666 Fifth Ave. from Kushner Cos. for $525 million. They introduced new occupants including Japanese clothing retailer Uniqlo, and later sold the asset in a pair of deals for about $1 billion.

With the sale of 650 Madison, Carlyle will have distributed a substantial portion of the capital invested by its fifth real estate fund. The fifth fund still holds more than 100 investments, Stuckey said.

Crown is among New York’s most active retail-oriented developers. Crown and a partner last year acquired a stake in the Olympic Tower on Fifth Avenue from the Onassis Foundation, a legacy of the Greek billionaire Aristotle Onassis.

In 2010, Crown and Highgate, a real estate firm headed by Mahmood Khimji, together bought Manhattan’s Knickerbocker Hotel along with Ashkenazy Acquisition Corp.

To contact the reporters on this story: David M. Levitt in New York at dlevitt@bloomberg.net; Hui-yong Yu in Seattle at hyu@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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