Vornado Realty Trust, which controls 15.2 million square feet (1.4 million square meters) of New York office buildings, agreed to pay more than $150 million for a majority stake in a Park Avenue tower whose owner was seeking to restructure debt, two people with knowledge of the deal said.
The deal values the building, 1 Park Ave., at about $400 million, said the people, who asked not to be identified because the talks are private. Owner Murray Hill Properties, whose principal is New York real estate investor Norman Sturner, will stay on as a minority partner, they said.
Near record-low interest rates and recovering occupancy rates have helped raise values for properties in such cities as New York and Washington where global investor interest is high. New York-based Vornado is hunting for transactions, armed with $1.7 billion in cash and credit lines and an investment fund with more than $1 billion of buying capacity, Ross Smotrich, an analyst at Barclays Capital Inc., said yesterday in a report.
“If Vornado is doing something like this, that’s a good sign for the market overall,” said Christopher Macke, senior real estate strategist for CoStar Group Inc., a Washington-based property-information service. “When you’ve got a local player who knows that market incredibly well deciding to increase their activity level, that’s a pretty good indicator of which direction that market is heading.”
The transaction may be completed as soon as next week, according to one of the people.
Buying at Peak
Sturner’s Murray Hill Properties paid $550 million for the 925,000 square-foot, 20-story tower at Park and East 32nd Street in 2007, when real estate values were cresting, city records show. The company formed a joint venture with Blackacre Institutional Capital Management LLC, an investment arm of Cerberus Capital Management LP.
Edna Lassiter, a person listed as a contact for Murray Hill Properties on its website, didn’t immediately return an e-mail seeking comment. Roanne Kulakoff, a spokeswoman for Vornado, and Peter Duda, a spokesman for New York-based Cerberus, both declined comment.
Carlton Group Inc. represented Murray Hill in the recapitalization. Gail Horowitz, a spokeswoman for New York-based Carlton, didn’t immediately return a phone call.
Senior, Mezzanine Loans
The property’s owners have $375 million of senior debt that was packaged as bonds and sold to investors in two commercial mortgage-backed securities issues, according to data compiled by Bloomberg. They also have two mezzanine notes totaling about $100 million, the two people said.
Mezzanine loans are a form of higher-interest debt that’s subordinate to a first mortgage. They’re backed by an equity stake in the company owning a property, typically allowing the landlord to leverage more of the asset’s value than a primary lender would.
The senior debt was moved to special servicing in August of 2009 because of “imminent default,” according to servicer notes compiled by Bloomberg.
The building paid only 98 percent of its debt service in 2010, according to Realpoint LLC, a real estate credit-rating service. Its cash flow may improve because a tenant, NYU Langone Medical Center, is in negotiations to expand, the people said.
The 1 Park Avenue building was completed in 1925, according to Murray Hill’s website. Its lobby features ornate barrel-shaped chandeliers hanging from criss-cross vaulted ceilings and marble-clad elevators. The building was designed by York & Sawyer, who were also the architects of the Federal Reserve Bank of New York building in lower Manhattan, according to Emporis.com, a building information website.