Jan. 18 (Bloomberg) -- Sony Corp.’s deal to sell its U.S. headquarters for $1.1 billion is an aggressive price for a tower in need of renovations, according to Real Capital Analytics Inc.
The planned purchase of the Sony Building at 550 Madison Ave. in midtown Manhattan by investors led by the Chetrit Group values the 28-year-old building at $1,287 a square foot, data from the New York-based research firm show. By comparison, 510 Madison Ave., two blocks to the south, was sold new and empty to Boston Properties Inc. in August 2010 for about $800 a square foot, said Dan Fasulo, Real Capital managing director.
“It certainly is the most aggressive pricing we’ve seen for a transitional asset since 2007,” he said in a telephone interview. “This is going to be an empty building that needs tens of millions of dollars in capital improvements, and then needs a redevelopment program.”
Sony said it expects the sale of the 855,000-square-foot (79,000-square-meter), Philip Johnson-designed tower to generate an operating-income gain of about $685 million. The company and other units of the Japanese parent, including Sony Music Entertainment, will remain in the building for up to three years, the Tokyo-based electronics maker said in a statement released in New York.
Sony expects the deal to be completed by March 15.
More than 20 investor groups submitted bids for the tower, a person with knowledge of the offering said.
Bidders included Vornado Realty Trust, Joseph Sitt’s Thor Equities LLC, Macklowe Properties Inc. and Japanese real estate firm Mitsui Fudosan Ltd., said two other people with knowledge of the negotiations. The three people asked not to be named because the matter was private.
Wendi Kopsick, a Vornado spokeswoman, and Montieth Illingworth, representing Mitsui Fudosan, declined to comment. Calls to Stefan Friedman, a spokesman for Thor, and Richard Dubrow, a Macklowe spokesman, weren’t immediately returned.
The sale “demonstrated the depth of worldwide capital available for the best assets in Manhattan,” said Doug Harmon, senior managing director at Eastdil Secured LLC, who represented Sony. “The fact that we had, at the end of our process, four diverse groups poised to pay $1.1 billion, some with leases and contracts already negotiated, is a true testament to the hunger for prized properties.”
Chetrit Group is headed by Joseph Chetrit, 56, a Moroccan-born investor who was described in a 2011 article in the New York Observer as “the most mysterious big shot in New York real estate.” Chetrit, who rarely grants interviews, didn’t return a phone call to his New York office.
He is “one of the master real estate syndicators out there,” someone capable of raising large sums of money from a network of partners and co-investors, said Fasulo of Real Capital.
“He creates partnerships on an asset by asset basis,” said Fasulo, whose firm tracks commercial real estate sales worldwide.
In 2004, Chetrit led a group that bought Willis Tower in Chicago, formerly the Sears Tower, North America’s tallest building. In August 2011, he purchased Manhattan’s Chelsea Hotel, the one-time residence of artist Andy Warhol.
Sony is selling assets and cutting jobs to end four straight years of losses amid falling demand for televisions, competition from Samsung Electronics Co. and a strong yen. The company has predicted a 20 billion-yen ($223 million) profit for the year ending March 31, following a record 457 billion-yen loss a year earlier. Sony said it’s reevaluating its forecast of consolidated results for the year to reflect the building sale.
“It makes sense for Sony, as it’s no longer a cash-rich company,” said Keita Wakabayashi, an analyst at Mito Securities Co. in Tokyo. “What matters is whether the company can use these proceeds to develop more attractive products.”
Sony shares surged 12 percent to 1,149 yen at the close of trading in Tokyo, the biggest gain since October 2008.
“Given the opportunities and challenges in the current economic and real estate landscape, selling 550 Madison now is a timely and logical strategic move,” Nicole Seligman, president of Sony Corp. of America, said in the statement. “Regarding our new headquarters, we continue to look at a number of spaces in Manhattan but have not yet made a decision about where to lease.”
Two other bidders said the building probably would be more profitable if converted to a mix of hotel and residences, with a renovation of its ground-floor retail space. They asked not to be named because their offers were private.
The tower is required under zoning rules to maintain an atrium open to the public and a free museum, which now operates as the Sony Wonder technology lab.
The salmon granite tower is known for its sloping roofline with a circular notch in the center resembling a Chippendale sideboard. Johnson designed the postmodern icon, formerly AT&T Inc.’s headquarters, in 1984. Most skyscrapers at the time had flat roofs. It is also one of the last towers in New York to be built with cut stones set in place by hand, said Alan Ritchie, president of Johnson’s New York-based architecture firm.
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