SL Green Realty Corp. (SLG:US), New York’s biggest owner of office buildings, agreed to pay $135 million for a property in the Flatiron District, an area that has had some of the city’s strongest rent growth.
SL Green is under contract to buy 304 Park Avenue South, a 215,000 square-foot (20,000-square-meter) office and retail building at East 23rd St., the New York-based real estate investment trust said today in a statement. The 11-story property is across from 1 Madison Ave., a 1.2 million-square- foot building that SL Green also owns.
“We’ve been monitoring Midtown South carefully, looking for acquisition opportunities,” President Andrew Mathias said in the statement. The building is “a classic SL Green investment -- off-market, potential repositioning, and creating value upon acquisition for both the company and the seller.”
Internet technology, media, fashion and advertising firms have flocked to Midtown South, driving rents for the best offices up 16 percent this year through April 30, according to brokerage Cushman & Wakefield Inc. The area has the lowest vacancy rate of any U.S. office market, also boosting real estate values, Mathias said.
The purchase was in part the result of SL Green’s relationship with the seller, a partnership headed by David Berley, chairman of New York-based Walter & Samuels Inc., Mathias said. The price values the building at $628 a square foot, according to the statement.
Area ‘Took Off’
When the partnership, which acquired a stake in the building in 1996, bought out co-owner GE Capital Corp. in 2005, the deal valued the property at about $65 million, Berley said.
“It was a pretty seedy neighborhood back in the ’70s,” he said in a telephone interview. “By the ’90s, when I got involved, it already started to change. It’s caught everyone flat-footed how this area took off. Some of these locations get more than uptown now. It’s unbelievable.”
Doug Harmon, senior managing director at Eastdil Secured LLC, served as adviser on the transaction, which is scheduled for completion tomorrow, SL Green said.
The company is funding the deal half with cash and half with operating partnership units, SL Green said. The units are a form of stock (SLG:US) that allows the seller to postpone some negative tax consequences, said Berley, who is keeping a minority stake in the property.
The building is 95 percent leased. The lead office tenant is IMG Models, a division of sports and entertainment company IMG Worldwide, whose clients include Gisele Bundchen, Heidi Klum and Kate Upton. Retail tenants include H&R Block, Bath & Body Works and Time Warner Entertainment, according to the statement.
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