Bloomberg News

Vornado to Join Buyers for Record Madison Avenue Skyscraper Sale

August 06, 2013

Vornado Realty Trust (VNO:US) and Oxford Properties Group are joining the partnership that’s buying 650 Madison Ave. in midtown Manhattan for a record price, Vornado Chairman Steven Roth said today.

Vornado will invest $12.5 million in the 600,000-square-foot (56,000-square-meter) tower at Madison and East 59th Street, Roth told analysts on a conference call. Crown Acquisitions Inc. and Highgate Holdings Inc. agreed to pay $1.3 billion for the 27-story building in the heart of the upscale Plaza district, Crown said in June.

The property is “a fine asset in a fine location,” Roth said. “It’s a fairly modern building as opposed to the Madison Avenue buildings which are a different kind of context.”

Crown and Highgate agreed to pay about $2,100 a square foot, a U.S. office-building record. The buyers are seeking as much as $800 million in debt from Wall Street banks to finance the purchase, according to three people with knowledge of the negotiations, who asked not to be identified because the talks are private. The debt probably would be packaged into securities and sold to bond buyers, the people said.

The buyers originally wanted a 10-year mortgage with a fixed rate and switched to a shorter-term, floating-rate loan, the people said, after Federal Reserve Chairman Ben S. Bernanke said in late May that policy makers could scale back stimulus measures within months, which led to a surge in interest rates. Lenders are offering the investors terms for a loan with a fixed rate for seven years, according to the people.

‘Capital Structure’

The investor group is “in the process of putting together the capital structure for this deal,” Roth said today. The four members of the partnership each have a 25 percent stake, he said. He called it “premature” to say anything more.

Oxford Properties, based in Toronto, invests in and manages real estate assets on behalf of the Ontario Municipal Employees Retirement System.

A telephone call to Claire McIntyre, an Oxford spokeswoman, seeking comment on the investment wasn’t immediately returned.

The building’s price was driven mainly by the expected value of its 75,000 square feet of retail space in a prime tourist and luxury shopping area, Haim Chera, managing principal of Crown, said in a June 2 interview.

The purchase, from Carlyle Group LP (CG:US), would be the largest for an entire building in the U.S. since Google Inc.’s $1.8 billion acquisition of 111 Eighth Ave., a huge former warehouse in Manhattan’s Chelsea section, in 2010. It would exceed the record $1,583 a square foot paid for 450 Park Ave. in 2007.

Retail Knowledge

Vornado, which has interests in about 28 million square feet of Manhattan properties, would bring an expertise in New York storefront retail to the partnership. It owns all or portions of 50 Manhattan retail properties totaling 2.2 million square feet, according to its website. Those properties include the Manhattan Mall in Herald Square, near Macy’s Inc.’s flagship store, and a 114,000-square-foot portion of the retail segment at 666 Fifth Ave., which includes the U.S. flagship store for Japanese clothier Uniqlo.

Vornado, which grew in the early 1980s around the suburban retail holdings of the Two Guys discount-store chain, considers Manhattan street retail development to be among “our real core businesses and strengths,” Roth said at a June 5 presentation to the National Association of Real Estate Investment Trusts in Chicago.

To contact the reporters on this story: David M. Levitt in New York at dlevitt@bloomberg.net; Sarah Mulholland in New York at smulholland3@bloomberg.net

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


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Companies Mentioned

  • VNO
    (Vornado Realty Trust)
    • $105.98 USD
    • 1.31
    • 1.24%
  • CG
    (Carlyle Group LP/The)
    • $28.99 USD
    • 0.70
    • 2.41%
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