The recession has slowed most REITs’ activity, even in top-growth cities. But New York’s largest commercial landlord, SL Green Realty Corp., is not only still active, but on a buying spree.
In 2011 alone, SL Green (SLG) disposed of almost $800 million in assets. In return, over the past two years, SLG acquired a diverse array of properties totaling $4.2 billion, including: a 49 percent claim on 1775 Broadway/3 Columbus Circle, a 678,000-sq.-ft. office building that has just had a $90 million renovation; a 49.9 percent stake in 180 Maiden Lane, a 40-story, 1.1 million-sq.-ft. Downtown office tower; the two-tower, 1.2 million-sq.-ft. 280 Park Avenue; and, most recently, the 12-story, 65,010-sq.-ft. 724 Fifth Avenue, at $120 million, through a floating rate mortgage which bears interest at 235 basis points over the 30-day LIBOR.
The acquisition of 724 Fifth Avenue was in joint venture partnership with Jeff Sutton and part of a larger agreement to acquire an additional portfolio of residential and commercial properties at $193.1 million with joint venture partner Stonehenge Partners.
Plus, in mid-February SLG was due to close on 10 East 53rd Street, a 37-story, 390,000-sq.-ft. Midtown office building, for $252.5 million.
“In 2010 we were the first players to truly act aggressively,” says Isaac Zion, SLG’s co-chief investment officer. “We bought 600 Lexington Avenue and 125 Park Avenue and showed our confidence that the market was coming back. Those are now fantastic assets…and there are still going to be unique opportunities going forward.”
SLG looks out for opportunities in the equity space and the deferred and debt equity arena, Zion says. Choosing which deals to pursue is “a function of how we feel about [assets]—on a risk-adjusted basis, the terms just have to make sense; when they do, we act.”
Although there has been some skepticism throughout the industry regarding SLG’s ability to fill its buildings, Zion is unconcerned: As of mid-February, the occupancy rate was 96 percent “and probably rising.”
Zion also brushed aside concerns that SLG, which derives $1 billion in revenues from office leasing and $45 million from retail operations, was spreading itself thin by expanding into too many different commercial sectors due to its recent acquisition of multifamily real estate that came along with the purchase of 724 Fifth Avenue.
“That Gold Coast of Fifth Avenue—from St. Patrick’s Cathedral to the Apple Store at 59th Street—is some of the highest priced retail space in the country and in the world,” Zion says. “To be able to acquire an asset like that and have it be part of a multifamily portfolio—it was something that was in our sweet spot.”
One of SLG’s recent atypical portfolio additions—180 Maiden Lane—is also turning out to be a boon, he says. The building has already reached 98 percent occupancy and boasts Stroock & Stroock & Lavan and AIG/Chartis among its tenants.
SLG’s thinking behind that acquisition was that “it was a price point we felt very comfortable with,” Zion explains, and that the Downtown market has shifted. Historically, SLG considered the Downtown market as “a trading type of environment,” he says. “You buy at a very low basis, lease it up through one cycle and get out very quickly—but we feel if we get in now at the right time we can take a longer view,” he says.
SLG prefers working with “owners who have held their assets in a family or with a group of individuals and help them realize their goals,” Zion says, which, in turn, will help SLG become “a larger player in that arena.”
Despite rumors that SLG is taking a break after a hard acquisition drive, Zion says the industry can expect to see the firm acquiring as well as disposing of more assets in 2012. “We create value by harvesting our assets and using those proceeds to look into new assets,” he says. “It’s not a buy-and-hold mentality, it’s ‘Buy and create value and exercise a transaction to get to that value, and move on, and do it again, and do it again and do it again.’”
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