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Institutional Investors Jump into the Gucci Building, May Pursue Redevelopment

Developer Michael Shvo Teams with Turkish, German Investors to Acquire Office Portion of Plaza District Building
August 6, 2018
Retail real estate firm GGP Inc. has divested some of its holdings at the Gucci Building, selling the office portion of 685 Fifth Ave. in New York City to an internationally-based joint venture team.

Private equity firm BLG Capital, a subsidiary of Istanbul-based hospitality investor Bilgili Group, teamed with Deutsche Finance Group subsidiary Deutsche Asset Management, along with New York City developer Michael Shvo, The Wings Group, German pension fund manager BVK, and German insurer VKB, to purchase more than 100,000 square feet of vacant office space at the property.

The team raised $155 million of equity for acquisition and development in association with the sale, and is looking for $100 million in debt to capitalize the project.

Built in 1926, the 132,765-square-foot masonry building sits at the corner of East 54th Street and Fifth Avenue in Manhattan's Plaza district. Street-level and mezzanine space is occupied by Coach – a brand of American multinational luxury fashion conglomerate Tapestry – as well as American shoe designer Stuart Weitzman and Swiss luxury watch manufacturer Tag Heuer.

Its office space had been shopped around, intentionally left empty to show its potential to house a single tenant, according to sources with knowledge of the deal. Thor and GGP retain ownership of the retail portion of the building, sources said.

Of the acquisition, Deutsche Finance Group Chief Investment Officer Dr. Sven Neubauer called 685 Fifth Avenue an "iconic piece of real estate in an irreplaceable location" and that he was "very excited about its potential for redevelopment." The deal marked a "market entry of Deutsche Finance America, our subsidiary focused on direct investments in the United States" he added.

Plans were filed in July and approved in early August for alteration work on floors one through 25 of the building, according to public records. However, 685 Fifth stands just 20 stories tall.

A representative for Shvo reached by phone was not authorized to confirm or deny that Shvo is pursuing the addition of five floors to the building.

"The transaction marks an important strategic partnership between the firms, who are looking to grow their portfolio further in other global hubs, having previously invested in several projects in Istanbul and now in New York," said Serdar Bilgili, chairman of BLG Capital.

GGP, which was acquired by Brookfield this year for $9.25 billion, appears to have taken a bit of a hit on the Gucci building sale. According to CoStar data, GGP bought a 47-percent interest in the property in 2017 for about $306.9 million, valuing the asset at $4,846 per square foot, but increased its stake later in the year.

In an SEC filing for the year ending December 31, 2017, GGP reported it held a 97.03-percent interest in the building, with the remainder held by Thor Equities. GGP recapitalized the 685 Fifth Avenue joint venture based on a gross property valuation of $652.6 million ($4,915 /SF).

Deutsche Finance America and BLG Capital did not reply to requests for additional comment on the sale.

Please see CoStar COMPS #4466958 for additional information on this latest transaction.

Diana Bell, New York City Market Reporter  CoStar Group   
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