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SL Green Boosts East Coast Holdings, Sells West Coast Portfolio

Transactional Value Tops $1.68 Billion for Two Office Deals Announced Today
March 3, 2014
SL Green Realty Corp (NYSE: SLG) has entered an agreement to purchase Ivanhoe Cambridge's stake in 388-390 Greenwich Street in New York City in a deal that would see SL Green take full control of the tower through a transaction that values Citigroup, Inc.'s 2.6 million-square-foot headquarters at $1.585 billion, or about $610 per square foot.

The Shearson Lehman Plaza (pictured, right) is a 40-story, 1.87 million-square-foot, 4-Star office tower at 388 Greenwich in Manhattan's Tribeca submarket. It features highly efficient space and unobstructed views of the downtown skyline. 390 Greenwich is an eight-story, 764,918-square-foot building with 94,000-square-foot floor plates considered some of the best trading floors in Manhattan.

The two properties are leased to an affiliate of Citigroup, Inc. on a triple-net basis through 2035 under an extension that was just announced in December 2013. The lease includes a purchase option from December 2017 through 2020.

Citi Renews 2.6M-SF Manhattan Leases Through 2035

Marc Holliday, chief executive officer of SL Green, participated in the Citi 2014 Global Property CEO Conference on March 3, 2014.

SL Green, in a joint venture with an affiliate of Ivanhoe Cambridge, acquired the property in December 2007 for $1.575 billion, or about $598 per square foot, in a sale-leaseback deal with Citigroup Global Markets, Inc. Cushman & Wakefield, Inc. brokered the sale. See CoStar COMPS #1452670.

"We have enjoyed a successful partnership with Ivanhoe Cambridge at 388-390 Greenwich, capped by Citi’s recent lease extension, which was one of the largest lease transactions ever executed in New York," said Andrew Mathias, president at SL Green. "Citi is one of the world’s great financial institutions and has been a valued tenant at several SL Green properties. We look forward to an ongoing strong relationship with Ivanhoe Cambridge and Citi as we continue to grow as New York City’s largest office landlord."

Callahan Capital Properties served as an advisor to Ivanhoe Cambridge for this transaction, which is expected to close in the second quarter of 2014.

As of December 31, the fully-integrated REIT owned interest in 92 buildings in Manhattan totaling 44.4 million square feet in addition to 31 buildings totaling 5.4 million square feet in suburban New York. At that time the firm also held ownership in 52 buildings totaling 3.7 million square feet in Southern California, though that number has now dropped following another announcement from the firm today.

SL Green has reached an agreement to sell its interest in a large West Coast office portfolio following its 2012 recapitalization and subsequent ownership consolidation and lease-up. The REIT will release its 43.74-percent interest for $100 million to an affiliate of its joint venture partner, Blackstone Real Estate Partners VII, which will assume full ownership.

The portfolio currently consists of 52 buildings in 28 properties totaling 3.7 million square feet across Southern California, including top-performing submarkets in Los Angeles, Orange County, and San Diego. It includes assets such as the LA Corporate Center in Monterey Park, Skyview Center in Los Angeles, Carmel Valley Center in Del Mar Heights, and 350 South Beverly Drive in Beverly Hills (pictured, left).

The assets are the remaining part of a 31-property, 4.5 million-square-foot portfolio that SL Green originally acquired through foreclosure. The firm's servicing arm advised on the foreclosure and eventual restructuring of roughly $750 million of in-place financing, during which SL Green recapitalized the portfolio and formed this new joint-venture with Blackstone. SL Green subsequently acquired two minority partners' interests, and then sold three properties from the portfolio for $223 million, all while Blackstone affiliate Equity Office Properties mounted a successful capital improvement and lease-up program on the remaining holdings.

"The transaction announced today is the successful culmination of a three-year process," commented David Schonbraun, co-chief investment officer at SL Green. "We felt that the Southern California office market was on the upswing, so we made a strategic decision to take over the portfolio, restructure the capital stack and bring in an equity partner. Our market judgment proved correct, and in combination with the outstanding job Equity Office did in managing and leasing the properties, significant value was created in the portfolio. While Blackstone stands to enjoy additional success with the portfolio, we are now ready to exit this non-core investment at a significant gain and intend to redeploy the proceeds back into New York City assets."
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