SL Green Recaps Eleven Madison Ave with PGIM Joint Venture

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NY Landlord Divests 40% Ownership Stake, Valuing Met Life Plaza Bldg at $2.6 Billion

SL Green Realty Corp. (NYSE: SLG), New York City’s largest office landlord, has sold a 40% interest in the Metropolitan Life Insurance Plaza office tower at 11 Madison Ave. in New York, NY to PGIM Real Estate, the real estate investment arm of PGIM, Inc., the global asset management subsidiary of Prudential Financial, Inc. (NYSE: PRU).

The transaction values the 30-story, 2.3 million-square-foot, 4-Star asset in Midtown Manhattan at $2.6 billion, inclusive of costs associate with lease-stipulated improvements to the property.

SL Green realized proceeds from the sale of approximately $480 million in cash at closing, which the company expects to use for debt reduction and other investment opportunities.

The newly-formed joint-venture partnership is seeking a modification to the mortgage on the property. If the modification is not obtained within six months, SL Green may repurchase the sold interest from PGIM Real Estate. Alternatively, PGIM Real Estate has a one-year option to acquire an additional 9% stake in the venture at the same gross property valuation of $2.6 billion.

The partnership anticipates the loan modification will be granted during the fourth quarter of 2016.

SL Green acquired the property from CIM Group LP and The Spair Organization in August 2015 for $2.29 billion, or about $1,000 per square foot, according to CoStar data. At the time, the loan package included $1.4 billion in debt from Deutsche Bank, Morgan Stanley Bank N.A. and Wells Fargo Bank.

See CoStar COMPS #3367625.

Marc Holiday, CEO of SL Green had hinted at a possible joint-venture partnership on the property at the firm’s quarterly earnings call last April, when he touted the asset’s strengths including long-term debt, below-market rents and historically low vacancy following Credit Suisse unexpectedly exercising an option on 170,000 square feet in the building while Sony’s build-out was completed and its lease commenced on 579,000 square feet there.

We will talk to investors; that was something we had talked about, setting up a JV for future years, stabilization of that meaning full rent paying is still about, I would say, plus or minus 18 months to 24 months off. So I think the maximum execution for something like that could be end of this year, maybe next year. In that regard, it’s not part of our guidance, but it’s there as a store house of cash and liquidities we can monetize, in the future, to use for either debt repayment or new acquisitions in the future. And by doing so, there is a little to no tax gain, the way we structured, by selling that JV interest so that is one of those sort of well-structured deals and a deal that will be a little bit more opportunistic in our timing for generating those funds and redeploying those funds or for paying down debt.

–Marc Holiday

The steel skyscraper is located directly east of Madison Square Park, between 24th and 25th Streets in the Gramercy Park submarket. The block-through development offers park frontage and public transportation with five subway lines within walking distance in addition to numerous dining, retail, hotel and residential options.

“PGIM Real Estate’s investment in Eleven Madison Avenue represents a unique opportunity to partner with SL Green again and add to our portfolio another trophy-quality office property in Manhattan that will generate secure and stable income across market cycles,” said Kevin R. Smith, head of Americas for PGIM Real Estate.

Darcy Stacom and William Shanahan of CBRE advised SL Green on the sale. PGIM Real Estate handled the deal in-house.

Please see CoStar COMPS #3674198 for additional information on this transaction.


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