IN-DEPTH: Empire pays $734m for two Manhattan offices
Empire State Realty Trust has completed the acquisition of the ground and operating leases at 112 W. 34th St. and the ground lease at 1400 Broadway in New York City for a total of approximately $734 million in cash. The transaction was announced on July 16.
THE DEAL
The seller was Malkin Properties.
The leaseholds and fee title to a small contiguous property at 112 W. 34th St. were acquired for approximately $423.6 million, or approximately $570 per square foot, consisting of $87.7 million by assumption of existing mortgage debt, $106.8 million in cash and $229.1 million in shares of class A and class B common stock and Series PR OP units.
The leasehold at 1400 Broadway was acquired for $310.0 million, or approximately $346 per square foot, consisting of $80.0 million by assumption of existing mortgage debt $79.7 million in cash, and $150.3 million in shares of class A and class B common stock and Series PR OP units. In connection with these transactions, the company issued 2.7 million shares of class A and class B common stock at a price of $16.65 per share and 20.1 million Series PR OP units at a price of $16.65 per unit.
THE ASSET
The 26-story tower at 112 W. 34th St. , located in the 34th Street/Penn Station submarket, has 650,769 rentable square feet of office space and 92,455 square feet of retail space. An 89,529-square-foot block of retail space located directly across from Macy’s flagship location is currently being marketed for occupancy in mid-2016. The property’s office and retail space is 77.5 percent occupied and 83.2 percent leased, as of June 30.
The 37-story tower at 1400 Broadway, located in the Times Square South submarket, has 880,131 rentable square feet of office space and 19,815 square feet of retail space. The property’s office and retail space is 92.6 percent occupied and 92.7 percent leased, as of June 30.
THE MARKET
The New York City office sector has always been active with a high level of investor interest. The lowest activity in recent years occurred during first quarter 2011, totaling $1.78 billion in sales, and the second lowest quarter was the first quarter 2012, totaling $2.84 billion in transaction volume.
Since first quarter 2011, the average quarterly sales volume has been $5.3 billion. The highest sales by total occurred during fourth quarter 2013, totaling $9.46 billion. This was a dramatic increase compared with the previous quarter, which had $4.083 billion in completed deals.
Thus far during third quarter 2014, 34 transactions have been announced, totaling $6.39 billion. Just a few weeks into the quarter, and it is well on its way toward surpassing the completed deal volume of second quarter 2014, totaling 95 transactions and $7.36 billion in transaction activity. The first quarter had $4.17 billion in sales volume.
RXR Realty is the top buyer in the sector during the past 24 months. The firm purchased eight properties totaling $3.15 billion. And J.P. Morgan is the second highest buyer in the sector, buying six properties for $3.15 billion.
David Werner acquired the most properties in the sector in the past 24 months. The investor acquired 15 properties for a total investment of $3.1 billion. And American Realty Capital follows with 12 properties for a total investment of $2.28 billion.
THE PLAYERS
Empire State Realty Trust is a REIT that owns, manages, operates, acquires and repositions office and retail properties in Manhattan and the greater New York metropolitan area. The REIT’s portfolio includes the Empire State Building. Headquartered in New York City, the company’s office and retail portfolio covers 10.0 million rentable square feet, as of July 15, consisting of 9.3 million rentable square feet in 14 office properties, including nine in Manhattan, three in Fairfield County, Conn., and two in Westchester County, N.Y., as well as approximately 732,000 rentable square feet in the retail portfolio.
Malkin Properties is a real estate development company based in New York City.
