Blackstone Said to Seek $2.25 Billion Sale of NYC Office Tower

Aug 29, 2014 12:24 am ET

Aug. 29 (Bloomberg) -- Blackstone Group LP is preparing to sell a New York office tower for more than $2 billion as it seeks to take advantage of rising demand for prime U.S. real estate, according to two people with knowledge of the matter.

Blackstone has hired Eastdil Secured LLC to market 1095 Avenue of the Americas, a 42-story building that will soon be the headquarters of Verizon Communications Inc., said one of the people, who asked not to be identified because the plans are private. The property may fetch about $2.25 billion, the person said, which would rank among the highest prices ever paid for a U.S. skyscraper.

Blackstone acquired the tower on Bryant Park in its $39 billion takeover of Sam Zell’s Equity Office Properties Trust in 2007, near the real estate market’s peak, and completed a $300 million renovation. A sale price of more than $2 billion would demonstrate that values for top-tier New York office buildings are higher than during the last real estate boom, said Ben Thypin of Real Capital Analytics Inc.

“If they were to hit this number, it would show the market is still extremely strong for these assets,” Thypin, director of market analysis at the property-research company, said in a telephone interview. “If you want to buy an office building of this size, you only have so many choices.”

The Avenue of the Americas tower, between 41st and 42nd streets, is also known as 3 Bryant Park. The 1.2 million-square- foot (111,500-square-meter) property houses insurer MetLife Inc.’s administrative offices in addition to Verizon, which will make the building its headquarters on Sept. 1.

General Motors

Christine Anderson, a spokeswoman for New York-based Blackstone, declined to comment on plans to sell the tower. Martha Wallau, an Eastdil spokeswoman, didn’t return a telephone call seeking comment.

A sale of more than $2 billion would be the biggest of an entire U.S. property since the General Motors Building sold to Boston Properties Inc. in 2008, according to Real Capital.

The GM Building is the highest-valued tower in the country, according to New York-based Real Capital. The families of Chinese real estate developer Zhang Xin and Brazil’s Safra banking empire bought a 40 percent stake in the skyscraper for about $1.4 billion last year, implying a $3.4 billion value for the 50-story property.

Blackstone’s strategy has been to sell assets it has improved through leasing gains or renovations. The Bryant Park building has undergone a “successful three-year, $300 million renovation,” according to the building’s website. Its office space is 99 percent leased, according to CoStar Group Inc., a Washington-based research firm that tracks office leasing.

Completely Rebuilt

While many Equity Office buildings were sold almost immediately, including seven midtown Manhattan towers, Blackstone kept 1095 Avenue of the Americas, which was being completely rebuilt from its steel frame out. Blackstone paid about $1.47 billion for the building as part of the takeover, according to data compiled by Real Capital.

“Even if this doesn’t sell for exactly what they’re asking, it’s still going to be a very high price,” Thypin said. There are enough foreign sovereign-wealth funds, pensions and insurers who prize steady dependable income to make the bidding very competitive, he said.

Blackstone has been selling office properties in Boston and other markets where it has increased occupancies to more than 90 percent, and buying other assets where it believes there’s a potential for leasing and value gains. In July, the firm purchased Manhattan’s Park Avenue Tower from Shorenstein Properties LLC for about $750 million.

Low Vacancies

New York had the lowest office vacancy rate in the U.S. after Washington in the second quarter, at 10 percent, compared with 16.8 percent for the country as a whole, according to research company Reis Inc.

The reconstruction of the Bryant Park tower, including an expansion of its retail space to 100,000 square feet from 11,900 square feet, is almost complete, said the person familiar with Blackstone’s plans. The company is in the process of completing a deal with Whole Foods Market Inc. to take 35,000 square feet of that space, the person said.

Michael Sinatra, a Whole Foods spokesman, didn’t return a telephone call seeking comment.

The retail component is about 75 percent leased, the person said, That would give a new owner the chance to improve cash flow at a property in one of the world’s strongest shopping districts.

--With assistance from Crayton Harrison in New York.