Principal Buys Travelers Stake in Lower Manhattan Office Tower

Sep 02, 2014 4:41 pm ET

Sept. 2 (Bloomberg) -- An affiliate of Principal Financial Group Inc. bought a 49 percent stake in 77 Water St., a lower Manhattan office tower, from fellow insurer Travelers Cos. for $117.6 million.

The interest in the 26-story building was acquired on behalf of institutional investors and 401(k) retirement fund clients, Des Moines, Iowa-based Principal said today in an e- mail. The other 51 percent of the tower is owned by the William Kaufman Organization, a New York real estate company.

“This fits our overall strategy of owning well-leased, high-quality office buildings in gateway cities at a discount to replacement cost,” Jim Halliwell, managing director of Principal Real Estate Investors, said in the e-mail. The “downtown market is very vibrant and we believe it is poised for above-average growth in the future.”

New York real estate values have surged in the past three years as insurers, pensions and sovereign-wealth funds seek steady returns from investments seen as relatively safe. The average price of a lower Manhattan office building, based on a two-quarter rolling average, climbed to $399 from about $245 three years ago, according to data from CoStar Group Inc., a Washington-based real estate research firm.

Principal’s Water Street deal values the 600,000-square- foot (56,000-square-meter) tower at more than $235 million, or about $390 a square foot.

The building is leased to Goldman Sachs Group Inc., which subleases its space to various tenants, according to Real Capital Analytics Inc., a research firm that tracks commercial real estate sales. The subtenants include AT&T Inc., the engineering firm Arup Group Ltd. and the law firm Lewis Brisbois Bisgaard & Smith LLP, CoStar data show.

Patrick Linehan, a spokesman for New York-based Travelers, said the insurer bought its stake more than 30 years ago. He declined to comment on the reasons for the sale.

--With assistance from Noah Buhayar in New York.