SL Green purchases 317 Madison for its 'Triple-A' location.

In a transaction that proves the old proverb about "location, location, and location," SL Green Realty Corp. recently bought a 22-story building at the corner of Madison Avenue and 42nd Street for a price of $105.6 million. Taking advantage of recent changes in legislation, SL Green will use proceeds from the, sale of its building at 1412 Broadway in a reverse 1031 taxfree exchange to pay for 317 Madison Ave.

The property is an 81-year-old, class "B," mixeduse building a block away from Grand Central Terminal. Prior to the sale, it was owned by the Richfield Investment. Trust with Williamson, Picket, Gross, Inc. serving as the managing agent.

According to Marc Holliday, SL Green's president, one of the things that attracted the company to the 317 Madison was, its unique position in the Midtown market.

"317 Madison has direct connecting access to Grand Central Station, which makes it a unique building in the area and makes it very convenient for all the commuters who come into Grand Central every morning," he said. "This happens to be a triple-A location."

"We are purchasing the building at a substantial discount to replacement cost and with a major opportunity to upgrade and re-merchandize the retail space," said Stephen L. Green, chairman and CEO of SL Green, in an official statement. "We intend to fully reposition and upgrade the building, in order to capture the significant upside of this well located property and to create a great long-term core asset for the company."

In the next few years, SL Green plans to renovate the lobby and the common corridor of the building, in addition to bringing the office rents there up to market levels. At the current moment tenants at 317 Madison pay about $29 per SF.

"317 Madison Avenue is a great fit for our investment program and will be a significant contributor to earnings growth," Holliday said. "We feel that with this acquisition we can achieve a high return on invested capital while creating significant long-term value for shareholders."

Holliday noted that although 317 Madison is officially a "B" class building, its superior location makes it a premium space.

"It's hard to fit the building into a class 'A' or 'B' category in New York," he said. "It happened to be built in the 1920's, which would classify it as an older, class 'B' property, but it also happens to be-in a prime location."

As to the 1031 tax-exchange transfer, the sale of 1412 Broadway is expected to bring about $91.5 million, although the deal hasn't been closed yet. 1412 is a 24-story building, located on 39th Street and Broadway, which houses primarily showroom space.

"The sale is not closed yet, but we are in contract for $91.5 million, which represents approximately $235 per SF," Holliday said. "And recent legislation gives us the ability to shelter the gain from the sale through the 1031 exchange, so we can buy first."

The deal is expected to close shortly.