SL Green to acquire Reckson's Class B portfolio in Manhattan.

SL Green Realty Corp. (NYSE:SLG) has entered into a joint agreement with Tower Realty, Inc. (NYSE: TOW) and Reckson Realty Associates Corp. (NYSE: RA) to purchase the fee interest in four New York City office properties totaling 675,000 square feet for $84.5 million in cash ($125 a square foot).

The properties include an entire block-front in Midtown Manhattan between 40th and 41st streets along Madison Avenue (286, 290 and 292 Madison Avenue), and 90 Broad Street in Downtown Manhattan.

The transaction is expected to close concurrent with the closing of the merger between Metropolitan Ventures, and entity owned by Reckson, and Tower, sometime in the second quarter of 1999. The transaction will increase SL Green's ownership of office buildings in Manhattan to nearly 8 million square feet.

SL Green had been evaluating the acquisition of selected assets of Tower since last summer. Prudential Securities and Lehman Brothers have served as SL Green's advisors on various transaction structures for these assets. Financing of the final transaction was arranged for SL Green through Prudential Securities and Deutsche Bank Securities.

The Madison Avenue properties are in the heart of the resurgent Grand Central District, a central transportation hub which is undergoing extensive renovations totaling over $100 million, including the development of new retail stores, restaurants and attractive public spaces designed to make Grand Central Terminal a destination, in addition to a transportation center. The buildings range in size from six to 26 stories and encompass a total of about 336,000 square feet, with floorplates ranging between 5,000 and 10,000 square feet. The building's occupancy levels range from 85.6 percent to 98.8 percent.

The 25-story, 339,000 square-foot property at 90 Broad Street is currently 81.8 percent leased, with major tenants including MTB Bank (46,500 square feet); Walsh, Manning Securities (26,000 square feet); and Deforester & Duer (21,500 square feet). Floorplates range from 17,500 square feet at the base of the building to 7,000 square feet at the top. The property is located directly across from 85 Broad Street, the headquarters of Goldman Sachs. The property also includes an adjacent parking lot which is a separate tax lot and represents immediate cash-flow from parking operations with future development potential of approximately 100,000 square feet.

Commenting on the transaction, Marc Holliday, Chief Investment Officer for SL Green, noted "This acquisition is right in line with the company's financial objectives, providing us with the right balance of cashflow stability and upside potential. For example, the Madison Avenue properties are 96 percent leased and are expected to provide SL Green with a stable source of in-place net operating income in a submarket experiencing strong leasing demand and little vacancy. At the 90 Broad Street property, there is substantial upside, evidenced by the leasing potential of 62,000 square feet currently vacant, and another 36,000 square feet expiring over the next two years at average in-place rents that are 10 percent below the prevailing market."

"The company has passed on many opportunities in the Downtown market, however, 90 Broad Street represents a desirable combination of good quality real estate, accretive going-in returns and growth opportunity," Holliday continued. "We expect this acquisition to be accretive as of the date of acquisition, with a GAAP NOI yield within the range of SL Green's targets on a going-in basis."

Stephen L. Green, chairman and CEO of SL Green, said "We are very pleased to announce this transaction and are excited to be working with Reckson to purchase the Class B, value-added portion of Tower's New York City portfolio. We believe as both companies pursue their long-term strategies, we will have opportunities to work together again in the future. The purchase of these properties is consistent with our stated strategy of acquiring, owning, leasing and operating Class B office buildings in New York City's high-growth submarkets. Of note, the Madison Avenue blockfront properties, which are right next door to a prime development site of 600,000 square feet of Class A space (one of six new development sites in Manhattan) significantly strengthens our existing foothold in the Grand Central District. Also, our purchase of 90 Broad Street is significant in that this property falls within our selective Downtown strategy of pursuing properties with market rents under $25 per square foot at a cost basis that we believe is attractive in light of today's market conditions."

Green explained that Class B office properties describe those which are typically more than 25 years old but which are in good physical condition, enjoy widespread acceptance by high-quality tenants and are situated in desirable locations in Manhattan. Class B office properties can be distinguished from Class A properties in that Class A properties are generally newer properties with higher finishes and obtain the highest rental rates within their markets.

Subsequent to the acquisition of these four properties, SL Green's portfolio will consist of 23 properties, encompassing approximately 8 million rentable square feet.