Stellar cuts deal at 370 Lex.

A group of buyers lead by Manhattan investor Steven Witkoff is purchasing the note and mortgage on 370 Lexington Avenue for just over $18 million, Witkoff confirmed. The deal was expected to be closed today, Wednesday, January 24th.

A shroud of silence had been placed over the deal under Witkoff's strict instructions, but he nevertheless confirmed the expected purchase to REW.

The 247,000 square-foot commercial office building is of the older wedding cake style. Base floors of about 16,000 square feet range upward to boutique tower floors of 5,000 square feet. The 26-story property is just one block from Grand Central Station.

It is currently 90 percent leased, said Witkoff, thanks to a program put in place by S.L. Green. Duane Reade is the anchor retail tenant.

The sale for the California Public Employees Retirement System, known as Calpers, was handled by James D. Kuhn, Ron Goldberger and David Noonan of New-mark, while Brian Ezratty of Eastern Consolidated Properties repped Witkoff.

The original mortgage was for $24.5 million and some of that had been paid down, however, industry executives said there was outstanding interest of an additional $11 million.

"At the end of the day, our advice to Calpers was to sell it to the buyer who would take it with no contingencies and would close the fastest," Kuhn said. "We don't try to pick the highest bidder, hut the bidder with the most certainty of closing, because if your deal implodes, you are losing time and money."

The three purchasing partners are Witkoff and partner Lawrence Gluck's company, Stellar Management Co. Inc.; JAG Capital, whose principal is Jeffrey Goldberger (no relation to Ron); and Galster Management, whose principal is Stanley Gallant.

"We envision holding the property for long-term investment purposes, either as a restructure with the deed holder or some other avenue," explained Witkoff. The current owner is 370 Lexington Avenue Realty Corp., led by Gould Investors.

But this is not the only property the group is pursuing. "We're trying to be as aggressive as we possibly can," said Witkoff, who noted he and his partners are "bidding on everything we can."

They have looked over such properties as the on-again off-again One New York Plaza and a range of the Midtown properties, one of which Witkoff says will be purchased by them in the near future.

Witkoff's company owns about seven dozen other properties, mostly apartment houses and other smaller office buildings. They are members of both the residential apartment owners' groups, the Rent Stabilization Association and the Community Housing Improvement Program, and are active in the residential arena with 4,500 apartments.

"We are aggressively looking to buy an office property for conversion," added Witkoff, who explained they are scouring the Downtown marketplace. "We're looking, but many of the deals are overpriced."

One recent commercial purchase was 156 William Street, a 220,000 square-foot office property in the heart of Downtown to which the group is moving its offices.

They consider the 370 Lexington building a "great buy," but are not resting on the purchase. They plan to put in millions of dollars in elevator, lobby and lighting upgrades, as well as various tenant work.

"This is a good, solid, stable building," said Witkoff. "We are looking to further bring a value-added management response and reduce expenses."

While Stellar Management will be the managing agent for the property, no leasing agent has yet been formally assigned.

"What is alluring about the Grand Central market is that rents are going up and there are no new office starts," said Witkoff.

Brian Ezratty, senior executive director and partner with Eastern Consolidated Properties, who represented the Witkoff group, noted the building is an avenue property with a good, strong retail component. "It's an older building, but in good shape and well occupied."

Ezratty said his clients, sophisticated New York investors, were willing to close quickly, and while another offer came in for the property after the bid deadline, "the sellers bent but didn't crack." His group upped its offer slightly to seal the deal.

Witkoff and Gluck practiced law up until about ten years ago. "We were both lawyers and decided to be on the other side of the fence," explained Witkoff. "We started buying in areas we could afford, and built it up, and now in the downturn, we are buying notes and mortgages."