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Reckson pays $470m for Citigroup tower.

Reckson Associates Realty Corp. is in contract to buy the 1.4 million s/ f Citibank tower in Long Island City for $470 million, the REIT confirmed this week.

The 50-story trophy at One Court Street will be 100 percent leased to Citibank, which recently announced plans to develop a 475,000 s/f, $200 million office expansion adjacent to the Court Street building.

Reckson--which owns several Class A buildings in Manhattan, including 100 Wall Street, 1185 and 1350 Avenue of the Americas and 120 W 45th Street--has been left disappointed in two recent attempts to purchase trophy assets in the Manhattan market, including the Verizon building, which went for a reported $500 million, and the MetLife building, which was bought by a partnership lead by Tishman Speyer for $1.7 billion.

But Scott Rechler, president and chief executive officer of Reckson, said the Long Island City purchase is a direct result of his faith in the red hot midtown market.

He believes the Long Island City submarket will benefit from the strength of midtown Manhattan's Class A office market, the continuing trend of regional decentralization in the New York Tri-State area and the significant infrastructure and zoning upgrades planned for Long Island City.

Commenting on the transaction, Rechler said, "With this transaction, we are acquiring the highest quality asset in one of the last remaining underdeveloped New York City submarkets.

"One Court Square's attractive price per square foot offers the potential for material asset value appreciation as the surrounding market continues to develop. It is our intention to capitalize on this acquisition to pursue additional value-added opportunities in the Long Island City submarket.

"Our belief in the continued strength of Midtown Manhattan reinforces our view on the potential of the Long Island City office market."

Long Island City has been targeted by New York City as a priority for future economic development, as evidenced by its rezoning of a 37 block area to encourage high density commercial development and the recent housing developments in the Queens West waterfront area.

The Long Island City submarket offers a lower cost alternative to Midtown Manhattan and is well located to attract a skilled workforce from Queens, Brooklyn and Long Island.

In addition, the economic incentives programs affecting the Long Island City market, including the Relocation Employment Assistance Program, commonly known as "REAP", offer considerable tax abatements to employers who move to Long Island City that can result in a reduction of effective rents by approximately $10.00 per square foot.

Tod Waterman, executive vice president and managing director of Reckson's New York City division, said, "The addition of this asset to our portfolio, and future plans to act opportunistically in the Long Island City submarket is complementary to our Manhattan platform and will further enhance our ability to accommodate our large institutional tenant base throughout the New York Tri-State area."

Citibank has inked a 15-year net lease at One Court Street and Reckson expects to generate an initial unleveraged cash flow yield of approximately 6.5% and a GAAP NOI yield of approximately 6.8% on the total anticipated investment, while Citibank's net lease is in effect.

Michael Maturo, Reckson's executive vice president and chief financial officer, noted, "The One Court Square investment provides us with a very competitive risk adjusted return.

"It also allows us to efficiently reallocate capital in advance of an anticipated sale of interests in certain non-strategic suburban assets into a joint venture structure."

Built in 1989, One Court Square also includes a five-story low-rise building housing a fitness center, dining facilities, a branch of the New York City Public Library and a branch of Citibank along with eight retail tenants.

Joseph Sprouls, managing director of Citigroup Realty Services, stated, "We are pleased that after a conscientious bid process we were able to conclude negotiations to sell this asset to one of the premier owner/operators of Class A office product in the New York metropolitan area."

Reckson's growth strategy is focused on the markets surrounding and including New York City. The Company is one of the largest publicly traded owners, managers and developers of Class A office properties in the New York Tri-State area, with 90 properties comprised of approximately 17.7 million square feet either owned or controlled, or under contract.

One Court Square is directly across the East River from the heart of Midtown Manhattan with direct access to Manhattab via one subway stop.
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Publication:Real Estate Weekly
Article Type:Brief Article
Geographic Code:1USA
Date:May 11, 2005
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