SL Green considering options at 1 Madison.
The company's president and chief investment officer, Andrew Mathias, said that it was not clear yet what kind of space it would build but that the possibilities included expansion room for One Madison Avenue's sole tenant Credit Suisse, new speculative office space, or a residential condominium. SL Green announced last week the $147.6 million purchase of its partner's equity stake in the asset, a 45% interest owned by the real estate financing REIT Gramercy Capital, which will give SL Green exclusive control of the building. SL Green had partnered with Gramercy Capital not long after it acquired One Madison for nearly $1 billion from MetLife in 2005.
Mathias said that Gramercy Capital's investment focus doesn't typically include development projects and that the sale was motivated in part by SL Green's desire to begin exploring more seriously its options to add the additional space. According to Mathias, One Madison Avenue is not protected by landmark status, unlike the neighboring clock tower at 5 Madison Avenue, and has significant unused air rights that would permit development.
Credit Suisse occupies almost all of One Madison Avenue's 1.2 million s/f under a long-term lease stretching to 2020. Mathias and Steve Durels, SL Green's director of leasing, said that Credit Suisse doesn't have an immediate need for more room but that it may eventually want to grow its presence in the property. Mathias wouldn't give a time frame as to when Credit Suisse would make a decision whether or not to take more space. As a general rule however, large companies often look to deal with their expansion needs years in advance because of the long delivery time for newly constructed space and the lengthy search that is sometimes required to find suitable offices in another location if the decision is made not to develop.
Comprising the entire block between 23rd Street and 24th Street, Madison Avenue and Park Avenue, One Madison Avenue is a stout 12-story office building clad in gray stone that is part of a handsome row of office properties along the eastern edge of Madison Square Park. Together the group of buildings looks like a dislocated section from one of midtown's prime corridors, but amid the Flatiron District, they haven't been able to command commensurate rents. Given the sharp rental increases in the tight Manhattan office market that has begun to change. Mathias said that the firm could likely command rates that would be unprecedented in that neighborhood if it built the space on speculation.
"The longer we've owned the property, the more we've begun to understand the neighborhood and just what is going on there," Mathias said. "We think that this building could get rents in the $80s per s/f today."
While many developers have begun to favor commercial over residential development given the city's roaring office market, SL Green appears to be moving at a pace slow enough to allow itself the chance to give serious consideration to a residential project if the office market begins to cool in the coming years.
SL Green had planned to convert the clock tower at 5 Madison Avenue, whose lower facade is contiguous with One Madison Avenue, into residential condos in a joint venture with the real estate magnate, Aby Rosen, and hotelier, Ian Schrager. But the partnership's relationship was reported to have soured and the group sold the building to Africa Israel Investments in May.
Gramercy will realize $92 million in profit on its original investment in One Madison Avenue, again that the company says it will distribute to shareholders in a special dividend in the latter half of 2007. The proceeds will also result in a managerial fee, which will benefit a number of SL Green executives. Gramercy Capital is partly owned by SL Green and the two companies share the same top executives. Mathias is listed on Gramercy Capital's website as the company's chief investment officer, a title he also holds at SL Green in addition to being president. Marc Holliday, SL Green's CEO, holds the same title at Gramercy Capital. And SL Green's COO and CFO Gregory Hughes is Gramercy Capital's chief credit officer.
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|Comment:||SL Green considering options at 1 Madison.|
|Publication:||Real Estate Weekly|
|Date:||Jul 11, 2007|
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