Sale of Tower Valued at $2bn Boosts New York’s Office Market

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New York City’s largest office landlord has agreed to sell a stake in a prominent tower, valuing it at $2 billion. This deal provides much-needed cash to SL Green, the real estate investment trust, and comes as a relief to the commercial property market that has been struggling with vacancies.

The stake in the 245 Park Avenue building, located in Manhattan, will be sold to Japan’s Mori Trust. This transaction is one of the largest office deals in New York since the US Federal Reserve raised interest rates, causing a downturn in the office sector due to remote working.

SL Green has been adversely affected, with its shares plummeting from over $80 to below $20 earlier this year. However, the announcement of this deal resulted in a 20.5% increase in their share price.

Harrison Sitomer, the chief investment officer of SL Green, highlighted the ongoing demand and robust rents for their Park Avenue properties, despite the market turmoil. He also predicted that more deals would be on the horizon, as foreign investors like Mori search for bargains in the world’s largest office market.

Real estate executives were encouraged by the valuation, which approached what China’s HNA Group paid for 245 Park in 2017. This indicates that desirable New York office properties still attract foreign investors.

The 245 Park building, constructed in 1967, is home to various businesses and was in need of renovation. SL Green plans to revamp the building, including new lobbies and amenities, after acquiring it out of bankruptcy.

While the Covid-19 pandemic has significantly impacted the office sector, SL Green’s One Vanderbilt and other advanced buildings have continued to thrive, commanding record rents. However, older buildings have fallen out of favor, with some owners returning them to lenders.

A recent study estimated that office buildings in New York have lost $76 billion in value from their most recent sales prices. Uncertainty regarding the future of offices and rising interest rates has dampened investment activity in the commercial property market.