New York office market boosted by $2 billion worth of tower sales

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New York City’s largest office landlord has agreed to sell a stake in a flagship tower, giving it a valuation of $2 billion, a slight drop from its previous price, in a relief to a commercial property market beset by vacancies. has come as

SL Green will sell a 49.9 percent stake in Manhattan’s 245 Park Avenue building to Japan’s Mori Trust, providing the real estate investment trust with much-needed cash.

The deal announced on Monday is one of the largest office transactions in New York City since the US Federal Reserve began raising interest rates in March 2022 amid a recession in the office sector due to remote working.

SL Green has been a particular victim: Its shares fell from more than $80 last March to below $20 earlier this year. They jumped 19.8 percent to $28.22 on Monday.

SL Green’s chief investment officer, Harrison Sitomer, said its Park Avenue properties are still renting strong, despite the broader market turmoil. He also predicted more deals are on the way, with foreign investors like Mori looking for a bargain in the world’s biggest office market.

“There has been a remarkable momentum change for groups looking to find products in New York,” he said, citing growing inquiries from potential partners. “Investors who are well capitalized will continue to find opportunities in New York.”

Other real estate executives were pleased with the valuation, which is close to the $2.2 billion paid by China’s HNA Group for 245 Park in 2017, when the market was at its peak. He also saw it as evidence that the New York office’s favorite properties still attracted foreign investors.

Ruth Kolp-Haber of Wharton Property Advisors wrote, “Rumours of New York’s demise have been greatly exaggerated,” calling the deal “a decidedly positive development.”

Brian McDonnell, who leads the real estate lending business at asset manager PGIM, said more transactions were needed to help determine pricing in a confused market. He also expected other developers to explore similar transactions to raise cash in the challenging environment.

“I think a lot of these large operators that are heavy in office are trying to find ways to increase liquidity,” he said. “SL Green is not alone.”

The 245 Park building was built in 1967 and hosts businesses including investment managers Ares Capital and Angelo Gordon. Although it boasts a prime address across the street from Grand Central Station, it has been ousting significant tenants in recent years and was in need of renovation.

SL Green announced plans for an improvement, including a new lobby and facilities, when it bought the building out of bankruptcy last year following a dispute with its one-time partner HNA. As part of that deal, SL Green assumed $1.76 billion in mortgage and mezzanine debt attached to the property, due in 2027.

Monday’s transaction was in stark contrast to the gloom over office towers and their owners as the COVID-19 pandemic accelerated the trend towards remote working. In many US cities, office occupancy has hovered around 50 percent, prompting tenants to give up space in the sublease market and landlords to reduce rents.

The latest and most advanced buildings, like SL Green’s One Vanderbilt, have defied those trends and continue to command record rents. However, older buildings have fallen out of favor with some owners surrendering them back to lenders.

A recent study by broker JLL found that office buildings in New York lost $76 billion from their recent sale prices.

Uncertainty about the prospects of offices and rising rates have slowed down investment activity. According to MSCI Real Capital Analytics, office transaction volume in US central business districts was down 70 percent in May compared to May 2020.