SL Green to Sell Assets to Fund 11 Madison Avenue Buyout - Analyst Blog

In a bid to finance the 11 Madison Avenue property acquisition deal worth around $2.6 billion, commercial property landlord SL Green Realty Corp. SLG has announced the sale of two assets with a total value of $642.8 million.

Specifically, the company struck a deal to sell Tower 45, an office building located at 120 West 45th Street, for $365.0 million. The company will also divest 80% stake of 131-137 Spring Street, a 73,000-square-foot mixed-use asset in SoHo to Invesco Real Estate, valuing the property at $277.8 million. SL Green will retain 20% ownership in the property, and shoulder management and leasing responsibilities.

SL Green expects to realize net cash proceeds of $400 million from the two deals that are expected to be completed in the third quarter of 2015, customary closing norms.

Notably, SL Green acquired the 440,000-square-foot Tower 45 in 2007 as part of its merger with Reckson Associates and then repositioned the property. It is presently 96.2% leased. The other property in the SoHo shopping district is a six-story building, which has multi-level flagship stores for Diesel and Burberry as well as office space and residential rental components.

Bottom Line

These sales are a strategic fit for the company, given its scope to drive long-term growth from the proceeds generated. Notably, the 11 Madison Avenue property, which would be financed by these proceeds, is situated in one of New York City's solid commercial office submarkets and is well-leased for the long term.

Built in 1929, this Class-A, Midtown South office property spans 2.3 million square feet and has served as the headquarters of Metropolitan Life Insurance Company. It had undergone a massive modernization initiative worth $700 million in the 1990s.

Currently, the tower houses the North American headquarters of Credit Suisse Group AG CS and is slated to serve as the new headquarters for the Sony Corporation SNE of America. The building accommodates several other reputed tenants such as Yelp, Young & Rubicam, William Morris Endeavor Entertainment and Fidelity Investments as well as the famous Eleven Madison Park restaurant. The property also found a place on the National Register of Historic Places.

With CBRE Group Inc. CBG representing the seller side, this 11 Madison Avenue acquisition will offer SL Green an opportunity to leverage the solid fundamentals of the vibrant Midtown South submarket. This market has witnessed much activity, along with strong demand for space from financial services, technology and media companies.

SL Green currently has a Zacks Rank #2 (Buy).

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