The Carlyle Group, along with partner ClearRock Properties, has sold 920 Broadway, 17-story office property in New York City’s Flatiron District, to KLM Construction, a UK-based construction company. The 106,000-square-foot building sold for $120 million, or $1,100 per square foot, the highest per-square-foot price ever in the Midtown South submarket.
The disposition comes a little over a year after Carlyle and ClearRock bought 920 Broadway from Einstein College at Yeshiva University for a reported $58.5 million in February 2013. At the time, Carlyle said that it intended to invest more than $10 million to reposition the asset, which was built in 1916, into a Class A office building. Planned capital improvements to the property included a new lobby, elevators, HVAC, restrooms, security system and energy conservation technology.At the time of the sale, the partners had completed design of the improvements but not yet proceeded with physical construction.
However, Carlyle and ClearRock had bought out a third of the building’s existing tenants that were paying below market rents. Contract rents for 920 Broadway were said to be $37 per square foot when the firm bought the property last year, whereas market rents were $55 a foot, and have since risen to $70 a foot. The asset, which was 100 percent leased when the partners acquired it last year, was just under 50 percent occupied when it was sold to KLM, since the firms had wanted to terminate as many below-market leases as possible before re-tenanting the building.
“Our plan for 920 Broadway included two components: renovating the common areas, which improved the property from Class B minus to Class B plus, and capturing the difference between market rents and the rents provided by the leases in place,” said Robert Stuckey, Carlyle’s head of US real estate funds. “In doing all of this, we significantly improved the building’s income potential.”
The transaction was part of a 1031 tax exchange for KLM, which had just sold clothing retailer Old Navy’s flagship store at 150 W.34th Street to Starwood Capital Group in April. Under a 1031 exchange, sellers are able to defer the capital gains taxes due on a property sale by investing in another building.
The sale of 920 Broadway follows Carlyle’s other recent New York City office dispositions, including the sale of office and retail tower 650 Madison Avenue for $1.3 billion last June and its retail condominium stake in 666 Fifth Avenue for $707 million in 2012. All three trades have earned the alternative asset manager an approximately 2x multiple on its investments.
However, the 920 Broadway deal is an early exit on behalf of $2.3 billion Carlyle Realty Partners VI, while the previous transactions were executed through the predecessor fund, CRP V. As of March 31, CRP VI had invested $1.4 billion, or about 60 percent, of the fund, according to its first quarter 2014 earnings results. Another New York City exit for CRP VI was the sale of the retail component of 170 Broadway earlier this year, while the hotel portion of the property is expected to be sold later this year. The firm has made a total of 21 full and five partial exits in the vehicle, including the sales of the Woodfield Creekstone apartment community in Raleigh, North Carolina to Trade Street Residential for $35.8 million in May 2013 and a 402-bed student housing property in Tallahassee, Florida to Kensington Real Estate Advisors last October.
Carlyle currently is in the market with its latest global real estate fund, CRP VII, and to date has raised at least $1.36 billion against its $4 billion target for the vehicle, according to a filing with the US Securities and Exchange Commission last week. The firm held a first close of $1.1 billion for the fund in late March. The firm declined to comment.