CPPIB snaps up stakes in two Manhattan offices for $663m

The Canada Pension Plan Investment Board has acquired a 45 percent interest in Manhattan’s McGraw Hill building from SL Green for roughly $576 million, another sign that large institutional investors are increasingly eyeing direct real estate deals over possible fund investments.

The C$123.9 bn (€93.8 billion and $120.8 billion) CPPIB pension has also formed a joint venture with SL Green to acquire a 45 percent stake in the REIT’s recently-purchased office building, at 600 Lexington Avenue, for approximately $87 million. The two properties have a combined value of more than $1.45 billion, according to a statement from CPPIB.

“These transactions reflect CPPIB’s growing reputation as a major global real estate investor with the capital, and more importantly, the internal capabilities to directly participate in large complex transactions,” said CPPIB vice president and head of real estate investments Peter Ballon in the statement.

The transactions at 600 Lexington and 1221 Avenue of the Americas – the McGraw Hill Building – are expected to close this month. SL Green has also agreed to acquire the prime office tower located at 125 Park Avenue from San Francisco-based private equity real estate firm Shorenstein Properties for $330 million, an estimated cap rate of 5.7 percent, according to real estate data provider Real Capital Analytics. SL Green stated that the estimated $500 million in net proceeds from the sale of the McGraw Hill building will be redeployed to provide equity for the purchases at 125 Park and 600 Lexington.

The three deals are further indications of the thawing sales market in the Manhattan office market due to a perceived bottoming of prices, and a sign that REITs are actively trying to deploy their money.

“We believe the New York City commercial office market is finally turning the corner after a few difficult years,” said SL Green chief executive officer Marc Holliday in the statement.

Last month, SL Green bought 600 Lexington from developer-cum-fund manager Hines for $193 million, or roughly $636 per square foot – the equivalent of a 4.8 percent cap rate, according to Real Capital Analytics.  At the time, Holliday said SL Green had planned to take advantage of opportunities “quickly as the market recovers,” and that it was likely the REIT would seek a JV partner for the asset. More than half the leases in 600 Lexington Avenue are set to expire in the next three years.