Normandy JV buys troubled NY office tower for $360m

A partnership between Normandy Real Estate Partners and New York Life Insurance has purchased a troubled Manhattan office tower from the California State Teachers’ Retirement System (CalSTRS) and World Trade Center developer Silverstein Properties. PERE understands that this deal will be the first made on behalf of the Morristown, New Jersey-based real estate investment firm’s latest fund. 

Although Normandy declined to comment, sources have confirmed with PERE that the Normandy-led venture purchased the 35-storey office tower at 575 Lexington Avenue for approximately $360 million. Although Normandy and New York Life have looked at other deals together in the past, this marks their first partnership together. It is understood to be a 50:50 joint venture. 

575 Lexington Avenue has had a rather turbulent and troubled history over the past few years. CalSTRS and the Larry Silverstein-led development firm initially bought the 740,000-square-foot property in 2006 for $416 million. However, due to the global financial crisis and an inability to lure in higher-paying tenants, the partnership defaulted on its loan on the building in November 2010. The building then began to underperform and lose occupancy. 

In January 2011, the property was the subject of a foreclosure filing. In October 2011, CalSTRS and Silverstein made a $75 million payment toward a $325 million securitized loan on the building and later put the building on the market. Eastdil Secured marketed the property on behalf of the sellers. 

One source speculated that this deal appears to be similar to the one that Normandy made for the John Hancock Tower in Boston. In 2009, Normandy took over the 62-storey Boston office tower when its previous owner Broadway Partners defaulted on the asset. Normandy then made capital improvements to the building, leased it up and sold it for a 13.5x return on its investment just 18 months later in 2010.

Currently, 575 Lexington Avenue is 75 percent leased. Primary tenants include Cornell University and law firm Boies, Schiller & Flexner.

This acquisition follows April’s news that Normandy had purchased 1370 Broadway, a 280,000-square-foot, 17-storey office building in New York’s Times Square, from a venture between Sitt Asset Management and the Sutton family for $123.8 million. Although Normandy declined to comment, sources familiar with the matter confirmed that the asset was purchased on behalf of Normandy Real Estate Fund II, its $350 million value-added real estate vehicle.

Separately, sources have told PERE that Normandy is amidst raising capital for its third commingled real estate fund. Normandy Real Estate Fund III is seeking $500 million to target value-added US office properties primarily in New York, Boston and Washington DC. One source suspects that 575 Lexington Avenue may be the first investment made on behalf of Fund III.

To read PERE’s Blueprint interview with the principals of Normandy Real Estate Partners, click here.