NY Fed buys its offices from Invesco

The Federal Reserve Bank of New York has gone from renting the downtown Manhattan office building it occupies to owning it outright. 

According to a statement, the Fed is purchasing the property at 33 Maiden Lane in New York from Merit US Real Estate Fund III, a closed-end German fund managed by Invesco Real Estate and Hannover Leasing, for $207.5 million.

“The building was part of a closed-end fund that matures in 2014,” said Peter Feinberg, portfolio manager at Invesco Real Estate. “We looked at the resurgence in the downtown market and the length of the term on the Fed’s lease and found it was an opportune time to sell rather than wait another two years.” 

The New York Fed has been the primary tenant of the 623,000-square-foot building since 1998, occupying nearly 75 percent of the space. Other tenants include various trade groups, technology companies and the Internal Revenue Service, although about three-and-a-half floors are vacant in the 27-storey building. Sources familiar with the situation have told PERE that the other tenants will continue occupying the building in accordance with their leases.

The regional arm of the US central bank had long considered buying the property, which also is known as 2 Federal Reserve Plaza and houses roughly 1,100 Fed staff members. It ultimately decided to purchase that building after an internal financial review revealed that buying the property would be more cost effective than renting, considering its long-term space needs and the inevitable fluctuations in the New York City downtown real estate market. Not only that, but owning the building would also enable the Fed to maintain greater control over maintenance, operation and security.

“The purchase is a cost-effective way to meet our business needs and will enable us to more easily ensure appropriate security for our operations,” said William Dudley, president of the New York Fed, in a statement. “We also are pleased to contribute, through our investment, to the ongoing revitalisation of lower Manhattan.”

According to data from Real Capital Analytics, Vornado Realty Trust initially made a bid to buy the building when the owner opted to sell it. The Fed, however, had the right of first refusal and matched the REIT’s offer. CBRE marketed the property on behalf of the seller, which acquired the building in 2002 for $162.2 million.