IF THESE WALLS COULD TALK: Time for an upgrade

The Buchanan, a mixed-use building in Turtle Bay constructed in 1929, has a new pair of owners who are ready to upgrade and hold the property – although likely for not quite as long as the last owners. The 16-story apartment building in Midtown has new ownership for the first time in 64 years.

The partnership that purchased the property last month comprises USAA Real Estate Company, the real estate arm of financial services firm USAA, and local private equity shop Madison Realty Capital, for the groups’ second joint venture. Madison entered into contract for The Buchanan at the end of 2015, then subsequently formed a joint venture with USAA Real Estate last month to buy the building, located at 160 East 48th Street, for $270 million, according to real estate data provider Real Capital Analytics.

The previous owners were multiple generations of two families who bought out the interests of a third family about 15 years ago. That third party has a notorious reputation in New York City: The stake belonged to the estate of Leona Helmsley, a Manhattan billionaire nicknamed the “Queen of Mean.”

Helmsley, who died in 2007, started her career as a co-op seller and eventually amassed a real estate empire with her husband to rival that of current Republican Presidential candidate and property magnate, Donald Trump.
The pair in fact had a legendary feud which involved multi-million dollar lawsuits and a trading of insults. Trump is said to have called Helmsley “a horrible, horrible human being”, while Helmsley was more succinct: “I hate Donald Trump,” she said.

The Buchanan pales in scope compared with some of Helmsley’s previous holdings, including the Empire State Building a mile away, but it is sizable for the neighborhood. The building takes up an entire block and was constructed in the shape of the letter C, with five elevators spaced out around the building. Because there are just four apartments at every floor of each elevator, the building conveys more of a neighborhood feel than the high-rise typical to New York City, even though The Buchanan has 289 apartment units. Working wood fireplaces in some units and 11-foot ceilings are also perks uncommon in the city, though the fireplaces may not survive renovations.

The Buchanan has charm, to be sure, but it also has clear needs. The elevators require an upgrade, along with other parts of the building’s bones, ranging from plumbing to kitchens to floors. Many of these renovations were neglected by the former owners, so the new joint venture plans to spend millions to give the building a major face-lift, rehabbing the apartments to add more bedrooms, changing galley-style kitchens to open floor plans and adding a gym and other amenities to a sizable basement.

There are many projects to be done, but this joint venture has time. On USAA Real Estate’s side, equity for the deal came from an open-ended fund, making it a long-term hold. Madison used capital from its first equity fund in one of the first capital deployments from the vehicle. The fund was launched earlier this year with a $300 million target.

The joint venture will not have to wait long to see some returns on their investment through upcoming retail lease rollovers. Some tenants are currently paying $125 to $130 per foot, prices well below market compared with average retail rents on Third Avenue that command $250 to $300 per foot.

The Buchanan does not have any current vacancies for its 289 apartments, according to its website, and huge renovations should add demand for new renters. Location helps, too. The building is within walking distance of Grand Central Terminal and much of Midtown, where many private equity shops are based. Blackstone’s headquarters and Carlyle’s New York office – along with PERE’s New York outpost – are all less than half a mile away.