Interest in New York City's Lipstick Building Taken for $317M

July 18, 2007
By Barbra Murray, Contributing Editor

In a transaction valued at $317 million, Gramercy Capital Corp. and SL Green Realty Corp. have acquired a 79 percent fee interest and a 21 percent leasehold interest in the Lipstick Building in Midtown Manhattan. The leasehold/sub-leasehold agreement for the 607,000-square-foot office property is for a 70-year term.

As per the agreement between Gramercy and SL Green, Gramercy has ownership of 45 percent of the interests, while SL Green's interest accounts for 55 percent. Financing for the transaction came in the form of a 10-year fixed rate loan in the amount of $267.7 million from Goldman Sachs Commercial Mortgage. The 34-story tower (pictured), developed in 1986 at 885 Third Ave., was designed by architects Philip Johnson and John Burgee in an elliptical design that resembles a tube of lipstick. The property is 99 percent leased to a list of occupants that includes law firms Latham & Watkins and Ropes and Gray.


As reported by CPN on July 9, Tishman Speyer and Prudential Real Estate Investors sold the Lipstick Building to a group involving Metropolitan Real Estate Investors and Israeli investment companies Tao Tsuot Ltd. and Financial Levers Ltd. for $648.5 million. The property previously changed hands in 2004 when Tishman acquired it for $235 million.

Gramercy and SL Green have partnered up on office net lease investments in New York City in the past. In May the two acquired the fee interest in the 354,000-square-foot Two Herald Square retail and office property for $225 million, while Sitt Asset Management purchased the leasehold interest in the property. Other players have been involved in net lease investments recently. In February, an affiliate of AVR Realty Co. acquired Boston Properties Inc.'s long-term leasehold interest in the 1 million-square-foot building at 5 Times Square for nearly $1.3 billion.

Investors are extremely bullish on the Manhattan office market where, at midyear, $34.1 billion in investment sales have occurred, representing an 86 percent increase from 2006, according to real estate services firm Cushman & Wakefield Inc.. And Midtown is of particular interest as rents in the submarket continue to rise. According to real estate services firm Jones Lang LaSalle's monthly market update, rents reached $87.22 per square foot in June; an increase of more than $2 per square foot from May. The average rental rate for all of Manhattan is $76.30.

Based in New York City, Gramercy is a commercial real estate specialty finance concern that is externally managed by GKK Manager L.L.C., a majority-owned subsidiary of SL Green. SL Green, also headquartered in New York City, is a REIT that focuses on the acquisition, reposition and management of office properties in Manhattan. Known as New York City's largest office landlord, as of the close of the first quarter, SL Green owned 33 office properties in the city accounting for an aggregate 24 million square feet. The company also owns interests in Manhattan retail properties totaling 300,000 square feet, as well as 24 properties in Westchester County and Connecticut totaling 3.6 million square feet. Gramercy's stock opened at $26.99 today, while SL Green's stock opened at $130.45.

New York City commercial loans