Citigroup Agrees to $1.575 Billion Sale Leaseback of Manhattan Office Towers

Reuters - December 3, 2007

Office property owner SL Green Realty Corp (SLG.N) has reached an agreement to buy Citigroup Inc's (C.N) downtown office complex for $1.575 billion, a source familiar with the deal said on Monday, underscoring the health of the Manhattan property market, despite turmoil in the lending markets. Canadian real estate investment firm SITQ also will take a 47.5 percent stake in the complex at 388-390 Greenwich St. when it closes later this month, said SL Green, which will retain a 52.5 percent stake. The two buildings total 2.6 million square foot, translating the deal's price to $598 per square foot, SL Green said.

The flow of securitized loans used to finance much of the debt-heavy purchases of U.S. buildings or to develop property has slowed to a trickle of what it was just six months ago. Fears stemming from from the troubles of the U.S. housing market, crossed over to the commercial market, chasing buyers of commercial mortgage-backed securities (CMBS) out to the sidelines. Sales of buildings, such as the Citigroup building, demonstrates that other lenders, such as European banks have been willing in many cases to step in and fill in part of the void left by the stoic CMBS market. It also highlights the change in real estate buyers, from individuals using loads of securitized debt to real estate investment trusts, such as SL Green and pension funds, which use more cash and other sources of debt financing.

Westdeutsche ImmobilienBank AG, the real estate lending arm of German lender WestLB AG (WDLGgb.F), and PB Capital Corp., the commercial real estate financial arm of Deutsche Postbank AG (DPBGn.DE), provided the mortgage financing, SL Green said.

The deal calls for the tenant to lease back the building and cover the costs of operating and maintaining it for 13 years, SL Green said. The complex houses Citigroup's investment banking arm. Over that period, Citigroup also will to vacate the building in stages, which will leave SL Green as a low-cost provider of office space downtown and an alternative to the World Trade Center, Fasulo said.

Citigroup declined to comment on the pending sale. A representative from SL Green was not available for further comment, nor was one available from Cushman & Wakefield Sonnenblick-Goldman, which arranged the financing. The initial rental rate reflect a first-year return of 6.3 percent, SL Green said. Sphere: Related Content