The Blackstone Group, New York REIT & More: Real Estate Is Changing Hands In The Big Apple

A groundswell of activity in the Manhattan office market was reported just prior to the Labor Day holiday, making the Big Apple skyline a perfect backdrop for what could become the biggest REIT IPO of all time.

According to a Bloomberg report on August 28, 2014, The Blackstone Group L.P. (NYSE: BX) is preparing to sell 1095 Avenue of the Americas, a 42-story Class-A office tower, containing 1.2 million square feet. CoStar Group reports the office tower is 99 percent leased, with major tenants including: MetLife, Inc. and the headquarters for Verizon Communications.

The price range is rumored to between $2 billion to $2.25 billion, or $1,667 to $1,875 per square foot. This transaction would rank as one of the largest sales of this asset class in the U.S. in the past five years if it were to come to fruition.

Office REITs With Large Footprints In Manhattan

One notable deal for investors to be aware of was the closing by New York REIT Inc (NYSE: NYRT) of its previously announced purchase for $335 million of 245 - 249 West 17th St. The 282,000 square foot property is now the new home for Twitter, Inc.'s east coast operations.

The property is reported to be 99% leased, with Twitter occupying 214,765 square feet on a lease term through 2025. Bloomberg reported that the seller, investment firm Savanna, paid $75.8 million, or $267 per square foot, for the property in November 2012, and spent another $39 per square foot on renovations.

New York REIT just paid ~$1,188 per square foot for the 12-story main structure and adjacent six-story mixed-use building.

Twitter chose to locate in a Chelsea neighborhood, which is near Google's massive ~3 million square foot facility housing its New York operational headquarters.

Prices north of $1,000 per square foot for offices in this part of Manhattan have not been the historic norm. However, it certainly must have been welcome news to the other major property owners who own adjacent portions of the skyline.

Manhattan Office REITs Tale Of The Tape

Paramount Group Announces Huge Office IPO

Certainly the biggest pre-Labor Day announcement for investors to digest was the August 27, 2014 proposed IPO of Paramount Group Inc. (proposed symbol (NYSE: PGRE)), which is looking to become the newest publicly-traded office REIT with a major focus on Manhattan office space.

A recent CoStar Group article cited a Renaissance Capital estimate of ~$2.5 billion as being the anticipated size of the Paramount IPO. This would make it the largest U.S. REIT IPO of all time, just eclipsing Blackstone's $2.4 billion Hilton Worldwide transaction last year.

Paramount owns Class-A office assets in other major U.S. metropolitan downtown markets: Washington D.C. and the iconic One Market Plaza at 1 Market St., located in the red-hot San Francisco office market.

However, more than 75 percent of Paramount's rental income is derived from the NYC market, which would make the proposed Paramount IPO the latest way for REIT investors to participate in owning an office portfolio concentrated on the Big Apple skyline.

Investor Takeaway

It would behoove investors to take a close look at the Paramount asset valuations when this IPO becomes available for purchase. Recent trends seem to indicate that Manhattan real estate price levels have once again started to become a bit frothy. This creates an ideal situation for patient capital like The Blackstone Group, to realize gains on what was viewed as a distressed asset class just a few years ago.

Disclosure: At the time of this writing, Bill Stoller had no position in the equities mentioned in this report.