SL Green sees opportunity in office carnage

You can see Manhattan from bottom to top from the observation deck of SL Green Realty’s 73-story 1 Vanderbilt Ave. at East 42nd Street, but the latest target for leaders of the real estate investment trust is just 10 blocks north.

There lies the Seagram Building on Park Avenue, the first skyscraper built with floor-to-ceiling windows, a handsome, 30-story, 1958 building with some big-name tenants but roughly $1 billion in debt that owner RFR Realty may have trouble refinancing when the loan comes due next May.

SL Green hears the sound of opportunity knocking. It has become Manhattan's largest office landlord in part by snagging top-shelf properties from tapped-out owners, most recently when it seized control of 245 Park Ave. in bankruptcy court two years ago. At a dinner last month at Le Pavillon, a restaurant inside 1 Vanderbilt, SL Green officials told institutional investors they’re now eyeing the Seagram.

“They just used it as an example of a building with looming loan maturities that they’d target,” said Alexander Goldfarb, a real estate industry analyst at Piper Sandler who hosted the dinner. “The point is, here is the type of building they’re thinking about.”

SL Green’s chief executive, Marc Holliday, in an interview said: “We're always interested in investing in those kinds of projects.” 

SL Green is one of the only office landlords that can dare to dream so boldly. Over 44 years of near-constant buying and selling (in stark contrast to its mostly buy-and-hold competitors), the firm has assembled a portfolio of about 50 buildings encompassing 30 million square feet of office space, 90% in Manhattan and about a third located in a handful of Midtown blocks near Grand Central Terminal. The area happens to be the nation’s hottest office market, so New York’s biggest real estate bull is ready to magnify its considerable bet on the city’s office future when rivals are in retreat.

Manhattan offices are a bet fewer investors want to make, and SL Green has bought out some doubting partners in recent months at startlingly low prices. It paid just $7 million to acquire the 45% stake in 10 E. 53rd St., a building that’s 98% occupied, from the Canada Pension Plan Investment Board, a fund with $400 billion in assets. It also bought back an unidentified Israeli partner’s 44% stake in 2 Herald Square for no money, then persuaded the lender, U.S. Bank, to retire the $182.5 million mortgage in return for a $7 million payment. With scores of Manhattan towers still disturbingly vacant and billions’ worth of mortgages coming due, overleveraged owners may be forced in the months and years ahead to sell at fire-sale prices to SL Green. Think Worldwide Plaza, where SL Green is a 25% owner. Maybe even the Seagram Building.

“We’re ready to really take advantage,” Chief Financial Officer Matthew DiLiberto said at a conference last month.

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