Shares of SL Green Realty Corp (SLG.N), surged on Monday after the real estate investment trust (REIT) said it had sold a nearly 50% stake in one of its New York City office buildings at a $2 billion valuation.
The deal could spell hope for the Big Apple’s beleaguered commercial real estate market, which has seen turmoil as oversupply, higher interest rates and the rise of remote working have caused property values to plummet and many developers to default on their debts.
However, some thought more owners of buildings would follow suit in a rush to get out as they worry about the market worsening.
SL Green Realty said it sold the building at 245 Park Avenue, which has 1.8 million-square-feet of office space, to a U.S. affiliate of Japanese real estate developer Mori Trust Co Ltd. It also hired architectural firm Kohn Pedersen Fox Associates to work on the building’s redesign, which would add windows, lobbies, amenities and retail shops.
“It’s a big building in a great location, and there’s a lot of non-banks looking for those kinds of things,” said Mayra Rodriguez Valladares, a bank and capital markets risk consultant at her firm MRV Associates. Rodriguez Valladares said, however, that while New York still has interested buyers from overseas which can buoy prices, she anticipated distressed property sales to come and at deeper discounts.
SL Green’s stock, which is down about 16% year to date, finished the session up 19.7% at $28.20, posting its biggest one-day percentage gain since Nov. 9, 2020.
245 Park Avenue is a high-end “Class A” property located in mid-town Manhattan near the Grand Central Terminal, housing several financial firms including Ares Management (ARES.N), Angelo Gordon, and Societe Generale (SOGN.PA),
Its sale represents a slight discount to the $2.21 billion China’s HNA Group paid to acquire the building in 2017 when New York City’s commercial real estate market was at its peak. SL Green took control of 245 Park Avenue last year after lenders seized the building from HNA Group.
Jesse Keenan, sustainable real estate professor at Tulane University, said the transaction is a speculative investment that suggests the deep downturn in the New York commercial real estate market may have bottomed out.
“What we’ve mostly seen are people walking away from debt and equity positions. But what we see here are people taking new equity positions in speculative investments that could really signal that we’ve reached bottom,” Keenan said.
U.S. real estate stocks have struggled this year amid worries lenders would begin to tighten credit standards on the sector following a rise in defaults prompted by rising interest rates.
SL Green Realty was the biggest gainer among listed REITs, leading its peers Vornado Realty Trust Office Properties Income Trust and Boston Properties Inc
The S&P 1500 Office REIT index which has fallen nearly 21% this year, was up 7.34%
