Citigroup Buying Back HQ from SL Green for $2B

In its fourth quarter investor calls, SL Green Realty Corp. disclosed that Citigroup, Inc. has exercised their option to purchase 388-390 Greenwich Street for $2.0 billion. The closing is scheduled for December 2017. On Thursday, SL Green executives on a quarterly conference call with analysts said the deal would be profitable for the company. "It allows us to close out a very profitable position, investment position, we took in the asset," said Marc Holliday, SL Green's chief executive. He also noted the transaction "will result in a reduction of indebtedness."

Citigroup previously sold the two-building, 2.6 million-square-foot Tribeca complex to SL Green and Ivanhoe Cambridge, a unit of the Société immobilière Trans-Québec (SITQ), for $ 1.58 billion in 2007. Citigroup continued to lease space after the sale through a 15-year leaseback arrangement, and occupies the complex as the headquarters for Citigroup's divisions of Global Wealth Management and Global Trading. 388 Greenwich Street, originally called the Shearson Lehman Plaza, and more recently the Travelers Building, is a 496-foot, 38-story postmodern office building completed in 1988 and designed by Kohn Pedersen Fox. 90 Greenwich Street comprises 10 story building covering a total area of over 2.6 million square feet.

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REITs See Increasing Demand for Office Leasing Deals

In a new article from CoStar Group, notes from recent earnings conference calls reveal that REIT landlords have made special note that they see demand for 2014 office leasing deals increasing. CoStar Group reported that the overall U.S. office vacancy rate continued to decline, dipping from 12.7% at mid-year 2012 to 12.1% as of June 30, 2013, and projected to move steadily toward a 10.5% - 11% vacancy range by 2016. Some quotes on the state of the markets from industry leaders follow:

"I think [recovery] is probably a little early for the suburbs," said Marc Holliday, CEO of SL Green Realty Corp. "The financing markets are still not terribly liquid and the sale markets -- there's not a lot of transaction activity. So we're still in a hunker-down mode out there, trying to block and tackle and do as much leasing as we can in some very challenging markets."

"We continue to see demand for new properties in strategic location," said Steve Budorick, executive vice president and COO of Corporate Office Properties Trust. "Our development leasing goal for 2013 was 400,000 square feet. We did 100,000 square feet in the first quarter and over 460,000 square feet in the second quarter alone, putting total development leasing for the year well over a half of million square feet."

"Most office construction that is occurring is build-to-suit, but that varies by market. The strongest markets, such as San Francisco, San Jose and Houston, are seeing speculative construction due to a lack of suitable space available in the market," said Andrea Cross, national office research manager for Colliers International. "We also are seeing tenants in industries in which the competition for talent is fierce, notably tech and energy, building high-quality office space with amenities to attract and retain workers."

"You're seeing a greater number of smaller type deals at $100 a square foot being done than at any time in the past. You're seeing an improving national economy and a very strong local economy," said Steven M. Durels, executive vice president and director of leasing of SL Green Realty. "So I think the fundamentals are there and it's at a point in time that job growth continues to get us to a point of supporting the demand that we'll enjoy that spike in rents."

For more news and information visit Blumberg Capital Partners.