Crown’s winning bid for the 600,427-square-foot structure – which beat out offers by such real estate heavyweights as Vornado Realty Trust, Brookfield Office Properties, General Growth Properties and Ziel Feldman’s HFZ Capital Group – managed to emerge triumphant after the firm committed to place a $50 million non-refundable deposit into escrow upon final approval of the contract. Crown is reportedly planning to raise the rents for the building’s tenants even higher than the already sky-high annual fee of $20 million presently paid by Crate & Barrel, which has pushed the value of the site’s 75,000 square feet of retail alone to $1 billion.
The sale additionally set a record with its unprecedented price per foot of approximately $2,150 for an office building.
650 Madison’s new owners believe they will be able to quite significantly increase the value of the retail within five years. “We think the retail will be valued at $1 billion when we are done with our work,” stated Haim Chera, one of Crown’s principals. “650 Madison Avenue is one of the finest properties in all of Manhattan, a trophy in every sense,” noted Stanley Chera, founding principal of Crown. “The unmatched location – outstanding for office and retail use – and the superior quality of the asset solidify its position as a trophy for generations to come. We look forward to continuing the trend established by Carlyle of value creation and excellence in ownership.”
Other companies participating in the bidding process – including the Chicago-based General Growth Properties, one of the largest real estate investment trusts in the United States centering focus on shopping centers – had likewise been striving to unlock the value of the retail.
Leading members of the real estate industry expressed their confidence in Crown’s ability to increase the retail’s value, given the real estate giant’s history in this regard. Crown has previously sold the retail at 666 Fifth Avenue in two transactions for more than $1 billion, and has sold the retail at the St. Regis hotel for $380 million. According to Howard Michaels, CEO of the Carlton Group who represented a rival bidder, “Crown Acquisitions is in a league by itself when it comes to maximizing the value of prime retail.” Michaels added, “I would suspect that when they get done with resetting Crate & Barrel in 2019 or earlier, the net operating income should exceed $40 million, which will have a value in excess of $1 billion alone just for the retail.”
The Carlyle Group, a global alternative asset manager with $176 billion of assets, purchased the building in 2008 for $680 million. An impressive 92% of the tower is currently leased to tenants, including the Ralph Lauren Group, which locates its headquarters there. “Carlyle has been successful in acquiring assets with good underlying potential and transforming them into iconic properties,” commented Haim Chera, “as was the case with the billion-dollar sale last year of the retail condominium at 666 Fifth Avenue, in which we were a partner. Together, 650 Madison Avenue and 666 Fifth Avenue represent two of the best investments of the post-financial crisis era.”
In 2010, Crown and Highgate – in conjunction with New York’s Ashkenazy Acquisition and Chicago’s Walton Street Capital – bought 1466 Broadway in Times Square.
Taking up the complete westerly block-front at its Madison Avenue location, the Class-A property boasts three specific components: a 425,000-sq.ft. Class A office tower; a 100,000-sq.ft. custom medical-office space; and 75,000-sq.feet of dominant world-class retail, with 200 feet of Madison Avenue frontage. Several months ago, the building’s owners concluded a capital improvement program that constructed a bespoke lobby, marquis canopy, super-transparent glass curtain wall entrance, and new elevators and common areas.
“We are delighted to reach this agreement with Crown and Highgate, two of the smartest real estate owners around, on the sale of 650 Madison Avenue,” declared Robert Stuckey, Carlyle’s managing director and head of U.S. real estate. “This is a great outcome for our investors and validates our opportunistic approach.”
Carlyle Managing Director Andrew Chung also remarked, “We had a strong conviction in the underlying value of this property when we acquired it during the Great Recession, and we are pleased to capitalize on the success of our active repositioning and leasing plan.”
Highgate Holdings is a fully integrated real estate investment firm that has acquired more than $7 billion of real estate assets since its inception in 1988. The firm targets investments in a broad range of real estate assets, portfolios, and companies, and has invested in limited and full service hotels, resorts, office, multi-family and mixed-used facilities. Highgate has owned over 80 hotel properties, and has a current portfolio that includes 24,000 owned and managed rooms domestically and abroad.
The Chera family is no stranger to headline-making real estate deals. One year ago, it bought a stake in Fifth Avenue’s Olympic Tower from an affiliate of the Alexander S. Onassis Public Benefit Foundation. The nonprofit – a prime beneficiary of shipping magnate Aristotle Onassis’ will – was named after Onassis’ son Alexander, who was killed in a plane crash at age 25. Knowledgeable observers at the time disclosed that the four-building complex, which includes a 51-story tower at 51st street, a building at 10 E. 52nd St. and two historic mansions north of the tower, has a value of approximately $1 billion.
“Crown Acquisitions is one of the most successful and respected New York City real estate firms, especially along Fifth Avenue,” said Anthony Papadimitriou, president of the Alexander S. Onassis Public Benefit Foundation, at the time of the deal.
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