SL Green Realty, in an effort to capitalize on the city's red-hot conversion market, scooped up One Madison Ave. on Wednesday for nearly $1 billion.

At least part of the former MetLife home will be turned into luxury residential condominiums overlooking Madison Square Park. The 1.4 million s/f building was sold for $918 million.

In an odd twist of fate, the financing for the acquisition will come from Credit Suisse First Boston, the current office tenant at One Madison Ave., who will share the profits from the residential conversion. The company will provide approximately $805 million to SL Green.

According to Michelle LeRoy, SL Green's vice president, the company views the property's South Tower, CSFB's current home, as a stable long-term investment, with a good credit tenant and another 15 years on its lease. The North Tower, on the other hand, provides a spectacular conversion opportunity in a submarket that is becoming increasingly residential.

"We are still in the planning stages, but it's recognized as the top residential site in the city--it sits right on Madison Square Park and we are already getting calls from people," LeRoy said. "And one of the components of the deal was the purchase of about 470,000 s/f of air rights--we will construct a second tower on top of the office building for either office or residential use."

Recent residential conversions in the area include the International Toy Center at 200 Fifth Ave. and 260 Park Ave. SL Green plans to separate the North and South parts of the building, leaving CSFB's 1.2 million s/f headquarters undisturbed and adopting the 267,000 s/f at the North Tower for residential use.

"Right now, everybody is trying to do these mixed-use projects, like office and retail, or office and residential, or even all three at once," said Jacky Teplitzky, executive VP of Prudential Douglas Elliman. "And when you have Credit Suisse First Boston [as an office tenant] you can attract higher-end type of [residential] tenants."

Teplitzky thinks that with the right sales strategy, the condominiums will be sold out in no time.

"In an area like the Flatiron district, if they price the smaller units from $900 to $1,000 per s/f it's going to look like a bargain," she said. "You don't have a lot of condominiums in that area and people are dying to get good space."

But according to David Lebenstein, executive director of Time Equities, SL Green better hope that the residential market remains strong, which is not a certainty.

"It's a fabulous space, with fabulous views, in a good location. That said, they paid a premium price. By a lot." he said.

"In this market, which some people would call insane, as long as current prices continue, their acquisition for residential conversion makes sense. Overall, it's a brilliant deal as long as the residential market stays strong and the interest rates stay low, but there is always a risk that the market could change."

COPYRIGHT 2005 Hagedorn Publication
COPYRIGHT 2005 Gale Group