Equity Snares Three Macklowe MF Towers

NEW YORK CITY-Macklowe Properties is apparently exiting the rental apartment business here with its $475-million sale of three high-rise towers to Chicago-based Equity Residential. Equity says it has acquired two of the properties and is contract on the third. A Macklowe spokesman says the company has no comment.

Noting that the purchase price on the 910 rental units is “well below replacement cost” at $545 per square foot, Equity Residential president David Neithercut says in a release, “This transaction is yet another example of our ongoing strategy to add high-quality assets to our portfolio in core markets that position the company to benefit from improving apartment fundamentals.” Prior to Monday’s announcement, Equity’s New York City holdings included a dozen properties, including one in Brooklyn, along with the Talleyrand in suburban Tarrytown, NY and 11 in northern and central New Jersey.

Equity says it closed Friday on RiverTower, a 38-story, 323-unit apartment tower located at Sutton Place and 54th Street, and the 294-unit, 32-story 777 Sixth Ave. in Manhattan’s Chelsea neighborhood. RiverTower also includes a 36,000-square-foot parking garage, while 777 Sixth comes with 10,281 square feet of retail.

Additionally, Equity says it has signed a definitive contract to acquire the newest of the three properties, the 26-story Longacre House at 305 W. 50th St., built in 2000. It includes 293 rental units, 13,058 square feet of parking and a 14,000-square-foot garage. Equity says in a release that it anticipates closing on Longacre House in the second quarter, “but no later than May 1, when the existing first mortgage is open for prepayment at par.”

The initial cap rate of the three properties is 5.52%, and Equity says the acquisition is being funded primarily from disposition proceeds. When the Longacre House sale closes, Equity’s New York-area holdings will include 26 properties consisting of 7,320 apartment units, and the company says the addition of the Macklowe assets will increase the metro area’s share of its budgeted 2010 NOI to approximately 11%.

“The deal provides great guidance for buyers and sellers alike in determining where values currently reside for class A apartment properties in Manhattan,” Dan Fasulo, managing director of Real Capital Analytics, tells GlobeSt.com. “The closer investors move towards value consensus, the greater likelihood of higher transaction activity.”

Ironically, three years ago it was Macklowe as the buyer of Equity assets, when it made its $7.4-billion acquisition of what was then known as the Equity Office Properties portfolio from the Blackstone Group. Macklowe acquired eight of the nine EOP class A office assets in Midtown; all have since been sold. When the sale of the three rental properties to Equity Residential is finalized, Macklowe’s New York City holdings will include a condominium project at 310 E. 53d St. that is 100% sold out and office properties at 400 and 510 Madison Ave. and 610 Broadway. Last month, Bloomberg reported that Macklowe sold a development site at 440 Park Ave., formerly the location of the Drake Hotel, to Los Angeles-based CIM Group for $305.4 million.

Equity Residential’s expansion in the city’s multifamily sector comes at a time when, according to the Real Estate Group’s latest Manhattan Rental Market Report, the rental market here “continues to show signs of a bottom. Rents remain relatively flat in month-to-month comparisons, averaging less than a 1% decline this report period. Even in neighborhood/apartment type comparisons, no change was greater than 10%. While it is uncertain how long this holding pattern will continue, a significant decrease in vacancies this month leads us to be optimistic for the market’s next move.”