Data Center: Google’s $1.9 Billion New York Property
By PETER GRANT for Wall St Journal
Google Inc. has signed a contract to buy the building that houses its New York City offices, in a deal that values the property at close to $1.9 billion, according to people familiar with the matter.
The deal for the massive 2.9-million-square-foot property at 111 Eighth Avenue is the biggest for a single building in the U.S. this year.
While the building is located in Manhattan’s Chelsea neighborhood—and not one of the city’s tony office districts—it is popular with tenants like Nike Inc., the Lifetime cable channel and WebMD, the Web publisher. About one-third of its space is occupied by telecommunication companies.
Google occupies about 500,000 square feet in the building and earlier this fall was reported to be a front-runner in the bidding for the property. The company won partly because it knew the building well and was willing to close the deal before the end of the year, according to people familiar with the matter. While the deal could still fall apart, that is unlikely because the contract is binding and Google has put down a large deposit, these people said.
A spokesman for Google declined to comment.
The seller of the property is a group that includes the New York State Common Retirement Fund, real-estate investment company Jamestown and Taconic Investment Partners LLC.
The building, which once housed the headquarters of the Port Authority of New York and New Jersey, was being marketed by Douglas Harmon, a senior managing director at Eastdil Secured.
The commercial real-estate industry in most parts of the country has been struggling with the aftermath of the recession. But property values have been increasing and interest has been keen in such major cities as New York, Washington and Boston.
While rents and occupancy levels continue to stagnate in those cities as well, well-leased properties have become appealing to investors because their returns are attractive compared with bonds and other investments. Values still are below the peak values hit during the boom years.
At a value of $1.9 billion, the building at 111 Eighth Avenue produces an initial yield of about 5%, the people familiar with the matter said.