Real Estate

REIT is bullish on Red Bull

American Realty Capital will soon have a lot of bull — Red Bull, that is.

The company’s New York Recovery REIT has signed an off-market direct deal to buy 218 W. 18th St. for $112 million, where Red Bull is now outfitting its 41,642 square feet of office space — and a Red Bull Academy — just two blocks from the Google building at 111 Eighth Ave.

The 167,000 square-foot building was just purchased last February for $62.5 million by Atlas Capital and GreenOak Real Estate after the prior owner, who paid $50 million in 2007, had, shall we say, “issues” paying its $42.5 million mortgage.

But the current sellers, sophisticated investment folks, added improvements to the building and attracted Red Bull, Microsoft’s Yammer, and SAE Institute of Technology Corp. just as the area took off.

The fast sales price run-up is indicative of how hot the city’s office-leasing market has been in this Midtown South/Chelsea area and why rents are also jumping, leading many less deep-pocketed tenants to extend office searches to downtown and Midtown neighborhoods.

Michael Happel, chief investment officer of American Realty Capital, said because there are still two vacant floors and some under market leases, they are pleased with their largest city purchase to date.

“We see additional value, and we see opportunity here,” he said.

When they close in the second quarter, Happel expects asking rents to be in the $50 to $60 per square foot range.

It was not that long ago, of course, that side-street buildings in this area had asking rents in the $30s and $40s per square foot.

Between Christmas and New Year’s, the non-traded REIT bought three more properties, two of them in the Garment District.

“We are in the early stages of a 10- or 15-year transformation,” Happel said, during which time he expects values and rents will escalate.

The two Garment Center purchases are: 256 W. 38th St. for $65 million and 229 W. 36th St. for $45 million.

They also bought the retail building at 350 Bleecker St. for $11 million on a shopping street in the West Village where numerous chic retailers attracted ARC to first enter the city market two years ago by acquiring properties with tenants including Michael Kors, Burberry and Marc Jacobs.

While 80 percent of their properties will now be in Manhattan, Happel says the company also owns retail in Brooklyn and is keeping an eye out for other office and retail properties in all five boroughs.

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One reason investors don’t like New York is that as it addeth value, the city taketh in taxes.

The taxable value of just the city’s commercial property recently got an 8.56 percent boost that will be reflected in July 1 tax bills. The new tentative taxable value for all Class 4 commercial properties (that includes offices, retail and hotels) went from $79,330,847,480 to $86,120,829,458.

The full-market value for Class 4 rose by 10.47 percent, and shows the trend where billable taxable values will be heading as increases are phased in over a five-year period.

The total number of square feet also increased 0.8 percent — or roughly 9.855 million square feet, from 1,232,885,734 to 1,242,741,571 square feet as the city’s construction boom captured Barclays Center and numerous hotel openings in nearly all boroughs.

Office building taxable value rose 10.28 percent alone. The number of hotels increased 4.55 percent from 725 to 758, adding 19.43 percent in total market value.

Class 2 multifamily residential taxable values also rose, with rentals up 8.18 percent, and buildings with a mixture of condos and rentals up 41.67 percent as 54 more properties were added with 1,334 more units.

“My understanding is that we had a decent first half of the year for office leasing but that rents haven’t gone up,” said Steven Spinola, president of the Real Estate Board of New York.

“The city said 25 percent of the Class A office buildings reported increases in income of more than 6.5 percent — and 25 percent of all commercial properties had increases over 9 percent — so how would that justify a 10.47 percent increase?” asked Spinola, after making just a cursory review.

“Without seeing the details, it looks like it will be a significant hit on those that own office buildings and multifamily property,” he added.

Class 2 and Class 4 owners have until March 1 to file a challenge to their tentative assessed value.

Lois@BetweentheBricks.com