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SL Green Nabs Reckson

Nicholas Yulico

SL Green Realty (SLG) agreed to buy Reckson Associates Realty (RA), bolstering its office presence in Manhattan, while also providing expansion into New York City's outlying areas.

SL Green will pay roughly $6 billion for fellow office REIT Reckson, including the assumption of about $2 billion in debt. But SL Green plans to sell several Reckson properties to an investment group for about $2.1 billion.

Under the terms of the deal, SL Green will pay Reckson holders $31.68 in cash and 0.10387 SL Green shares for each share owned. Based on SL Green's closing stock price of $112 Wednesday, the deal values Reckson at $43.31 a share, a discount to its Wednesday close of $43.95.

After the transaction is finalized, SL Green will own 28 million square feet of office space, with 24.5 million of that located in Manhattan, which is enjoying very strong office leasing fundamentals that are expected to continue for the next few years. SL Green is keeping certain Reckson properties in Stamford, Conn., and Westchester, N.Y.

"The portfolio we have acquired is a perfect fit for us -- in one transaction we have added five outstanding buildings totaling over four million square feet in our core market of Manhattan, obtained key properties strategically located in the neighboring submarkets of Westchester and southern Connecticut, and expanded our highly-profitable investment platform," said SL Green CEO Marc Holliday in a statement.

The Reckson properties that SL Green won't keep include certain offices in Westchester along with assets in Long Island and New Jersey. An executive group led by Reckson executives and Marathon Asset Management will buy the properties.

It appears that SL Green might be getting a good deal for Reckson, since it is basically buying the company for $43 to $44 per share, while certain analysts have pegged Reckson's net asset value closer to $47 to $48.

"SL Green is the single best management team in office, and I've got faith in them," says Dean Frankel, a portfolio manager with Urdang Securities Management, which owns SL Green.

Frankel says Reckson's New York City properties have a lot of potential, since they've experienced some weak leasing. "I think there's a lot of upside on the Manhattan rents," say Frankel, who adds that SL Green can do a better job managing the properties.

There is a risk of SL Green's valuation coming down. The company is the only pure play on Midtown Manhattan, which is considered the best office market in the country, but the Reckson move will give it a more substantial presence outside of the city, where the market is more uncertain.

SL Green shares closed Thursday unchanged at $112, while Reckson fell 2.6% $42.80.