General Growth Properties Acquires The Crown Building

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Apr 29, 2015

General Growth Properties (GGP, Financial) has announced the acquisition of The Crown Building in New York City for $1.775 billion.

Founded in 1954 by two brothers, Martin and Matthew Bucksbaum, General Growth Properties, Inc. is an American real estate investment trust. The company owns and handles malls all over the United States, and is headquartered at 110 North Wacker Drive in Chicago, Illinois.

General Growth and Jeff Sutton purchases Crown Building for $1.775 billion

The acquisition of The Crown Building in New York City by General Growth Properties, Inc. and Jeff Sutton, for $1.775 billion, adds another feather to the company’s impressive portfolio. The acquisition was partially funded with $1.25 billion of secured debt.

Real estate investor Jeff Sutton has purchased more than 120 properties in New York, including several properties on Fifth Avenue, over the past quarter of a century.

The Crown Building was constructed in 1921 and designed by Warren and Wetmore, and was originally named the Hecksher Building in honour of August Hecksher, its developer. The building is famous for having one of Midtown Manhattan’s most prominent rooftops, thanks to its illuminated, striking 416-foot high crown, due to which, in 1983 the name was changed.

Located on the southwest corner of 57th Street and 5th Avenue in the Plaza District in midtown Manhattan, the roughly 400,000-square-foot, 26-story property has both retail and office segments. The Crown Building is one of the most popular shopping destinations in the U.S., which draws both tourists and affluent shoppers. Approximately three quarters of the square footage of the tower is supposed to be converted into luxury condos. The retail portion of the property, which is around 100,000 square feet, will be owned, redeveloped, leased and managed by GGP and Jeff Stuton. Currently, the retail space is occupied by tenants like Piaget, Bulgari (BULIF, Financial) and Mikimoto.

Vladislav Doronin’s Capital Group and Michael Shvo’s SHVO will be handling the 290,000 square feet office tower from floor four through 26. The owners plan to redevelop this section into luxury residential units.

Capital Group has 71 properties with more than 70 million square feet combined, and is based in Moscow. SHVO constructs luxury residential, mixed-use and hospitality properties, and presently has a $3.5 billion in development projects.

The growth trajectory of General Growth

General Growth Properties is expecting that the acquisition of Crown Building will enable the company to capitalize on the growing fundamentals of the renowned shopping street, and demand premium rents for space in the area.

According to Real Capital Analytics in its Q1 2015 report, the total sales volumes for the retail sector at the portfolio and entity-level remain steady. However, the sales of individual assets posted 16% growth from a year earlier.

However, apart from competing with other retail properties, General Growth also faces stiff competition from other types of retailing such as catalogues and e-Commerce websites.

Parting words

While GGP endeavors to thwart pressure from competitors through various initiatives, the implementation of such strategic measures will require a substantial initial cost and as a result, would limit an overtly upscale growth in its profit margins in the immediate term. The company will have to improve and strengthen ties with customers as well as make efforts to reposition its portfolio to help it capture and sustain the growth graph.Ă‚ But keeping in consideration the improved retail real estate market fundamentals, General Growth's solid portfolio is expected and assumed to come out strong.