40 Exchange Place is a multi-tenant Class B office building located in the Financial District of Manhattan. The 20-story building was originally built in 1896 as the Lord’s Court Building and has gone through several changes of ownership over its lifetime. This report aims to present a complete picture of the acquisition of the building in 2015 by GFP-RE and the deal structure necessary to acquire and redevelop a $141.5 million project in the center of Manhattan.
Lower Manhattan’s Financial District was one of the few areas of Manhattan without large numbers of full-time residents. The area rapidly became a more vibrant mixed-use community thanks to local incentives, new developments, and attractive office rents compared to the Midtown market. 40 Exchange Place had not been renovated by the previous ownership for over 30 years and took in below market rents (averaging $27/SF). GFP- RE saw the opportunity for a value-add investment by renovating the building and attracting new small office tenants at competitive market rents ($51/SF on average, with the LM-REAP incentive).
The property was acquired in 2015 for $114.5 million ($391/SF) by a joint venture between Newmark Holdings (Now GPF-RE) and Northwind Group. Of the $141.5 million total project cost, Limited Partners invested $60 million and the General Partners negotiated an $81.5 million interest-only loan from Natixis Real Estate to finance the investment. The property received $26.5 million in capital improvements over the first 3 years, after which a buy-out and refinancing strategy was applied by GFP-RE to become sole owners.
The buy-out valued the building at $175 million. This buy- out generated a 12.8% Internal rate of return (IRR) and a x1.45 equity multiple for Northwind. If the property were sold today at market value $200 million, GFP-RE investors would earn a 19% IRR and a x1.62 equity multiple. The General Partners create value as business providers and property managers. At today's valuation, the sale would earn the General Partners a promote interest worth $9.1 million.