Turning a Dead 2,000-SF Deal into a Win-Win for DZ Bank and SL Green

09 April 2018

Nominated for REBNY's Most Ingenious Deal of the Year Award, Savills Studley turned timely information into a creative deal involving a substantial relocation inducement for DZ BANK and DVB Bank to move to One Vanderbilt — New York’s next great trophy building — while unlocking tremendous value for 609 Fifth Avenue landlord SL Green. 

About three years ago, DZ BANK and subsidiary DVB Bank had renewed their leases for 10 years, with an option to extend the lease for an additional five years, for their combined 45,000 square feet at 609 Fifth Avenue, also known as “the DZ BANK Building.” The German financial services company had been a good, longtime tenant — for 30 years — with their name chiseled above the building’s Fifth Avenue office entrance. With a renewed lease in hand, the bank invested a great deal of capital in renovating its offices.

When Savills Studley’s Evan Margolin and Lance Leighton met with DZ BANK to see if there might be some additional value they could help the bank wring from their real estate, it was clear the tenant would be content for many years to come.

A year later, while working on a 2,000-square-foot transaction in the building, Margolin and Leighton learned that the landlord, SL Green, was not renewing or signing any more long-term tenants, as it was considering selling or repositioning the building. Its anchor retail tenant, American Girl, was planning to relocate its flagship New York store to 75 Rockefeller Center when its lease expired in 2018. Looking to attract another retail tenant and potentially a buyer for the whole building, the landlord was seeking to overhaul the outdated building and retail configuration, which would include moving the office entrance and elevator banks around the corner to 49th Street — a move that would be extremely difficult if not impossible with DZ BANK’s office and signage in the way. They saw an opportunity to leverage DZ BANK’s tenancy against the sale and repositioning.

DZ BANK could have continued on their path of staying in place, but would likely have had to live through a disruptive building renovation, and would lose signage and naming rights when its affiliate DVB’s lease eventually expired. In addition, 609 Fifth Avenue is an older building and did not offer the infrastructure available in new, efficient, modern office developments.

Meanwhile, SL Green’s One Vanderbilt was under construction. The 55-story trophy tower would become New York City’s next iconic skyscraper. With world-class architecture, space design and technology, as well as direct connection to Grand Central Terminal, the property would surely be an upgrade for DZ BANK. It would offer the company a more efficient, productive and convenient environment for DZ BANK employees. Relocating to the most iconic building of the future would also offer a tremendous boost to the DZ BANK brand, giving the company more capability to attract and retain both talent and clients.

Most brokers would have left well enough alone, but Margolin and his colleague Brad Wolk saw the tremendous value in the opportunity at hand. If they could architect a deal with substantial financial incentives for DZ BANK, the company would end up with a much better office space and benefit from significant improvements to its top and bottom line. Margolin, Wolk and Leighton pitched DZ BANK on hiring the tenant-focused Savills Studley to represent them in what would likely be a David versus Goliath negotiation against Manhattan’s largest commercial property owner.

The brokers knew that DZ BANK’s lease extension and naming rights would give the company significant leverage. SL Green would be able to extract greater profit if it had greater flexibility to redesign the building without a tenant in the way for another 10-15 years. Their goal was to structure a transaction whereby DZ BANK could participate in the substantial asset value created by the bank’s exit from the building.

The brokers and consultant tapped in-house expertise from lawyer Stan Towne and capital markets expert Borja Sierra to analyze the tenant’s contracts and generate multiple scenarios for SL Green to consider when marketing the value of its asset at 609 Fifth Avenue.

The analysis proved Margolin and Leighton’s instincts were right. Using Wolk’s cap rate model to counter SL Green’s discounted cash flow analysis, they were able to illustrate the true value creation and make a viable case for a meaningful DZ BANK participation in the upside.

By proposing that DZ BANK would move within SL Green’s portfolio to One Vanderbilt, Margolin, Wolk and Leighton presented another upside to the landlord: SL Green would keep a good, creditworthy tenant in hand both during the interim move and for their building under construction.

With SL Green and DZ BANK now open to considering the buyout and move to One Vanderbilt, Margolin and Wolk had to structure and negotiate terms that would result in a win-win for all parties.

First, they negotiated a substantial relocation inducement from SL Green to expedite DZ BANK’s early exit (specifically defined to shield DZ BANK from any transfer tax liability). They then negotiated for a “new” FASB-favorable net lease structure for DZ BANK in the coveted One Vanderbilt tower, due to open in 2020. To serve as temporary space while One Vanderbilt would still be under construction, the team negotiated a three-year lease at a very favorable rent at 100 Park Avenue, another SL Green building. Additionally, Margolin and Wolk compelled SL Green to cover all of the design, build-out, furniture and moving costs for the temporary space at 100 Park — an unheard-of concession for such a short-term deal — as well as a sizable tenant improvement allowance and free rent period at One Vanderbilt. Margolin coordinated third-party advisors for the complex negotiations in connection to the interim move and timeline management.

A cost-benefit analysis demonstrated to DZ BANK that the value of the deal over time will be greater than staying in place. The commute to One Vanderbilt will be equal or better for the majority of their employees, and having world-class space in a premium location will be an asset in the war for talent for years to come.

Now with the deal closed and DZ BANK out of the property, SL Green is proceeding with its plan to reposition the property and reap maximum returns by offering the utmost flexibility to buyers or end users; either leasing or selling the building for retail, office, hotel and/or residential use.

The ingenious approach taken by Margolin, Wolk and Leighton helped both SL Green and DZ BANK unlock value and resulted in a win-win solution for all parties.


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