Law 360

SL Green, Harel Team Up To Build 2nd Pace University Dorm

August 23, 2012

By Kaitlin Ugolik Law360, New York (August 22, 2012, 1:39 PM ET) — New York landlord SL Green Realty Corp. has entered into another joint venture with Israeli insurance and finance company Harel Group to build a 30-story dormitory for Pace University in Manhattan, the partnership’s fourth such project in two years, the companies said Wednesday.
The dorm will be built at 33 Beekman St. in the city’s financial district and will include both student housing and ground-floor recreational space, according to a statement. Construction is expected to begin in April and be completed by August 2015.

The project is the second Pace University dorm SL Green has developed with Harel; the joint venture agreed last year to construct another dorm with 609 units for the school at 180 Broadway.

“Our recent experience with Pace on the 180 Broadway project has demonstrated that we can work well with the university’s administration to create a superior living experience for its students,” SL Green President Andrew Mathias said in a statement. “We’re delighted to have the opportunity to develop another attractive and modern dormitory building for Pace University.”

The project will be financed in part through the joint venture’s existing equity and in part through new financing. SL Green shares a 51 percent share in the transaction with Naftali Group, while Harel has put up $22 million for its 49 percent stake. SL Green and Naftali declined to provide financial details.

The joint venture between SL Green, a real estate investment trust, and Harel, an insurance investment and financial services firm, was formed to take advantage of the stable market for student dorms in Manhattan created by vast demand, high occupancy rate and very low supply.

Thanks to those metrics, the partnership has been able to generate positive results for its investors on all four of its projects, including the existing Pace dorm, and expects to generate an annual return of more than 7 percent at the new project.

“These statistics helped the partnership formulate a transaction that generates an above-average return with potential for significant increase in value,” Gadi Ben-Haim, head of real estate at Harel, said in Wednesday’s statement.

The new dorm will be built on a development site that has struggled in recent years as at least two hospitality companies have tried and failed to build a hotel there.

The site had been pegged by McSam Hotel Group LLC for a 36-story, 270-room hotel. But last summer, the developer backed out of the project, along with several others in the city, selling the site to Jiten Hotel Management for about $15.7 million, according to city records.

Gary Goodman of SNR Denton represented the lender for the deal, Landesbank Hessen-Thuringen Girozentrale.

Fried Frank Harris Shriver & Jacobson LLP represented the borrower and guarantor.

–Editing by Lindsay Naylor.