Empire State Realty Trust is scooping up the Scholastic Building in an all-cash sale-leaseback deal, the two companies announced Tuesday.
The REIT has agreed to pay $386M for the property at 555-557 Broadway in SoHo, between Spring and Prince streets. The transaction is expected to close this month.
The Scholastic Building at 555 Broadway
Under the deal, Scholastic will enter a 15-year lease for 222K SF of the building’s 368K SF of office space. The lease has two 10-year extension options, according to Scholastic.
The 28K SF retail space is fully leased to Sephora and Capital One, with a weighted average lease term of approximately eight years.
That brings the property’s occupancy to 70%, with a three-floor block of over 110K SF of office space available.
The book publisher paid $255M for 555 Broadway, which serves as its U.S. headquarters, in 2014. Prior to that, it had been a tenant at the building since 1992 and owned the adjacent building at 557 Broadway since 2010.
But Scholastic is offloading the property as part of its turnaround efforts.
The sale is estimated to generate $327M in proceeds, which will be used to reduce the company’s debt and buy back stock, according to the company.
As landlord, ESRT will take over maintenance expenses and capital investments, which cost Scholastic $7.3M in fiscal year 2025. It will also take over rent collections from the other tenants, which earned Scholastic $11.2M in income this year.
Despite shrinking its footprint in the building and reducing operating costs, the new lease is estimated to add an annual expense of $11.2M, Scholastic said.
“Today’s announcement reflects meaningful momentum for Scholastic as we unlock the value of our owned real estate and focus on accelerating long-term, profitable growth and shareholder value creation,” Scholastic President and CEO Peter Warwick said in a statement.
Newmark’s Adam Spies, Josh King and Avery Silverstein represented Scholastic in the sale.
The deal adds to a string of big-ticket Manhattan office sales that have closed this year. Roughly $4.9B of properties traded in the third quarter, up 191% from the second quarter and 54% from a year prior, according to Avison Young.
That number was bolstered by RXR and Elliot Investment Management’s nearly $1.1B purchase of 590 Madison Ave. and Norges Bank Investment Management and Beacon Capital Partners‘ $572.3M acquisition of 1177 Sixth Ave.
Avison Young said such deals spur market confidence, resulting in more closings as the year comes to an end. It estimated that the overall dollar volume for Manhattan CRE sales in 2025 will work out at $12.3B, up 9% from last year.
In addition to the Scholastic Building, the publisher announced it is selling its primary distribution facility in Jefferson City, Mo., to Fortress Investment Group for $95M. The deal will generate $74M in proceeds for the firm.
There, Scholastic will commit to a 20-year triple-net lease with two 10-year lease extensions. Annual rent will cost the company $7.6M.