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March 18, 2013

Sony Drops More Real Estate, Closes U.S. Headquarters Sale

By Steve Anderson, Contributing TMCnet Writer

In the closing hours of Friday's business day, Sony Corporation out of Japan sold off its United States headquarters in a deal valued at $1.1 billion. The building, according to multiple sources, went to a group lead by the Chetrit Group, a real estate developer. This move provides Sony with some badly needed extra cash, although the source of the cash may leave some investors worried.

Originally, according to reports, most of the funding came from SL Green Realty Corp, who put up $925 million in loan financing, going outward up to three years and based mainly on how long Sony would remain on as a tenant in the building it used to own. But that picture changed noticeably when Bank of China Ltd decided to step in, offering an agreement to take on $600 million of that debt as a "senior loan." Other parts of the group stepped in to offer further financing, with a $175 million junior tranche sold to Apollo Global Management's Performing Debt Fund. There's an option to increase that to $250 million from there.

Much like in the Sony City Osaki deal, Sony has agreed to remain on, leasing back the building for a period of three years while the Chetrit Group decides what to do with the building. It has plenty of options, especially given that the Sony building was in Manhattan's Plaza District, where the 800,000 square foot building sold for around $1,341 a square foot. Not all of that space is Sony, however, as some of the space includes retail operations.

Overall, it was likely a good move for Sony--reports indicate that Sony bought the building originally back in 2002 and paid $236 million for it--but it's still the kind of move that likely will leave at least some investors unnerved. Despite the fact that, at last report, this represented the highest price paid for just one office building in the United States since Google (News - Alert) bought its Manhattan office for $1.8 billion, it's still got to leave some concerned with the long-term ramifications.

With Sony rapidly selling off real estate, it's not the kind of move that screams "long-term health." Now, it could be that Sony's just out to make the kinds of difficult decisions necessitated by four years of consecutive losses and a lot more competition in virtually every field in which Sony operates, but selling off real estate is one of those "eating the seed corn" moves that isn't a real confidence builder. After all, Sony can never sell that building again--unless it buys it back first--so it's a one-time gain.

Sony can, of course, use that gain to further development in the field, and that would make it a smart investment--Sony's been, reportedly, looking to sell off "non-core assets" for some time now and refocus on the main business--but only time will tell if this was a smart move, or just the beginning of the end.

Edited by Brooke Neuman
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