REAL ESTATE- Pramerica Real Estate Investors and SJP Properties have setup a joint venture to develop the $1bn (€770m) 11 Times Square office project on Times Square in New York.

Pramerica will be the main equity source for the development and own a vast majority interest in the project. SJP contributed some equity to the project and will be the development partner. It will handle all of the day-to-day duties like development, leasing and management.

Pramerica will be investing in this project for its commingled fund, Prudential Real Estate Separate Account (PRISA). The portfolio manager on this fund for Pramerica is Allen Smith. He said, “The Manhattan office market is an area we have followed closely for some time. The market is right for some new development. Vacancies are now in the mid single digits and rents are improving. Large space users in the 200,000 to 500,000 s.f. range have very little options in looking for new space.”

The real estate fund manager is prepared to start the development as a spec building, if necessary. Smith said, “We would be willing to begin the project on a spec basis. We are hopeful that there will be some leasing activity before the start of construction.”

PRISA is a core open-ended commingled fund. It does have within its guidelines the ability to invest up to around 20% of the fund in non-core kind of transactions.

Pramerica does plan to bring an investment partner into the 11 Times Square project. Smith said, “This project is too large for PRISA to do on its own. At some point in the future we will bring in another source of capital. This would figure to be a pension fund. The amount of our investment that we would like the other source to take on is in the range of 50%.”

Pramerica figures that 11 Times Square will not be delivered to the market for three years. The land will be acquired in October and then construction would be started sometime in the future after that. There were be a total of 1 million s.f. in the project. The development will be a 35- to 40-story asset. The vast majority is office space. There is some retail planned for the project.

PRISA is a commingled fund with a total net asset value of $8.5 billion, as of the end of March. Before the 11 Times Square deal, the fund was under allocated for office buildings. It had 30% of its portfolio in office. NCREIF numbers are in the range of 38%. Smith said, “This will help us add some more high quality office space to the PRISA portfolio.”