(TOKYO, JAPAN) -- In the biggest commercial real estate deal of its kind this year, American International Group (AIG) today contracted with Nippon Life Insurance Co. to sell its 35-year-old, 15-story, 404,294-square-foot AIG Otemachi Office Building located on the most expensive one-acre pad in Downtown Tokyo.
The price was $115.5 billion yen or $1.2 billion U.S. It was an all-cash deal.
Merrill Lynch ran the bidding auction as AIG's financial advisor.
The deal is expected to close before June of this year, according to Eric Martinez, AIG's chief restructuring officer for global real estate.
The deal was done at this time to satisfy Treasury Secretary Timothy Geithner's demands that AIG sell off all non-core businesses to pay off $182.5 Billion in government loans made in the past eight months to the New York City-based company, once the world's biggest insurer.
The sale price surprised many U.S. and Japanese commercial real estate watchers. They had expected the deal to come in at around $750 million. The price equates to about $296 per square foot.
"It's a great location and hard to find anything with more potential, so that may be behind the (high) pricing," Takashi Ishizawa, chief analyst, Mizuho Securities Co., Tokyo, told Bloomberg News.
The property's Marunouchi 1 chome address is one of the most coveted in central Tokyo's downtown business district. Marunouchi, Tokyo's business center, is the highest rent district in Japan with demand for Class A space typically exceeding supply. April Downtown Tokyo vacancy stood at 6.8 percent, the highest in the past 12 months.
AIG's property is unique within the district because of its location next to and overlooking the inner moat of the Imperial Palace.
Edward Liddy, AIG's Chairman and Chief Executive Officer, calls the deal "a significant transaction because of the prominence and unique nature of the property and the highly attractive value that both AIG and Nippon Life Insurance Company are realizing through the transaction.
"This transaction has been successfully negotiated by AIG despite the difficult real estate market environment in Japan and globally. The sale generated substantial interest from both Japanese and foreign investors, resulting in a very competitive bidding process.
"AIG is pleased to effectively monetize this asset within the context of its restructuring effort. We view this transaction as a win-win for all concerned, with Nippon Life Insurance Company acquiring a premier real estate asset.
Liddy says AIG is also near in closing deals on other owned assets. They include its worldwide headquarters building in lower Manhattan; another Manhattan property at 72 Wall St.; the San Juan Marriott hotel property in Puerto Rico; an unnamed asset management business and an unnamed aircraft lessor.
AIG previously sold its U.S. auto insurance business to Zurich Financial Services for $1.9 billion, the company's largest asset sale since the federal bailout money began in 2008. Other sales included the HSB Group to German reinsurer Munich RE for $742 million and AIG's Canadian life insurance unit to Bank of Montreal for $302 million.
"We have reached agreement or closed over a dozen deals in the past several months, despite a very challenging economic environment," Liddy says.
AIG's common stock shares on the New York Stock Exchange were trading today at around $1.87, down 14 cents or 7 percent from Friday, May 8.
Simpson Thacher & Bartlett LLP and Anderson Mori & Tomotsune acted as legal counsel to AIG on the Otemachi building transaction. Blackstone Advisory Services provided financial advice to AIG for AIG's global restructuring program.