Ladder Capital, a commercial real estate finance company, has moved in to its gleaming new 15,000-square-foot offices at 345 Park Avenue, the luxury Rudin family-owned skyscraper that houses the National Football League.
Moving on up!
The finance firm, which until last week had occupied space at 600 Lexington Avenue, doubled in size.
Ladder Capital is building out an eighth-floor space at the landlord’s expense, said Charles Shamash, a broker at Norman Bobrow Co. who represented the tenant. The building, between 51st and 52nd streets, is home to corporate clients like KPMG, Bristol-Myers Squibb and the Blackstone Group. Asking rent on the 10-year deal was $75 per square foot, said Mr. Shamash.
Last July the NFL turned heads when it relocated to 345 Park with what were thought to be enticing tenant incentives. The football league, which previously occupied space at 280 Park Avenue, took five floors at the 44-story building for a total of 175,000 feet.
Prime Park Avenue space saw some of the most dramatic dips of any office leasing submarket in Manhattan during the post-Lehman slump, with effective rents plummeting from $118 per square foot to $59, according to The Wall Street Journal. Things are looking up for stable, stalwart landlords like Rudin, who can still afford juicy incentive packages for the right tenants. And it looks like Ladder Capital may have been one of those. Thomas Keating represented Rudin Management Company in-house.
A high-ranking executive for the Kimco Realty Corporation, a real estate investment trust that has interests in 940 shopping centers and 138 million square feet of space across North America and other parts of the globe, received a cushy golden parachute following her resignation from the firm earlier this month, including a million-dollar salary for the next thirty months and a 2011 performance bonus worth $115,000, according to SEC filings.
Barbara M. Pooley, the former Chief Administrative Officer and Executive Vice President of Kimco Realty, formally resigned from the 687-employee firm on January 13th of this year, according to an 8-K form filed with the U.S. Securities and Exchange Commission, as was first reported by Footnoted.com, a website that regularly examines SEC filings.
Barbara M. Pooley (via Facebook)
Per the agreement, Ms. Pooley is entitled to “an aggregate of $1,750,000 in installments” for 30 months, an amount of $115,000 payable in a lump sum on or before March 15 of this year, and “approximately 18 months of group medical, dental and vision insurance coverage,” according to a second 8-K form filed on January 18th.
Ms. Pooley will be reimbursed $25,000 for three months rent at her Manhattan apartment, receive “reasonable moving expenses through a vendor approved by Kimco,” and she’ll be allowed to keep her Kimco-issued iPad, according to the Agreement and General Release that was also filed with the SEC.
Kimco will grant Ms. Pooley the “vesting of restricted awards subject to satisfaction of any performance conditions,” which footnoted.com reported could be worth up to $988,000.
Ms. Pooley did not return a message left at her Manhattan apartment. Her reasons for leaving the firm were unclear.
A Kimco spokesman did not respond by press time to a phone call and email requesting comment.
Ms. Pooley joined Kimco in 2007 after working as a senior-vice president of investor relations at Colonial Properties Trust, also an REIT, according to her profile on Forbes.com.
In other news, Kimco, which has offices in New Hyde Park, Long Island and on 280 Park Avenue, announced yesterday that it spent a combined $17.4 million – including $4.2 million of mortgage debt– to purchase two shopping centers in the Southwest.
The Woodbridge Shopping Center in Sugar Land, Texas, and Bell Camino in Sun City, Arizona, are 97,000-square-foot and 63,000-square-foot shopping centers, respectively.
Staff Writer Daniel Edward Rosen is reachable at Drosen@Observer.com
Cohen & Steers, a investment portfolio management firm that invests in global real estate securities and large cap value stocks, among other securities, has renewed its lease for 87,000 square feet for three floors at 280 Park Avenue, The Commercial Observer has learned.
280 Park Avenue (photo courtesy of Property Shark)
The firm, which is currently on the 10th, 19th and 20th floors in the building, has extended its lease for 10 years, according to a person familiar with the deal. Asking rent for the building is in the low $100s-a-square-foot.
SL Green Realty Corp and Vornado Realty Trustpartnered together in 2011 to assume $400 million in debt for the 31-story office building. Representatives for both firms worked on the deal in-house.
Cohen & Steers had been subleasing 46,031 square feet of space on the 10th floor of 280 Park Avenue from Credit Suisse First Boston since January 12, 2005, according to U.S. Securities and Exchange Commission records. That space is set to expire in February 2014, which Cohen & Steers will then lease the 10th floor directly from SL Green and Vornado.
Vornado and SL Green assumed control of the building from Investcorp and Broadway Partners, both of whom paid $1.278 billion in 2007, one of the highest amounts paid for an office building that year.
Since then, both real estate investment trusts have embarked on an ambitious capital improvement plan.
"We are doing a whole transformation," said a person close to both companies. "We are gutting the whole building and starting over." The building will be outfitted with a new lobby and plaza, among other improvements. KPF Architects is overseeing the $100 million renovation for the building.
SL Green Realty Corp. today announced that 35 office leases covering 457,677 square feet were signed in its Manhattan portfolio during the first two months of the year, already trumping its totals from the fourth quarter of 2012.
The year so far was highlighted by a 150,865 square foot lease signed with Eisner Amper at 750 Third Avenue, and the firm also said it has 600,000 more square feet in the pipeline
“Even though first-quarter leasing is typically slow, we entered 2013 with confidence, given our overall assessment of the New York commercial real estate market and knowing what we had in the pipeline at that point,” SL Green's CEO Marc Holliday said, in a statement. “Our results and activity since January have far outpaced our expectations.”
SL Green CEO Marc Holliday
SL Green signed 54 Manhattan office leases totaling 321,622 square feet during the fourth quarter of 2012, the REIT reported in January.
Notable leases from this year included WPP Group USA, Inc.’s 43,294-square-foot renewal at 100 Park Avenue; The Federative Republic of Brazil’s 30,320-square-foot lease at 220 East 42nd Street; Major, Lindsey & Africa LLC’s 21,677 square foot lease at 521 Fifth Avenue; and Chinatrust Commercial Bank, Ltd.’s 20,987-square-foot lease at 521 Fifth Avenue.
The REIT is currently redeveloping several properties throughout Manhattan, Director of Leasing Steve Durels told The Commercial Observer last month. The projects include 635 and 641 Avenue of the Americas, 280 Park Avenue, 10 East 53rd Street and 180 Maiden Lane.
A separate announcement from the company today stated that Alexander McQueen has signed a 15-year retail lease for a mid-block retail space at 747 Madison Avenue, reportedly taking 3,300 square feet.
The REIT currently owns interests in 77 Manhattan properties totaling 39.3 million square feet, and last year the firm completed 258 leases covering 3.95 million square feet.
Blue Mountain Capital has extended its lease and will expand at 280 Park Avenue.
The firm had previously occupied a 22,250-square-foot office on the fifth floor of the building where it has been located since 2007. It will relocate to the 12th floor of the building where employees will spread out across the entirety of a 49,541-square-foot floor plate.
"We certainly toured other buildings," said AJ Camhi, a vice president of RFR Realty. "But at the end of the day, Blue Mountain Capital decided to stay at 280 Park Avenue because of the address, their desire to be on Park Avenue, and, most importantly, the ability to be on one floor."
Mr. Camhi worked alongside his colleague Brad Siderow in representing Blue Mountain Capital. The landlords, a venture between SL Green Realty Corp. and Vornado were represented by an exclusive leasing team from CBRE headed by Pete Turchin.
Blue Mountain Capital will take possession before the end of this year and they will build out the space to specifications from there.
The renewal comes in light of the recent London Whale Trade that cost JP Morgan's London branch $6.2 billion dollars in losses. A former executive, James Staley, announced earlier this year that he will be leaving JP Morgan in favor of Blue Mountain Capital Management, one of the hedge funds that profited by going against JP Morgan in the trade.
Mr. Staley's addition comes in a sweep of others as the firm is in expansion mode.
"Blue Mountain Capital has been rapidly hiring new employees and their assets under management continue to grow," said Mr. Camhi. "As a result, they needed more efficient space."
Promontory Financial Group has renewed its lease near Grand Central Terminal at 280 Park Avenue.
The strategy, risk management and regulatory compliance consulting firm will move from its 19,495-square-foot space on the 40th floor of the building to the 11th floor where it will span the entire 49,541-square-foot floor plate.
Their New York office is one of 15 branches around the world with headquarters in Washington, D.C. The New York office, opened in 2003, focuses on global banks, investment houses, and US branches of overseas firms. The New York Times has recently brought light to the firm's role as "shadow regulator" in recent years. The firm, reportedly, has been a major power broker through new regulatory and compliance scrutiny.
Promontory Financial Group did not have any tenant broker representing the firm in the transaction. The landlord was represented by MaryAnnTighe and PeteTurchin of CBRE.
Promontory Financial Group's lease comes in the wake of Blue Mountain Capital signing 49,541 square feet on the 12th floor of the building. The building also renewed leases with Cohen & Steers for nearly 90,000 square feet and Viking Global Investors for 40,399 square feet.
SL Green and Vornado have also poured $125 million into a redevelopment plan that will position the building as a "premier, state-of-the-art property strategically located in the desirable Grand Central Terminal submarket."
The capital improvement program encompasses a world-class lobby spanning the entire block front between 48th and 49th streets and an interior courtyard with reflecting pool. There will also be new elevator cabs, bathrooms, and upgraded infrastructure. The building will also increase its HVAC to enhance environmental sustainability.
New York City real estate is typically focused on the new. Ascendant tenants. Emerging neighborhoods. Fresh construction and radical renovation.
Barbara Koz Paley appreciates the new. But the founder and chief executive officer of Art Assets also trains her well-practiced eye on the old. “I’m a recycler,” Ms. Paley said. “The old and tired excite me.”
She’s referring to the commercial spaces that her 21-year-old art consulting firm helps reinvigorate with sculptures, paintings, installations and performances. Art Assets injects culture into what might have been antiseptic corporate lobbies and retail rooms, drawing in passersby (and prospective tenants) and defining the visual environment for existing users.
Currently, Art Assets is curating a roster of installations and performances for Water Street Pops!—a summer program courtesy of the Economic Development Corporation that aims to “activate” seven privately owned public spaces (POPS) throughout an area of lower Manhattan that was hit particularly hard by Superstorm Sandy.
The company is also staging what it calls an “art intervention” at 1114 First Avenue. When that Himmel + Meringoff Properties-owned building’s ground-floor retail portion became vacant, the landlord went to Ms. Paley to pique interest in the space.
“We thought it would be fun to have a new artist profile some of their creative works and vision on this First Avenue corner storefront, literally across from Bed Bath & Beyond,” said Leslie Himmel, a principal at H+M. “We were attempting to take advantage of Bed Bath & Beyond’s foot traffic and bring that eye traffic, as it were, to the store.”
Art and real estate are two of New York’s best-known industries. Yet they often seem at odds. Bohemians have been on a seemingly inexorable eastward migration since being priced out of Greenwich Village 50 years ago. And all but a handful of galleries were long ago displaced from Soho. Yet real estate bigwigs are among the city’s most serious art collectors. And office and apartment lobbies are fine showcases for established and rising artists. Finally, POPS, especially the often-criticized plazas required of many projects (and, frequently, created as blatant afterthoughts), give valuable exposure to artists while enlivening otherwise sterile asphalt canvases.
Ms. Paley, who lives and works out of an art-filled apartment by the Queensboro Bridge, is not overly concerned with a conflict between art and commerce. And she’s not shedding any tears over the stratospheric real estate prices in onetime creative hubs like Soho. She bought 142 Greene Street there in 1970 and ran a gallery showcasing the area’s growing art crowd.
Credit: Fernando Pereira Gomes.
Art consultants, who typically don’t own a gallery yet act similarly to gallery owners as conduits between artists and buyers, have gained prominence as the international art market has sizzled, turning festivals like Basel into Oscar-caliber social events. Corporate representatives have a much more public canvass than private consultants, whose clients might stash their prized possessions in climate-controlled vaults. Art Asset’s New York peers in the field include Art Advice, DSA Fine Arts and InvestinArt.
“I spent my first money in Soho,” she said. “It’s always been my petri lab. Watching it go through six or seven generations of owners, and from a ratty industrial area to being the mall of the world, has been very instructive.”
Despite getting in on the ground floor of the Soho boom—she eventually bought four buildings there—Ms. Paley was in dire straits financially when she founded Art Assets in 1992.
“I wanted to do it because I was desperate,” Ms. Paley said. “I was dead broke. And I mean I had no cash. I was using my penny box for milk money for my coffee. I’d been running a fund and the market crashed. I owned property and had to give some back to the banks. And I had a son.”
Luckily, Ms. Paley had friends in high places. During the early-’90s recession, the billionaire real estate magnate Sam Zell, a friend, told Ms. Paley to “stay alive till ’95.” She told Mr. Zell that her new company was leasing art, and he gave her one Equity Office Properties building to work with. Impressed, Mr. Zell ultimately had Art Assets consult on eight of his company’s holdings. He also included art services as part of the common-area expenses on a major national lease.
It’s rare to possess both business savvy and an artistic temperament. But Ms. Paley, who invested in the stock market as a college sophomore and declined an undergraduate internship offer at the Museum of Modern Art to collect sculpture in Europe for a summer, is as comfortable negotiating big-league deals as she is scoping out a Bushwick gallery opening.
“My Rolodex has always been golden,” she said. “People will take my phone calls. I made a career of being a really smart woman who understood place. And I understood how to make real estate more valuable. I’ve always worked in the spectrums of finance, fine art and real estate.”
Art Assets represents the confluence of those three spectrums. Asked to describe the group’s watershed deal, Ms. Paley mentions assignments at 150 East 52nd Street and 660 Madison Avenue. The real estate investment company Rockwood Capital owned both of those properties when Art Assets consulted on them. Ms. Paley said they were “teetering at 60 percent occupancy” when she and her team intervened. In addition to Rockwood Capital and Himmel + Meringoff, Art Assets has worked with PricewaterhouseCoopers, Related Companies and Shorenstein Properties.
L&L Holding Companies has been another frequent client. Art Assets will transform a ground-floor corner of 200 Fifth Avenue when Fidelity Investments vacates space adjacent to Eataly. That job stands out as an instance in which the landlord actually wants a storefront to remain vacant. Ms. Paley said that with Lego opening its flagship in the same building, L&L wants to sit tight and wait for a “better tenant willing to pay higher rent” to recognize what should be the increased value of an already-prominent address.
Perhaps the biggest of Art Assets’ current projects is the installation of four major sculptures at 280 Park Avenue. Co-owners SL Green Realty Corp. and Vornado plan a $125 million overhaul of that Midtown tower s façade, base, plaza and lobby. Last week, Ed Piccinich, SL Green executive vice president of property management and construction, told The Commercial Observer that the restored lobby would become “the envy of Park Avenue.”
Ms. Paley agreed. “I told ownership, ‘This building has to be a beacon.’ We’ve come up with very important artists in the world who don’t have a major presence in New York. We want to make the lobby glow when you’re walking up and down the street. You feel as if you’re drawn into the lobby. And once inside, you’ll feel welcome.”
Speaking of the 280 Park Avenue job and her firm’s portfolio in general, Ms. Paley said, “We don’t want a space to be landscape. We want it to be living.”
That sense of vitality can apply to established upscale addresses as well as fringier neighborhoods. Ms. Paley, who has “always followed the creative community,” has invested in Brooklyn and brought art to storefronts near the intersection of Flatbush and Atlantic Avenues.
“It doesn’t matter where the neighborhood is,” said Ms. Paley, a 32-year member of the Urban Land Institute. “We’re very holistic. We look at the corners, the demographics, tenants who are leaving. What’s the city doing in the area? Is there rezoning going on?”
Once those determinations have been made, Ms. Paley works with clients who’ve grown much more receptive to art’s integral role in commercial properties. “Art has become indigenous to how you revamp your space,” she said. “Whereas before, [Related Chairman] Steve Ross might have said, ‘We don’t need that.’ They want distinct spaces. And culture is part of our life: on the walls, floors, windows, coming down from the ceiling [at 1 Madison Park].”
Mark Stein, senior vice president and director of leasing at Meringoff Properties, also sees the aesthetic and monetary value that art adds to real estate. “We all think of art as what’s personal to us. If you’re a collector of fine art, you can look at something that’s incredible and stare at it forever. So in many of our properties, we do have pieces of art. When it comes to a ground-floor vacant space like 1114 First Avenue, the thought here was it’s a location that’s ... not off the beaten path, but almost ignored by shoppers at Bed Bath & Beyond. We wanted something that’s artistically or graphically eye-catching so it creates a curiosity.”
Mr. Stein would not directly attribute a spike in interest at the space to its colorful, geometric artwork (“We’re brokers, and we’re reaching out to people”). And Ms. Himmel didn’t want to speculate on what precise effect the art intervention would have on asking rents.
“Ask me in three months,” she said.
Still, given Ms. Paley’s 43 years of juggling fine art, real estate and finance, the ground floor should not be exclusively dedicated to the street artist Aakash Nihalani’s designs for long.
“I’m an entrepreneur,“ she said. “Real estate has always been my place. But how to make place has been my practice.”
Napier Park Global Capital, an independent alternative asset management firm, has signed a new lease at 280 Park Avenue.
Napier took a 10-year lease for 25,000 square feet in the 43-story Class A building located between 48th and 49th Streets, according to Newmark Grubb Knight Frank, which represented the tenant in the deal.
“The new space has been built out specifically to accommodate our needs as a growing business,” Michael Williams, chief operating officer at Napier Park, said in a statement. ”The combination of location, purpose-built space and attractive lease terms make this a great move for Napier Park.”
Napier will leave its current headquarters inside Citigroup’s world headquarters for 399 Park Avenue later this summer. The Real Deal first reported news of the move.
Asking rent for the space was $90 per square foot.
NGKF's Neil Goldmacher, Josh Friedman and Daniel Madison represented Napier in the deal. Mr. Friedman declined to comment and the other two didn't immediately respond to a request for comment. CBRE represented the landlord, SL Green Realty and Vornado Realty Trust. CBRE didn't immediately respond to a request for comment.
Napier Park was previously the hedge fund component of Citigroup; it was spun off and became an independent firm last year. Napier maintains offices in New York, London, Switzerland and Dubai.
Other tenants in 280 Park Avenue include Blue Mountain Capital and Promontory Financial Group.
The property at 280 Park Avenue, a Class-A building located between East 48th and East 49th Streets, has secured two new leases for a total of 36,417 square feet, according to the New York Post.
“Leasing activity has accelerated as the building's $150 million comprehensive redevelopment nears completion,” said SL Green's Steven Durels in a press release.
Global asset manager Blue Mountain Capital Managementwill expand its current space in the building to 78,398 square feet. It currently occupies the entire 12th floor, which has 49,541 square feet. It will grow by leasing 28,857 square feet on part of the 14th floor.
The Siderow Organization’s Brad Siderow represented the tenant.
Private investment firm Thayer Street Partners Holdings signed a lease for 7,560 square feet on a portion of the third floor. The company is relocating from 30 West 21st Street.
ABS Partners Real EstateRobert Finkelstein represented the tenant.
"I think Vornado and SL Green did one of the nicest renovations I've seen in my career of approximately 35 years," said Mr. Finkelstein. "My customer, Thayer Street Partners, chose 280 Park Avenue because they believed in the landlord's vision and thought it would be the finest building on Park Avenue."
Mr. Siderow did not immediately respond to a request for comment.
CBRE’s Mary Ann Tighe, Peter Turchin, Eric Deutsch, Gregg Rothkin and Sam Seiler represented the landlord in both transactions.
Asking rents were between $95 and $130 per-square-foot. The 1.24-million-square-foot tower owned by SL Green and Vornado Realty Trust is now 75 percent occupied.
Fiduciary Trust International, a wealth management firm, along with Franklin Templeton, a global investment management firm and Fiduciary Trust’s parent company, will sign a lease at 280 Park Avenue, according to the New York Post.
The paper reported the companies are signing a 15-year lease for a collective 126,000 square feet at the property, owned by Vornado Realty Trust and SL Green Realty Corp. The office will serve as Fiduciary Trust’s headquarters.
Both companies will relocate from 600 Fifth Avenue between East 48th and East 49th Streets.
CBRE’s Mary Ann Tighe, Eric Deutsch, Ken Meyerson, Chris Corrinet and Zach Weil represented Fiduciary Trust in negotiations. A spokesman for CBRE declined to comment on the deal. SL Green’s leasing director Steven Durels and CBRE’s PeterTurchin, GreggRothkin and Sam Seiler negotiated on behalf of SL Green and Vornado.
A spokeswoman for Fiduciary Trust and Franklin Templeton did not immediately respond to a request for comment.
Asking rents were not immediately available, but last October Commercial Observer reported that asking rents in the building were between $95 and $130 per square foot.
Oh, the seasons have changed. Following a legal dispute that resulted in the fall removal of a Pablo Picasso canvas that hung on the wall in The Four Seasons Restaurant, the famed eatery is considering a move a bit south, sources with intimate knowledge of the situation told Commercial Observer.
The restaurant, at 99 East 52nd Street in Aby Rosen's Seagram Building between Park and Lexington Avenues, has a lease through July 2016, said Four Seasons co-owner Julian Niccolini, and while the eatery is in talks with Mr. Rosen's firm to stay put, he acknowledged, "we're considering every opportunity available to us." Those include 280 Park Avenue and other locations within walking distance from the Seagram Building.
Four Seasons, home to the legendary power lunch, is in talks to move to SL Green Realty and Vornado Realty Trust's 43-story, Class A building at 280 Park Avenue between East 48 and East 49th Streets. The restaurant space, which is apparently 18,000 square feet, was most recently occupied by Haru Japanese cuisine. SL Green, Vornado and the CBRE agents for the building declined to comment.
According to a spokesman for Mr. Rosen's firm, RFR Realty: "RFR is in contact with the tenant and in discussions regarding their lease, which expires in the summer of 2016."
Last September, the stage curtain, Le Tricone, was removed from the wall of the Four Seasons through an agreement between Mr. Rosen and the painting's owner, The New York Landmarks Conservancy. The painting had hung in the restaurant since the eatery's opening in 1959. The drama unfolded when Mr. Rosen sought to remove the painting to repair the wall. The conservancy said the artwork was too fragile to be moved.
PJT Partners, a boutique investment firm, has signed a lease for 100,000 square feet at 280 Park Avenue, according to The New York Post.
The paper reported that PJT is expanding tremendously, from its current 13,000-square-foot space at 40 West 57th Street between Fifth Avenue and Avenue of the Americas.
The Park Avenue building, owned by VornadoRealty Trust and SLGreen Realty Corp. that sits between East 48th and East 49th Streets, was represented by Peter Turchin, Mary Ann Tighe, Eric Deutsch, Sam Seiler and Gregg Rothkin from CBRE. The firm declined to comment on the deal.
Evan Margolin from Savills Studley represented PJT Partners in negotiations. Mr. Margolin also declined to comment.
Asking rents at the property, which SL Green and Vornado purchased in 2011 for approximately $500 million, range from $100 per square foot to $150 per square foot, the Post said.
A Singapore-owned investment firm has inked a deal for 49,724 square feet at 280 Park Avenue, The New York Post reported.
GIC, the financial firm owned by the Singapore government, will go on the ninth floor of the 28-story building between East 39th and East 40th Streets at the start of next year, according to the Post. The lease is for 15 years. The firm is leaving 335 Madison Avenue between East 43 and East 44th Streets (where its current lease ran through 2022), which is currently slated to be torn down and a new tower put in its place.
Asking rent was $100 per square foot, the Post reported.
Frank Doyle, Clark Finney and Barbara Winter of JLL represented the tenant in the deal. Mary Ann Tighe, Peter Turchin, Gregg Rothkin, Eric Deutsch and Sam Seiler of CBRE represented the landlord, a partnership between SL Green Realty and Vornado Realty Trust. Glen Weiss and Andrew Ackerman of Vornado, as well as Steve Durels, David Amsterdam and David Kaufman of SL Green also represented the landlord in-house.
A spokesman for CBRE declined to comment when contacted by Commercial Observer. JLL’s spokesman did not immediately respond to a request for comment.
Interest in the Midtown building has been increasing this year, following two major leases. Fiduciary Trust International and its parent company Franklin Templeton in January signed a 126,000-square-foot lease in the building, as CO reported at the time. That was followed up in March with another 100,000-square-foot lease with PJT Partners.
While the building is attracting financial firms such as these, it also might be drawing the likes of TheFour SeasonsRestaurant. CO reported in February the famed restaurant’s owners, which has been at the Seagram Building between Park and Lexington Avenues for more than 50 years, were considering 280 Park Avenue as a new site when its current lease expires in July 2016.
SL Green Realty Corp. is one of the largest office landlords in the city. The 19-year-old Manhattan-based real estate investment trust’s vast portfolio spans 47.7 million square feet in the borough—including ownership interests in 29.9 million square feet of commercial buildings and debt and preferred equity investments secured by 17.8 million square feet of buildings.
But while its investments in or financing of commercial real estate in New York City garners splashy headlines, the Manhattan-based company has an extensive leasing business with a total of 1,100 tenants. The company’s 22-person leasing team closes 250 lease transactions a year. At its helm is Steven Durels, 56, an executive vice president and the director of leasing and real property, where he has worked for 17 years. At the end of the day, he said, “I’m the guy that ultimately signs the lease.”
His job entails managing “everything related to leasing, marketing and participating in the underwriting of our acquisitions,” said Mr. Durels, whose younger brother, Thomas Durels, is an executive vice president and the director of leasing and operations at Empire State Realty Trust.
SL Green has 1.3 million square feet of transactions that are currently being negotiated, and they range in size from 1,100 square feet to 330,000 square feet. The two biggest deals of the year so far areCredit Suisse renewing 186,000 square feet at 11 Madison Avenue and Omincom Group’s 167,003-square-foot 15-year renewal at 220 East 42nd Street, also known as The News Building.
Commercial Observer met with Mr. Durels, a married Upper East Sider and father of a 25-year-old, in a conference room at SL Green’s offices at the Graybar Building at 420 Lexington Avenue between East 43rd and East 44th Streets. He talked about the uniqueness of the under-construction One Vanderbilt, adjusting rents and the coworking phenomenon.
How did you first get into real estate?
Ah, well I graduated from one of the better real estate colleges in the country, University of Iowa, which specializes in real estate. It’s Iowa—real estate, farming [laughs].
What was your major?
Business—economics and political science. I came out of college and got introduced to the industry through a family connection, and it appealed to me right away. I couldn’t say specifically why, but I think [it was] true to the fundamental aspect of being able to understand bricks and mortar and what people want as far as office space and being able to deal with the day-to-day of a lot of different types of businesses—I think that was probably the main appeal from day one.
What was your first real estate job?
Straight out of college I was doing promotional brokerage. I started working for Helmsley-Spear [and was there for 16 years].
It seems like a lot of people got their start there.
At that moment in time Helmsley-Spear was probably the biggest commercial landlord in the city.
What makes a good agency broker?
So you really need to be broadly trained on many different aspects, everything from where the market is obviously for rents but also construction, accounting, building operations. You need to have some understanding of building mechanical systems. And then of course after the lease is signed, you’d have to negotiate a lease that you can live with for five or 10 years because you now have a relationship with that tenant that you have to manage for the life of the lease. [This is as] opposed to a promotional broker that negotiates, represents his tenant and then comes back around when the lease expires five or 10 years later.
On the landlord side, you have the advantage of not having to fight for your dinner.
It’s a different aspect of the business. When I started it was pure commercial brokerage commission, representing tenants. And then the company I was working for needed somebody to run several of the buildings. That was at Helmsley-Spear. So I started managing a building, and then I picked up two, then three buildings. And ultimately, I was there for 16 years, right up to the point where SL Green bought this building. At that point, I was general manager of the building. So I had both the operations and the leasing reporting to me.
So you oversaw operations and leasing.
Yes, for a portfolio of 2.5 million square feet—for Graybar, 230 Park Avenue and 25 West 43rd Street. I was running a portfolio bigger than SL Green had at the time. But SL Green came in and bought this building, and I was offered an opportunity to join the firm, and here I am 17 years later. It’s funny, with the purchase of the Graybar building that doubled the size of SL Green’s portfolio—if you think of it in terms of that. Now we’re 28 million square feet in New York City alone.
You said on SL Green’s recent first-quarter earnings call that you adjusted rents on a select handful of spaces and dropped them on others. Where did you do each?
We adjusted rents on a few spaces at 280 Park Avenue and 10 East 53rd Street. But by way of example, those were spaces that we had been increasing the asking rent in a very dramatic way over the past 12 months, and we had a few spaces that [sat on the market] for a longer period of time than we wanted to wait so we’ve just sort of backed [off].
Why did those spaces linger?
We just pushed the rents up too high [at 280 Park Avenue]. A good example is I had one unit at the very bottom of the building, looking into the back side of another building, and we adjusted it because it was somewhat struggling.
Did anyone take them after you dropped the rents?
We really just [dropped them] in the past 30 or 45 days, so it’s still early. We had a piece of space that we had raised the rents so high, to $150 a foot, and we dropped it back down to $140 a foot.
Where did you raise them?
Here at Graybar Building we raised rents on a selects basis. I think it’s important to keep it in context. Over the past couple of years, certainly all through last year, every six to eight weeks we were raising rents. The market’s been very healthy. We’re over 97 percent leased.
On your earnings call, SL Green announced that it had signed 850,000 square feet, or 43 percent, of your 2-million-square-foot 2016 target.
We had projected for the year to sign 2 million square feet and we signed over 800,000 square feet in the first quarter, and then another 73,000 square feet in the first couple of weeks of the second quarter.
So what’s the projection now?
We haven’t adjusted it yet. We said on the call, that we may assess it later in the year.Well, let’s put it this way: We have a million square feet in our pipeline, between a combination of leases and prospective tenant term sheets being negotiated. And we sign every year on average about 250 leases. Last year we signed 2.3 million square feet of leases, and I think we were about the same number for the prior year, so 250 leases [would put us] generally well over 2 million square feet a year.
How many leases have you signed year-to-date?
76.
How do you feel about leasing to WeWork and other coworking tenants?
As a market segment, we’ve shied away from leasing to shared office spaces because of the credit risk. We’re fans of WeWork. We think it’s a fascinating business. In the past, we’ve actually leased to WeWork, at 315 West 36th Street last year [which SL Green then sold]. [Under] the right circumstances, we’d certainly do business with them again. But I think the broader conversation is the shared office suites business. That’s an industry that we’ve shied away from because our experience with that industry has always been a little mixed over the years. When times are good, it’s great. When the economy’s weak, they get themselves in trouble. Our focus is credit tenants, long leases, developing at maximum value.
SL Green’s under-construction One Vanderbilt office building is slated to reach over 1,400 feet in the air, making it the second tallest commercial building in Midtown after the Empire State Building when it’s completed in 2020. Is this your biggest undertaking to date?
Yes. And it’s got such unique characteristics as to be different than any other building ever built in Manhattan.
What makes the building unique?
It’s a combination of its proximity to transportation, being right next to Grand Central Terminal and floor slab heights that are well in excess of any other building in the city at 14.5 to 20 feet tall. And because of the relatively low-height buildings that surround us and the combination of the very high slabs, you get these amazing views all around with 360 degrees. And it’s got an extremely robust infrastructure system to support the tenants. And it’s got architectural design that’s really very forward looking as far as at both the crown of the building and at the base of the building. It has a very, very dramatic architectural impact at the street level.
Who is the main competition for One Vanderbilt?
I think we’re really one of a kind, quite frankly, you know, because of the size of the floors [ranging from 22,000 square feet to 47,000 square feet], when we’re delivering the building and the uniqueness of its design. I think our added advantage is that we’re a true Midtown location and the convenience that that provides. But I think what really differentiates the building beyond that is the quality of its design, the robustness of its infrastructure and the statement that it will make on the skyline and at the streetscape. If you really study the images of the building, it’s got an amenity package for the tenants where we’ll have a 30,000-square-foot tenant-only amenity floor. That’ll be a combination of auditorium space and sort of a social lounge-type space. We’ll have a world-class restaurant at the base of the building. And then we’ll have a very unique, most likely a cocktail lounge at the top of the building, but connected by elevators to the main restaurant.
Is a development like Hudson Yards be competition for One Vanderbilt?
Tenants considering us will consider other marquis buildings in Midtown. I don’t think we’re competing against Downtown. I don’t think we’re competing against the West Side. We’re competing for those tenants that value a Midtown location and what that has to offer.
You have TD Bank as a tenant in 200,000 square feet at One Vanderbilt. What sort of tenants are you courting for the building?
Primarily, the tenants that we’ve presented to have been in financial services, a couple of law firms and a couple of very large mature technology firms. But I would say 90 percent of the prospective tenants have been financial services companies.
What are the asking rents?
Well, we’re not really quoting it publicly, [but] they’re going to be in line with the highest quality marquis buildings in Midtown, equivalent to 90 West 57th Street, the GM Building, the Seagram Building.
What’s your prediction for the market?
My sense is that the market will stay very strong for the balance of this year, that there will be good leasing velocity and that rents will go up, but they’ll probably be moderately up, more in the 3 to 4 percent range.
Can you discuss re-tenanting 16 Court Street in Brooklyn?
We’re not going for startups per se. It’s a building that’s historically been tenanted primarily by law firms and nonprofits and city agencies. But as Brooklyn has really evolved into a more diversified office market, it was natural to take advantage of that and reposition the building so that it’s attractive to technology and advertising and media businesses. So in order to accomplish that, we set about to renovate the lobby of the building and the entrances of the building and rebuilt certain office floors to have an aesthetic and office layouts that are more appropriate to those industries.
How do you stay engaged in the business after all of these years?
I love the fact that we’re so active in the redevelopment part of the business. I really enjoy that when we take a building and reimagine that building and reposition it in the marketplace to really make it the best that it can be, so that’s everything from understanding when we buy a property, who our ultimate profile tenant is that we expect to lease to; redeveloping the building, from mechanical systems to the aesthetics of the building to appeal to that tenant base we think we’re going after. We recently redeveloped at 635 Avenue of the Americas, which was really repositioned to attract the [technology, advertising, media and information services] sector, and we achieved some of the highest rents in Midtown South on that building, and it has a look and a feel and amenities that appeal to those businesses.
What were the rents you achieved?
Anywhere from $85 to over $100 a square foot in that building on 18th and [Avenue of the Americas].
Does working for a public company hinder you in any way?
What’s allowed us to be so competitive, I think, is the fact that we’re very nimble. For the size of our company and the breadth of the company, we’re actually a small core group of people that move very quickly, and there’s a lot of the private company entrepreneurialism that’s been retained over the life of the public company. I’m quite certain there is no real estate owner in the city that buys, sells and lends as much real estate in any given 12 months as we do.
What do you do on the weekends?
I do a lot of traveling. I do a lot of family time. I spend weekends either, if it’s summertime, we’re in Bridgehampton; other times of the year, we’re in Sun Valley, Idaho. [In Idaho], in wintertime it’s skiing. In summertime, it’s fly-fishing, hiking and golf.
Do you personally own any real estate?
No, I have enough exposure to the real estate business.
Asking rent was in the $90s per square foot, according to Crain’s, which said Antares is slated to move into the 1.2-million-square-foot building some time in 2017.
Antares, which General Electric sold last year as it phases out GE Capital, is currently located across the street at 299 Park Avenue, according to Crain’s. GE Capital currently leases 114,682 square feet at the Fisher Brothers-owned property.
Paul Amrich, Neil King and Patrice Meagherof CBRE represented Antares in its lease at 280 Park Avenue.Andrew Ackerman of Vornado represented the landlord in-house along with Sam Seiler and Peter Turchin of CBRE. CBRE and SL Green declined to comment to Commercial Observer via a spokeswomen; a Vornado spokesman did not immediately return CO’S request for comment.
Vornado and SL Green have stocked the 48-year-old building with a number of investment-related firms. GIC, a Singaporese finance firm, signed a 49,724-square-foot lease in June 2015 at 280 Park Avenue, as Commercial Observer previously reported. Other major financial tenants are Franklin Templeton and PJT Partners.
International bank Wells Fargo has signed an early renewal and expansion at 280 Park Avenue, bringing its footprint in the 43-story tower to more than 49,000 square feet, Commercial Observer has learned.
The financial institution already occupied the entire 20,000-square-foot 29th floor and 9,000 square feet on the 28th floor of the property between East 48th and East 49th Streets.
It is expanding onto the entire approximately 20,000-square-foot 27th floor of the tower, a source with knowledge of the deal informed CO. The asking rent in the deal was $90 per square foot.
The Real Deal recently reported the deal was close to completion, and the renewal was for 10 years.
The 1.3-million-square-foot building is home to a number of major financial tenants, including Franklin Templeton and PJT Partners. Also, private equity firm Antares Capital recently signed a 55,000-square-foot lease to relocate its offices to the building, as CO previously reported.
Orix USA Corporation, the stateside subsidiary of Japan-based ORIX Corporation, has finalized a deal to relocate to 280 Park Avenue in Midtown, Commercial Observer has learned.
The financial firm will occupy 20,123 square feet on the entire 40th floor of the tower between East 48th and East 49th Streets, a source familiar with the transaction told CO. Orix USA will expand as part of the move, as it currently leases 14,078 square feet at 485 Lexington Avenue between East 46th and East 47th Streets, according to CoStar Group.
Orix USA’s lease at the 43-story 280 Park Avenue is for 10 years, the source indicated. Asking rent in the deal was $115 per square foot.
This is the second big lease signed at the SL Green Realty Corp.– and Vornado Realty Trust-owned property in recent weeks. As CO reported late last month, Wells Fargo signed a deal to renew early and expand to 49,000 square feet at the 1.3-million-square-foot building. In December 2016, Antares Capital signed a 55,000-square-foot lease to move into 280 Park Avenue from across the street.
Martin Horner of JLL represented Orix USA, while Peter Turchin of CBRE represented the landlords. Horner did not immediately return a request for comment via a spokesman, and a CBRE spokeswoman did not immediately respond to an inquiry.
Deutsche Bankprovided the floating-rate, interest-only loan on the Midtown trophy asset, according to a source with knowledge of the deal. The loan is set to mature in September 2024, according to a news release from the landlords. The loan carries a rate of Libor plus 1.73 basis points and replaces $900 million in existing debt provided by Deutsche Bank and Bank of China in May 2016 that had a maturity date of March 2023.
Located between East 48th and East 49th Streets, the building underwent $150 million in renovations to its façade and interior, the landlords said. The makeover included expansion of the building’s lobby, enhancement of its environmental sustainability, redesign of the building’s plaza and infrastructure upgrades such as new elevator cabs and bathrooms.
For the past few years, the developers, landlords and brokers who constitute the stakeholders of the Midtown Manhattan commercial real estate market have been barraged by waves of conjecture, speculation and hype.
On earnings calls, panel debates and in the papers, they’ve been confronted with statements and observations that are, by now, extremely familiar: “Manhattan’s center of gravity is shifting westward.” “Today’s office tenants want new space in cool, hip neighborhoods.” “Midtown South and the Far West Side are now the city’s most desirable office markets.”
It’s all had the effect of painting a rather forlorn picture for Midtown, which today remains the world’s largest central business district and, in many respects, the dominant, bustling hub of commerce in New York City, from Times Square to Rockefeller Center to Grand Central Terminal. With more than 240 million square feet of inventory and 179 million square feet of Class A product, according to Cushman & Wakefield data, it is by far the greatest concentration of office space in the city.
And yet, even for the most bullish Midtown observers, it is undeniable that the market faces an unprecedented challenge to its dominance on the office front. Hudson Yards—embodied by Related Companies’ mega-development, as well as nearby projects like Brookfield Property Partners’ Manhattan West and Tishman Speyer’s The Spiral at 66 Hudson Boulevard—has, as numerous sources put it, changed the game, with major tenants flocking en masse to absorb the tens of millions of square feet due to come online on the Far West Side over the next few years.
Meanwhile, the Midtown South office market at large has become one of the most supply-constricted in the country, with the tech- and media-oriented tenants that have come to represent a growing portion of the city’s economy over the past five years voraciously gobbling up all the space they can find from Houston Street up to 34th Street. And further south, the Downtown market has been spurred by the redevelopment of the World Trade Center complex and the Financial District’s emergence as a vibrant, amenity-laden live-work-play environment—factors that propelled Downtown office asking rents to an all-time high last year, according to CBRE.
So where does this all leave Midtown?
Of the more than a dozen executives who spoke to Commercial Observer for this story, virtually all expressed a steadfast confidence in the market’s future—pointing to massive projects like SL Green Realty Corp.’s One Vanderbilt office tower and J.P. Morgan Chase’s proposed redevelopment of its 270 Park Avenue headquarters as examples of Midtown’s continued viability. Still, even the most ardent believers acknowledged that area is experiencing cyclical challenges that will require innovation, evolution and, perhaps most critically, serious reinvestment in order to surmount.
“Midtown is not in trouble—Midtown is doing just fine,” said David Falk, the president of Newmark Knight Frank’s New York tri-state region. “What landlords have needed to do, and what they’re being forced to do now, is spend significant dollars on these buildings to make them attractive to tenants and their desires.”
As Falk put it, Midtown property owners need to improve “the story” being told by their rapidly aging, often outdated assets.
“The [Manhattan] market is almost bleeding into one, and it’s about what the building offers that differentiates it—does it speak to the brand of the company that is considering the building?” Falk said. “There are buildings that have done very well near the High Line that aren’t as accessible, but what they’ve offered is an amazing brand experience, and that’s their story.”
As for those in Midtown who don’t see the need to reinvest, reposition and retell the story of their properties, the prognosis is much dimmer. “You will suffer if you have Class A space that is unappealing—meaning it’s too dark or the ceilings are low,” Falk added. “You will suffer if you misprice your space, and you will suffer if you don’t invest money. If you don’t do those things, your space will sit.”
Rendering of 390 Madison Avenue in Midtown. Image: Neoscape
Renew Is the New New
To some Midtown observers, the biggest thing that Hudson Yards has going for it is that it’s new. One statistic popularly bandied about in recent years is how the average age of Manhattan’s existing office stock is approaching 80 years old; Midtown, long entrenched as the city’s preeminent office hub, is home to many of those older buildings.
More than 20 tenants—including heavyweights like Pfizer, EY, Time Warner and Wells Fargo—have signed leases in recent years to relocate from Midtown to the new office product rising on the Far West Side, according to Newmark Knight Frank data. In fact, tenants formerly in Midtown have accounted for a remarkable 64 percent of all new leases signed for new construction on the Far West Side since 2013, per NKF.
Over the next two years, Manhattan at large is set to see more new office supply—12.6 million square feet—arrive on the market than at any point since the mid-1980s, according to C&W data, with that number swelling to more than 22 million square feet over the next five years.
“The millennial generation has spoken: They want [offices with] light, air, amenities and column-free efficient space,” said Bruce Mosler, C&W’s chairman of global brokerage. “Businesses today respond to what the workforce wants and not where the CEO lives. To be successful, they have to be in the locations and property types that attract the millennial generation.”
The task for Midtown landlords then is finding a way to make their existing product more competitive against the challenge of the West Side’s rising citadels. The property owners who will continue to do well in Midtown, sources said, are those who will invest the resources into making their 20th century office buildings attractive to the needs of 21st century tenants.
“One thing that’s clear and evident, and Hudson Yards bears it out, is that tenants want new,” David Berkey, an executive vice president and director of leasing for L&L Holding Company, told CO. “They want modern workspaces—they can no longer live in these older workspaces—and there’s only a finite amount of [new space] getting built.”
Given those constraints, L&L is pursuing ambitious redevelopments at two key Midtown assets it owns: The ground-up reconstruction of 425 Park Avenue and the expansive renovation and expansion of 390 Madison Avenue. Both projects were aided by expiring ground leases at the properties that emptied the buildings and enabled L&L to effectively start anew—a risky proposition for landlords who rely on cash flow from their buildings, as well as a logistical convenience hard to come across for most.
“Both of these buildings were mid-1950s buildings, Emery Roth-designed with low ceilings and lots of columns,” Berkey said. “We did two completely different things, but solved the same problem.”
At 390 Madison, the company is remassing the building, effectively creating a new structure that will feature higher ceilings and more efficient floor plates, as well as an additional eight stories. The renewed 32-story, 850,000-square-foot property is already fully leased to Japanese cosmetics firm Shiseido, law firm Hogan Lovells and J.P. Morgan Chase, which recently agreed to take the remaining 437,000 square feet at the building.
At 425 Park Avenue, L&L is overseeing an even loftier undertaking. The Foster + Partners-designed, ground-up development of a 47-story, 670,000-square-foot boutique office building made waves in 2016 when it emerged that hedge fund Citadel had agreed to pay rents of $300 per square foot for the upper, penthouse floors—but that sort of tenancy was part and parcel of the developer’s plans for the project.
“We wanted to create a bespoke office building for a specific [financial] industry group, and we pulled out all the stops because we knew it could command the rents,” Berkey said.
In a sense, the Hudson Yards paradigm has “been positive for all the landlords with older building stock” in Manhattan, according to Bill Edwards, the senior vice president of core holdings for the Rockefeller Group. “It’s forced us all to take another look at our assets and start to reinvest in our properties in order to compete.”
Rockefeller Group was faced with its own conundrum after Time Inc. announced in 2014 that it would be leaving the landmarked office tower at 1271 Avenue of the Americas, formerly known as the Time & Life Building, to move Downtown to Brookfield Place. The firm now had an empty 2-million-square-foot skyscraper on its hands; like L&L, it decided to take advantage of “a rare opportunity,” as Edwards put it, to create something different.
The building is in the midst of a major overhaul with Rockefeller pouring hundreds of millions of dollars into the construction of a new curtain wall exterior that seeks to increase the amount of “light and air” into the space by 60 percent, Edwards said.
“The death of [Avenue of the Americas] has been predicted for many years,” Edwards said. But Rockefeller points to statistics, via the Avenue of the Americas’ association’s Avenue Report, that indicate the Avenue of the Americas corridor accounted for 10 of the 50 largest Manhattan office leases signed in 2017—with nine of those 10 deals coming in Midtown, between 40th and 59th Streets. At 1271 Avenue of the Americas, Rockefeller signed Major League Baseball to a 400,000-square-foot deal in late 2016 and Japanese bank Mizuho’s Americas subsidiary to a 148,000-square-foot lease last summer.
Mike Maturo, the president and CFO of RXR Realty, described his firm as “obviously big believers in the Sixth Avenue market”—which makes sense, given that RXR splashed $1.65 billion to acquire 1285 Avenue of the Americas in 2016. A half a block away, at 75 Rockefeller Plaza, RXR recently completed a $150 million gut renovation of the midcentury building—upgrading the property’s lobby, building systems, windows and virtually everything else except for its original limestone facade (which received a cleaning).
“I think you can characterize it as Midtown going through a cycle,” Maturo said of the area’s office market. “I think Hudson Yards and the opening-up of the West Side is a good thing, in terms of the fact that New York needs to keep fresh and be globally competitive. Inclusive to that process, you need to have new space.”
Still, Maturo stopped short of pegging that cycle as representative of “any long-term downside for Midtown”—a sentiment echoed by his colleague William Elder, an executive vice president and the managing director of RXR’s New York City division.
“Midtown is healthy and strong and continues to perform at a good level,” Elder said, citing both J.P. Morgan’s commitment to rebuild 270 Park Avenue and Bank of America’s prolific leasing activity in the area surrounding Bryant Park, where it’s looking to create a corporate “campus” spanning several buildings.
In Elder’s estimation (and that of multiple other sources interviewed for this article), for all of Hudson Yards’ spanking new stock there is one undisputed realm in which Midtown maintains an advantage.
“I’m a big believer in the West Side developments,” Elder said, “but the one thing that is lacking in a meaningful way is real access to real subways and transportation hubs.”
Construction on SL Green Realty’s One Vanderbilt office tower, overlooking East 42nd Street. Photo: Max Touhey
Get in the Zone
Count Steven Durels, who heads the leasing operation for New York City’s largest commercial landlord, among the skeptics when it comes to talk of Manhattan’s center of gravity shifting west.
“I don’t agree with it,” said Durels, an executive vice president and the director of leasing and real property for SL Green Realty Corp. “The tenant demand on the West Side is because that’s where the newest product has come on the market. Pick up all of those buildings and put them on the East Side, and tenants would rather be near transit hubs. But since everything that comes with new construction happens to be in a more challenged location, tenants had to migrate to that location. It’s the fact that that’s where the inventory is—and when it comes back to the East Side, then tenants will say ‘Put me in the more convenient location,’ and they’ll pay the rents commensurate with the quality of that product.”
For its part, SL Green is bringing new construction and everything that comes with it to Midtown East. Rising just west of Grand Central Terminal, the massive 58-story, 1.7-million-square-foot One Vanderbilt office tower is now emerging above its foundations. Law firm Greenberg Traurig recently agreed to take four floors spanning up to 140,000 square feet at the building, while German financial services firm DZ Bank inked a 35,000-square-foot deal last fall.
DZ, which is presently located at SL Green’s 609 Fifth Avenue just a few blocks north of Grand Central, “wanted new construction, but was not interested in the disruption of their employees’ commute to move to a place like Hudson Yards or Downtown,” according to Evan Margolin, a vice chairman at Savills Studley, who represented the bank in its deal at One Vanderbilt.
“It was an easy sell to their employee base: good news, we’re moving only five to seven blocks away to a brand new building, and we’re going to be in the most technologically advanced product,” Margolin said. “There wasn’t a lot of opportunity for new construction in Midtown, and One Vanderbilt was appealing for that reason.”
For Durels, One Vanderbilt “is the model for how owners can explore the new construction marketplace” in Midtown. Two years before the Midtown East rezoning was finally passed, SL Green was able to rezone a stretch of Vanderbilt Avenue in a deal with the city that “proofed out the concept of adding FAR [floor area ratio] in exchange for public realm improvements.”
Durels said that in addition to new developments, it is imperative that Midtown landlords continue to reinvest in their existing properties in order to maintain relevance in the modern-day Manhattan office market—citing SL Green and joint-venture partner Vornado Realty Trust’s overhaul of 280 Park Avenue several years ago as an example
“If they’re not building new construction, then in order to stay competitive in the marketplace owners need to continually reinvest in their buildings to address the kinds of demands that tenants have for a modern workplace,” he said. “We have an aging inventory of buildings and there’s three paths: you can do nothing, in which case you’ll be left behind; you can reinvest in your buildings; or you can invest in new construction.”
One Vanderbilt is rising only a few blocks south from 270 Park Avenue, where J.P. Morgan Chase will be tearing down its existing headquarters building and developing a new 70-story, 2.5-million-square-foot skyscraper, the banking giant announced in February. That endeavor is being aided with air rights acquired by J.P. Morgan through new parameters enabled by the Midtown East rezoning—a regulatory shift that many have touted as imperative in enabling developers to rebuild and renew the aging office stock in the area.
“I think it’s definitely forced landlords to take a good, hard look at a specific asset and whether it makes sense economically [to redevelop],” Fisher Brothers Partner Ken Fisher, whose firm owns five office buildings in the Midtown East area, said of the rezoning. “It gives us the ability to knock [buildings] down and rebuild, if that’s what we want to do.
While the likes of L&L and Rockefeller Group were, under varying circumstances, able to vacate properties and transform them entirely, Fisher stressed that such a proposition isn’t so straightforward for everyone. “It may not make sense, because you have to wait to empty out a building, and then you’re sitting with an asset that’s vacant and there’s going to be a period where you’re not getting much coming in,” he said.
Indeed, both Durels and NKF’s Falk expressed doubts that the rezoning will change the complexion of the Midtown East market much in the near future—though it certainly leaves the door open for a larger, more widespread transformation in the years and decades to come.
“How many landlords are willing to clear out a building and have it sit without income for a few years?” Falk asked. “It will happen, but it’s going to take time and certain landlords with certain resources.” He reiterated his belief that “landlords don’t have to tear [buildings] down, they just need to reinvest capital in a significant way to make them more relevant for today.”
Renter’s Market
Construction work on 1271 Avenue of the Americas’ new glass curtain wall exterior. Photo: CoStar Group
Despite some landlords’ best efforts, multiple sources said the recent flight of tenants out of Midtown has forced many to offer higher concessions in order to lure those who may be looking elsewhere.
In 2017, Midtown landlords were offering average tenant improvement allowances of $86.74 per square foot and 13 months’ worth of free rent on new direct leases, according to C&W data provided to CO. Comparatively, Downtown allowances averaged $80.46 per square foot and 10 months’ free rent, while Midtown South saw allowances of $68.95 per square foot and nine months’ free rent.
Savills Studley’s Margolin said that, in addition to such financial incentives, Midtown property owners are more accommodating than ever when it comes to handling buildouts of tenants’ spaces—particularly for larger footprints that they wouldn’t have thought of taking on in the past.
“Landlords are building spaces for bigger tenants, which is something they weren’t doing in other cycles,” he said. “The cost to build space for a tenant has increased, as contractors are busy and construction costs have increased. That number could be $120 [per square] foot or more—so if you’re willing to spend that much more than you had in prior years, then the net effective rent for the landlord is decreased by virtue of a big concession package.”
Free rent, meanwhile, was traditionally offered to tenants “because they were in one space and moving to another, and it was meant to be an offset where [tenants] could build the space in the new building while paying rent in their old space,” Margolin said. “Now, free rents are something that tenants are enjoying on top of buildout time.” Margolin added that free rent is more pervasive in Midtown than other parts of Manhattan.
It’s a touchy subject among Midtown landlord representatives, some of whom disagreed outright with the assertion. Elder said that on tenant concessions, the Midtown market “is no different from Downtown or the West Side,” while Durels acknowledged that concessions “increased dramatically” around two years ago but since then have “leveled off, whereas face rents have been increasing.”
NKF’s Falk, however, said it is “a fact” that higher concession packages in Midtown have been “eating into net effective rents.”
“While asking and taking rents are up in Midtown, actual effective rents are down because landlords are giving significantly more,” Falk said. “They’re doing that so they can avoid the risk of having downtime. Certain, average spaces in Midtown can sit for quite a while, and a landlord would rather give more money to ensure they have a deal than let it sit there.” He added, however, that this dynamic also applies to Midtown South and Downtown, where concessions “are up compared to recent years” as well.
When it comes to finding takers for their space, however, the Midtown market could well be boosted by a resurgent financial sector. A large chunk of the financial services industry has always traditionally called Midtown home—and just as L&L has positioned 425 Park Avenue to serve boutique firms with deep pockets seeking premium space, so is there hope that financial firms will continue to look to Midtown.
After taking a backseat to the technology, advertising, media and information (TAMI) sector for much of this decade, financial services came roaring back in 2017. The financial sector saw employment levels in the city rise to a 16-year high last year, according to C&W data, and financial industry tenants leased 5.5 million square feet of space across the city in 2017—a 60 percent increase on the previous year.
According to Durels, the federal government’s passage of tax reform legislation at the end of last year will likely only further boost financial sector employment—and in turn, financial firms’ appetite for space. “The tax law changes gave the financial industry a shot in the arm, and now they’ll continue to hire,” he said.
Though Midtown will continue to face questions regarding its future viability as the city’s commercial epicenter, virtually no one is writing the area off—no matter what Far West Side stakeholders have to say on the subject. As C&W’s Mosler noted, of the 30.5 million square feet of new Manhattan office leases signed last year, nearly 20 million square feet was located in Midtown.
“At the end of the day, it will be very hard to replicate cities within cities, as we have at Hudson Yards, or what we’ve seen Downtown with scale at the World Trade Center,” Mosler said. “Midtown will have to come at it differently, and should. But with the level of renovation taking place and what will be going up as redeveloped and new product, you’re going to see a significant amount of space that will be going back into the market in a millennial fashion. I think Midtown will have plenty to offer.”
Multinational investment manager Investcorp just renewed its lease in its longtime home at 280 Park Avenue.
The 36-year-old firm will remain in 75,000 square feet on the 35th through 39th floors of the west building in the two-tower complex, which is owned by Vornado Realty Trust and SL Green Realty Corp., Crain’s New York Business reported. The 1.3-million-square-foot building has two towers reaching 49 and 23 stories respectively. Asking rent in the deal was $105 per square foot.
Glenn Weiss and Andrew Ackerman handled the deal in-house for Vornado, and Newmark Knight Frank’s Neil Goldmacher and Brian Goldman represented Investcorp. A Vornado spokesman declined to comment on the transaction, and an NKF spokeswoman declined to comment.
Vornado and SL Green purchased the building for nearly $500 million in 2011 and spent $150 million revamping the 1962 property in 2014 with the help of architecture firm Kohn Pedersen Fox.
Tenants in the building include Wells Fargo, Antares Capital, Blue Mountain Realty and Teneo Holdings. The new iteration of the Four Seasons restaurant is also set to open in the bottom of 280 Park Avenue later this spring, after relocating down the block from its home of nearly 60 years at the Seagram Building.
