Condo-Mania Extends to Offices
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These days, it seems as if everyone wants to own an office and retail condominium.
The red hot pace of sales of residential apartments in New York City can properly be termed condo-mania. In such a climate, it is not surprising that investors are seizing the opportunity to purchase office condominiums in Manhattan.
Last week, the remaining 127,657 square feet of office and retail condominiums at the 19-story, 174,133-square-foot office building at 820 Second Ave., known as the Diplomat Centre, was sold for $48 million, or $376 a square foot. The sellers were Joseph Neumann and Charles Herzka of Broadway Management; the purchaser was Philip Pilevsky of Philips International.
Built in 1964, the building is located at the corner of East 44th Street. It was converted to a condominium in the 1990s. The largest office tenant is the United Nations Federal Credit Union, occupying four floors. The credit union will be vacating the building and moving to its new headquarters in Long Island City, N.Y. A large portion of the office space is leased to the permanent missions of Trinidad, Tobago, and Peru, as well as the United Nations Population Fund. Office condominiums are owned by foreign agencies including the governments of Croatia, Nepal, Syria, and Peru. The retail space located at the base of the building is leased to H&R Block and Hallmark.
Philips International is the owner of the unsold office condominiums at 800 Second Ave., an 18-story, 290,000-square-foot building. Philips purchased the space from Ampal-American Israel Corporation, which in 1997 converted the building to an office condominium.
The 42-story, 1 million-square-foot office tower at 633 Third Ave., occupying the block between East 40th and 41st streets, is an office condominium. The building serves as the Manhattan headquarters for Governor Pataki.The two largest owners of office condominiums are the Empire State Development Corporation and the Memorial Sloan-Kettering Cancer Center. A number of floors are owned by nonprofit organizations, including Mount Sinai Medical Center, the Fresh Air Fund, the Jewish Agency for Israel, the Union for Reformed Judaism, and Unicef. Commercial tenants such as First American Title Insurance Company of New York and Salibello & Broder and Hattco own the balance of the floors. Mr. Pataki recently announced that when the Freedom Tower is completed all Empire State Development Corporation employees located within the building will be relocated. Industry leaders say the market value of a condominium unit is about $600 a square foot. In 2000, SL Green entered into contract to sell the retail condominium interest in the building for $13.25 million to Third Avenue Realty LLC, a company owned by Joseph Nakash, principal of Jordache Enterprise. The 40,623-square-foot retail condominiums on the ground and concourse floors are leased to tenants such as JP Morgan Chase, Docks, and New York Sports Club.
In the late 1990s, the 15-story, 90,300-square-foot office building at 866 Second Ave., aka Two Dag Hammarskjold Plaza, was converted into office condominiums. All have been sold to missions of the United Nations and affiliates. Owners of floors include the missions of Greece, Bahrain, Morocco, Portugal, and Jordan.
A few years ago, Philips International purchased the Bar Building at 36 W. 44th St., with 14 floors and approximately 181,362 square feet of space, for $31.5 million. The company is marketing for sale suites on certain floors of the tower for condominium ownership.
For many years, the office building at 305 Seventh Ave., near West 27th Street, was a fur industry building. When the fur industry fell off the face of the earth in the early 1990s, the 20-story, 165,000-square-foot building was converted to a condominium for nonprofit agencies.The sponsor of the conversion was the Non-Profit Center of New York, comprising principals of Newmark & Company and Four Star Holding Company.
Original sale prices were $110 to $127 a square foot, and the sponsor provided 100% nonrecourse financing, which precluded the need for a purchaser to go through complicated financing and to obtain government approvals for financing for ownership.
Today, two floors are being marketed for sale at $425 a square foot. “A nonprofit who had the insight to purchase 10 years ago today can realize a gain of 300 to 400% on its real estate asset,” an executive vice president and principal at Newmark Knight Frank, Brian Waterman, said. “This investment far exceeds the yield the nonprofit could have earned from an investment in the S&P.”
In 1999, Time Equities purchased the 17-story, 342,000-square-foot building at 125 Maiden Lane from Rreef. The country’s oldest law firm, Cadwalader, Wichersham & Taft, had been the largest tenant in the building, occupying about 100,000 square feet. A few years ago, Cadwalader sold its headquarters across the street at 100 Maiden Lane, and last year vacated both buildings leasing approximately 500,000 square feet at the World Financial Center. Last month, Time Equities began selling and marketing the units at $350 to $385 a square foot on a full-floor basis. Common charges are estimated at approximately $6.70 a square foot and real estate taxes at approximately $5.60 a square foot.
In June 2005, Stellar Management sold the 37-story, 1 million-square-foot office tower at 14 Wall St. to Leviev Boymelgreen for $210 million. Stellar purchased the property from Goldman Sachs in the mid-1990s. Leviev Boymelgreen has filed an offering plan with the Office of the Attorney General of the State of New York to sell six full floors as office condominiums. Approximately 200,000 square feet of space is expected to be offered at $380 to $425 a square foot.
This summer, the first residential tenants will be moving into the condominiums at Leviev Boymelgreen’s conversion of the former JP Morgan headquarters at 23 Wall St./15 Broad St. In October 2005, Tides Shared Spaces purchased 40,000 square feet of office space at the building.The office space will house Thoreau Center New York, a multi-tenant nonprofit center that will provide work and program space for New York City nonprofit and cultural organizations. The Thoreau Center will occupy a third of the base of the 15 Broad St. building. Newmark Knight Frank is marketing the balance of the base of the building and the concourse space as commercial condominiums.
Office condominiums provide the investor an opportunity of ownership of real estate in prime locations of Manhattan. Nonprofits or foreign governments who own commercial condominiums gain an additional benefit by being exempt from payment of real estate taxes. One of the disadvantages of ownership of a commercial condominium is the lack of space for expansion. Nevertheless, more and more companies, nonprofits, and small businesses are evaluating the option for ownership of prized real estate in Manhattan.
Mr. Stoler is a television broadcaster. He can be reached at firstname.lastname@example.org.