Leaders Forecast Broken Records for Office Space

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The New York Sun

This year a number of records in New York City real estate may be broken. In September 2003, investors questioned the wisdom of the chairman of Macklowe Properties, Harry Macklowe, when he purchased the 50-story General Motors Building at 767 Fifth Ave. for a record-setting $1.4 billion, or $800 a square foot, the highest price ever paid for an office tower in the nation. The previous highest price were $1.05 billion, or $630 a square foot, for the Citigroup headquarters at 399 Park Ave., in 2003, and Lehman Brothers’s $700 million purchase ($700 a square foot) of 745 Fifth Ave. in 2001. Industry leaders expect 2006 to be the year when prices for office buildings in Manhattan rise to more than $1,200 a square foot.

Sam Zell, the chairman of Equity Office Properties Trust, the nation’s largest publicly traded office building manager and owner, was once known on Wall Street “as the grave dancer.” He said, “Prices of office buildings in Manhattan are selling at significantly less than replacement cost.” Industry leaders believe the cost of constructing a new office building in Midtown, if land was available,would be close to $900 a square foot. Last month, Macklowe Properties paid about $900 a square foot for the former Drake Hotel on Park Avenue and East 56th Street. Last week, a joint venture of Lehman Brothers and Itzhak Tessler sold its 520,000-square-foot development site at 400 Fifth Ave. for about $200 million, or $385 a developable square foot.

A number of properties are expected to be sold on Fifth Avenue this year. Last month, a joint venture of Stellar Management and the Rockpoint Group sold its 595,000-square-foot office tower at 522 Fifth Ave. for $420 million, or $705 a square foot, to Broadway Real Estate Partners. The joint venture purchased the building last year from JPMorgan for $164 million and subsequently purchased the underlying ground lease for $53 million. Earlier this year, Broadway entered a contract to purchase the 254,000-square-foot office condominium interest in the 23-story tower at 600 Madison Ave.for $220 million,or $850 a square foot. The seller was Brenner Investment Group, the investment firm owned by Mexican billionaire Gabriel Brenner, who acquired the condo in 2003 from a joint venture of Rockwood Capital and Brickman Associates for $160 million, or $630 a square foot.The office condominium comprises the top 14 floors of the building on East 61st Street and Madison Avenue. The bottom nine floors of the tower house a Barney’s clothing store.

In March, the Moinian Group closed on the purchase of three office buildings at 509, 535, and 545 Fifth Ave. A joint venture of Emmes and Apollo Real Estate Advisors sold the buildings for $270 million. Eastdil Secured is marketing for sale the 38-story, 428,000-square-foot Fred F. French building at 551 Fifth Ave. In 2002, MetLife sold the building to a joint venture of the Feil Organization, Lloyd Goldman, and Stanley Chera. Last month, SL Green Realty announced it entered a long-term operating net leasehold interest in the 40-story,460,000-square-foot office building at 521 Fifth Ave., with an ownership group led by RFR Holdings, which retained fee ownership of the property. During the last week of April, SL Green announced that it acquired the fee interest for two retail properties located at 25-27 W. 34th St. and 29 W. 34th St. in a joint venture with Jeff Sutton. The 34th Street buildings contain about 51,000 square feet and were acquired for a total cost of $30 million. These two buildings are adjacent to the building at 21 W. 34th St., which the joint venture acquired in July 2005. In addition, SL Green contracted to make an invest ment in 609 Fifth Ave., an office and retail property where an American Girl Store is a tenant. Jeff Sutton has and will maintain an ownership interest in the property.The investment values the property at $182 million.

A number of office buildings on lower Fifth Avenue have been sold. A six-story, 19,600-square-foot office building at 224 Fifth Ave. was sold for $13 million,or $663 a square foot.The Kaufman Organization and a group of investors purchased the 11-story, 281,000-square-foot building at 11 W. 19th St. for $87 million, or $309 a square foot. A 17-story office building at 307 Fifth Ave. and an adjacent parking lot is expected to be sold to a residential developer.The first-round bids were due this week for the 80,000-square-foot headquarters of Amalgamated Bank at 15 Union Square. Many investors are interested in this prime location, which may fetch close to $75 million, or an unbelievable $935 a square foot.


Last year, a joint venture of Murray Hill Properties,Westbrook Partners, and the Canadian pension plan SITQ and investors paid about $500 million for the class A office building at 450 Lexington Ave., subject to a 99-year ground lease. Last month, they entered a contract to sell the 40-story, 905,000-square-foot building for about $600 million,or $662 a square foot.The 27-story, 246,000-squarefoot office building at 370 Lexington Ave. is in contract to be sold to Broad Street Development, an investor group led by Raymond Chalme and Crow Holdings Realty Partners IV, for $97.2 million, or $395 a square foot. In March, Princeton International Properties Group paid $120 million, or $400 a square foot to the Paramount Group for the 35-story, 300,000-square-foot tower at 150 E. 52nd St. Later this year, Paramount is expected to sell the 44-story, 1.1 million-squarefoot Bertelsmann building at 1540 Broadway. Industry leaders expect the property to fetch close to $1.1 billion, or $1,000 a square foot.Last month,Sitt Asset Management and Steven Sutton entered a contract to sell the 15-story, 298,000-square-foot office building at 1466 Broadway for about $300 million, or $1,000 a square foot.The joint venture purchased the property in November 2004 from SL Green Realty for $160 million.

The government of Kuwait, which owns the 537,000-square-foot office tower at 350 Park Ave., is expected to put the building on the market.The 30-story building between 51st and 52nd streets is expected to fetch close to $400 million, or $750 a square foot.The building was originally constructed as the headquarters of Manufacturers Hanover Trust. The government acquired the building in 1981 for $161 million. Last month, Boston Properties signed an agreement to sell 280 Park Ave. for about $1.2 billion, or $1,000 a square foot. Boston Properties purchased the complex in September 1997 from Bankers Trust for $321 million.

Jamestown Properties, an investor with Macklowe Properties in the General Motors building, is interested in selling its 44-story, 1.85 million-square-foot office tower at 1211 Sixth Ave. This property might fetch the highest price ever paid for an office building in Manhattan, in excess $2 billion. Last month, Jamestown with its partner Apollo Real Estate Advisors sold the 1.9 millionsquare-foot building for $1.25 billion.

It was only 10 years ago when office buildings in Lower Manhattan were being sold for prices of $25 to $50 a square foot. Earlier this year, Murray Hill sold the 49-story, 430,000-square-foot office building at 30 Broad St. for $100 million, or $232 a square foot. A joint venture of Murray Hill and Credit Suisse First Boston paid about $50 million in 1997 for the building which is near the New York Stock Exchange. Later this month, the final bidder is expected to be selected for the 32-story, 295,000-square-foot office tower at 55 Broadway, also known as One Exchange Place.The 1981 building is expected to fetch about $80 million, or $271 a square foot.

No one can predict the future,nor say with certainty that the price of an office building in Manhattan will sell for more than $1,000 a square foot. Yet perhaps many will agree with the managing partner of Murray Hill Properties, Norman Sturner, when he said, “The price of everything is going up – the cost of your automobile, college tuition, food, and shelter are rising. Definitely prices for office properties will continue to rise. The only thing that goes up and comes down is an airplane.”

Mr. Stoler is a TV broadcaster and senior vice president at First American Title Insurance Company of New York. He can be reached at mstoler@firstamny.com.

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