2011's Top Story - It's Not Lonely at the Top and It Isn't Pretty, Either
Earlier this year, Manhattan experienced a game of real estate musical chairs among the available large blocks of space surrounding Grand Central Terminal. The players included some of the city’s biggest and best known tenants: Bloomberg, Citigroup, Hartford Insurance, JPMorganChase, Meredith Corporation, Pfizer, Tishman Construction and Wells Fargo. When the dust cleared, several million square feet of leases had been signed and the vacancy rates in Grand Central had dropped significantly. Furthermore, this shakeout at the top of the market would have a “trickle-down” ramification for midsize and smaller tenants throughout this submarket.
The dominos started to fall when Bloomberg’s expansion into legal services forced it to look for space outside of its NYC headquarters at 731 Lexington Avenue. The media firm set its sites on a sublease from Citigroup at its formerly eponymous office tower six blocks south at 53rd & Lexington Avenue. During the eleventh hour, however, Citigroup determined it would backfill the space and pulled the sublease from the market.
At this point, Bloomberg was literally all revved up with nowhere to go. It focused its sights on 120 Park, the former Altria headquarters at 42nd and Park Avenue. Since late 2007 when Altria determined to relocate its headquarters to Richmond and to sell the property, the 600,000 sf tower became a candidate for most large relocations in New York City. In fact, at the time of the Bloomberg lease, both Hartford Insurance and Wells Fargo had leases out for signature in total for more than 350,000 sf. 120 Park Avenue was joined in 2010 as candidate property for large tenants by 685 Third Avenue, which was being vacated by Pfizer and which was subsequently sold to TIAA-CREF.
To the shock and surprise of the tenants involved (as well as the real estate industry itself) and within a matter of weeks, Bloomberg executed a lease for 400,000 sf and sent the other tenants scurrying for new locations. Wells Fargo subsequently signed a lease for 275,000 sf at 150 East 42nd Street, while Hartford Insurance subleased 100,000 sf from JPMorganChase at 277 Park Avenue. Both Tishman Construction (110,000 sf at 100 Park) and Meredith Corporation (213,000 sf at 805 Third Avenue) had exited the market in late-2010.
Surprisingly, this would not be the only example of large tenants losing handshake commitments at the final hour. According to Crain’s: “A combination of the improving economy and lease expirations are pushing more big tenants into the market at a time when their options are limited by the city’s aging building stock and lack of new construction. In the constant power struggle between tenants and landlords, the latter are gaining back the upper hand in the market for spaces of more than 100,000 square feet.”
Wilmer Hale, a law firm located at 399 Park Avenue, had leases out for 200,000 sf at 825 Eighth Avenue when the deal was pulled for a 900,000 sf lease with Nomura Holding. Ironically, the Nomura transaction had an eleventh hour hiccup before the ink was dry at 825 Eighth Avenue (Worldwide Plaza). Another law firm, Chadbourne & Parke, lost its 175,000 sf renewal rights at 30 Rockefeller Plaza when Deloitte signed a 425,000 sf lease at the property.
2011 will be remembered for these large lease transactions which only highlight the brokerage axiom that “a deal’s not a deal until the ink is dry”...