In 1997, Tishman Speyer, one of New York's most prestigious real estate companies, acquired one of the city's most historic properties: the Chrysler Building. Technically, it was the acquisition of the ground lease for the skyscraper, as the land remained owned by Cooper Union. This ground lease was associated with progressively increasing costs over the years. In 2008, Tishman Speyer sold a 90 per cent stake in the building to the Abu Dhabi Investment Council for $800 million.
When the property came up for sale again in 2019, expectations for the deal's value were significantly tempered given the annual payments to Cooper Union, which had risen from $7.8 million to $32.5 million. Nevertheless, market observers considered the Chrysler Building an icon, an eye-catcher, centrally located and popular enough to fetch at least $500 million. However, taking into account the ground lease and the property's need for renovation, bids fell far below expectations. RFR Realty's successful bid amounted to only $150 million.
This reduced price, however, proved to be too high. Soon, conflicts arose between RFR and Cooper Union regarding outstanding rent payments and necessary improvements. RFR also had the misfortune of closing the deal in 2019, just before the office market experienced a deep crisis. Eventually, RFR had to step aside, and Cooper Union once again sought a saviour. This apparently materialised last week in the form of Tishman Speyer.
Ambitious Plans and a Strong Market
The exact purchase price Tishman Speyer paid is still unknown. Initial details, however, indicate that the new ground lease agreement will have a term of 150 years and Tishman will provide $235 million for improvements to the property. Rob Speyer commented: "We are pursuing an ambitious plan for the Chrysler Building during a historically strong period for Manhattan's office market. Similar to new developments like The Spiral and the ongoing repositioning of Rockefeller Centre, we will create an environment that makes our tenants proud and makes them excited to come to work every day."
Rob Speyer's assessment that the time is right for an investment in a Midtown office building is supported by market data. Despite global uncertainties such as high fuel prices, political conflicts, and fluctuating stock markets, the New York office market is proving resilient. Nicholas Farmakis of Savills describes a dichotomy in the economy: "There's the asset-based economy that New York lives on and the average US citizen economy. There may be some discrepancy there, but for New Yorkers, the macro economy is doing well. Consumer spending is relatively high, stock markets are hitting or nearing record highs, and venture funding continues to flow."
Positive Market Developments in New York and Beyond
This is reflected in the New York office market: the volume of available space is at its lowest level since 2020. Recent lettings, such as Morgan & Morgan's 70,602 square foot lease at 199 Water Street, Seward & Kissel's 171,112 square foot renewal at One Battery Park Plaza, or AI company Brex's 93,779 square foot lease at 200 Varick Street from GFP Real Estate, underscore this dynamic. Average asking rents have risen to $84.56 per square foot, and the once distant value of $400 per square foot was almost reached recently.
The supply volume of 7.9 million square feet will not come onto the market before 2028, with a large portion of these new buildings already occupied. This data explains why DRA Advisors is acquiring a 49 per cent stake in 1301 Avenue of the Americas; the recent deal with Rithm Capital valued the property at an impressive $1.3 billion. While these developments are primarily perceived as a New York phenomenon, initial positive signs are also emerging in formerly stagnant markets on the West Coast.
Los Angeles, largely written off since COVID, is once again attracting investors acquiring well-priced properties. Marilee Utter of Citiventure Associates noted that there is no reason why Downtown L.A. should not return to its pre-pandemic dynamism. In fact, L.A. County recorded its best quarter for office lettings since 2019, with 4 million square feet of newly leased space over the summer. Last week, Silverstein Properties reported deals totalling 55,349 square feet at the U.S. Bank Tower in Downtown L.A. Activity is also evident outside the office market: Nexus Development secured $276 million in refinancing for senior living facilities in Newport Beach, California, and Westwood Financial acquired the Peninsula Marketplace retail centre for $56.2 million in Huntington Beach.
