Five-Hundred Dimes at Woolworth’s (for space, at least)

June 4, 2007 by jack petrie.

In Wednesday’s (5/30/07) New York Times, an article appeared by Alison Gregor on the potential of converting downtown properties (like 233 Broadway, the Woolworth Building), into high-end, “boutique” office buildings, like some of the higher priced examples in Midtown.

Candidates for Boutique Buildings

The primary candidates for high-end (and high priced) office space are certain types of financial services firms, namely private equity firms and hedge funds. I know this from experience, having recently represented sublease space in one such “boutique” building, 712 Fifth Avenue. The asking rental on this sublease was $125/rentable square foot (”rsf”), which was derived from the landlord’s asking rental ($140/rsf) for comparable locations in the building.

When prospective tenants and their brokers inquired about the space, it became immediately apparent that there are two categories of tenants looking for space in Midtown: those with a budget (usually under $100/rsf) and those with no budget.

Other People’s Money

The tenants without budgets typically needed to be in a very specific geographic area: between Rockefeller Center and Central Park, from Park Avenue to Avenue of the Americas. Cost was a secondary concern.

I can only speculate, but unlike typical industry competitors in a zero-sum game, the private equity firms and hedge funds often partner with one another on transactions and acquisitions mutually. Thus, there are synergies to being geographically close to competitors, even within the same building. As more firms locate at certain addresses, the “mystique” of the building grows and as a direct result, the rents rise into the stratosphere (or at least the triple-digits). Witness 375 Park Avenue (The Seagram Building) , 450 Park Avenue or 9 West 57th Street. The premium for entry into these properties is approximately 75% (or more) over the average Midtown Class “A” rental rate.

Need to Be “Green” in Downtown

Translated to Lower Manhattan or “Downtown”, a 75% markup over the average Class “A” rental would be approximately $85/rsf. If that is the criteria, 7 World Trade Center is just about there. The future requirements for premium rents in Lower Manhattan will need to be: a) new construction; b) potential for large, open trading floors; and c) LEED (Leadership in Energy and Environmental Design) certification representing sustainability, i.e. “green” buildings.

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