Tower rent may hit the roof

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1 March 19, 2013 Tower rent may hit the roof By STEVE CUOZZO What s likely to be the city s most dramatic outdoor terrace on an office building might help command the highest rent ever paid for a commercial penthouse: the triplex apex of 7 Bryant Park, the 28-story tower that broke ground last week. Global development giant Hines has its eye on an aspirational $200 per square foot for the 42,285 square-foot digs on floors It also comes with a nearly 850 square-foot alfresco roof terrace that has Bryant Park for its backyard, said Hines senior managing director Tommy Craig. Craig, who s been with Houston-based Hines since 1982, until recently never saw much interest in outdoor space at a new office tower, either on the part of the developer or tenants. But, We saw how valuable it was with our residential work, Craig said. Hines has apartment projects around the world including spectacular 56 Leonard St. downtown, which it s codeveloping with Izak Senbahar s Alexico Group. That realization, combined with office users swelling demand for more of what he calls common and interactive-encounter space, inspired the marquee feature of the 457,000 square foot boutique office tower rising on the west blockfront of Sixth Avenue between 39th and 40th streets.

2 Architect Henry Cobb s design is distinguished by a top-to-bottom concave notch in the curtain wall at the 40th Street corner facing the park. At the top of the notch will be what CBRE s Mary Ann Tighe, the chief leasing agent, calls the first purpose-built outdoor space in an office building in Midtown. The open-to-the-sky deck can be equipped with a fireplace and will have a glass shield to block wind. It will be for use only by the tenant that takes the penthouse triplex, which boasts a double-height ceiling on the 28th floor. The whole four-level magilla will have a private elevator and a staircase connecting the top floor with the roof deck. There will be smaller terraces as well on 7 Bryant Park s 10th and 15th floors, but the penthouse is more integral to the tower s mystique. Hines and its partners, Pacolet Milliken Enterprises and JP Morgan Investment Management, are taking a modest gamble on 7 Bryant Park, which aspires to LEED-Gold certification but has pre-leased none of its not inconsiderable space. ( Only in New York do you say you re doing a nearly half-million square-foot building that s boutique, Craig chuckled.) Floors become smaller as they rise, from about 21,000 square feet in the podium to 14,492 from Lower floors wouldn t be cheap either at $100 a square foot. If leases are not signed before 7 Bryant Park opens in early 2015, expect a slew of news stories claiming that spec projects are dangerously risky. Sometimes they are. But in fact, Tighe points out, a mere 4 percent of space is vacant in recently completed office towers an elite field that includes 1 Bryant Park, 7 World Trade Center and 11 Times Square, the last two of which were built on spec. (WTC towers 1 and 4, where a few million feet remain up for grabs, are not finished.) Fueling demand and feeding Hines confidence in its new project is a scarcity of freshly minted space of the kind tenants now crave: deeper floor-to-ceiling heights, environmental and sustainable features and column-free floor plans conducive to staff interaction. And, now, outdoor space. If it seems odd in a city with a long winter, remember that rooftop bars and lounges, once rare, are now popping up all over town. Craig recalled that when Hines was co-developing the Lipstick Building in the 1980s, it seemed a novelty when a law firm tenant from Los Angeles insisted on an outdoor annex, a roof garden on the building s low-rise portion. Previously, outdoor space generally popped up in the form of rooftops and courtyards in older buildings as at 150 Fifth Ave. and 200 Fifth Ave. David W. Levinson, chairman of L&L

3 Holding Co. which spearheaded the modernization of both, recalls, When we were redeveloping 200 Fifth, there were more comments during negotiations with [tenant] Grey [Group] about the outdoor space than about anything else.

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8 June 12, 2012 No tenant, no problem. By Eliot Brown Houston-based developer Hines has struck a deal with the asset-management division of J.P. Morgan ChaseJPM +2.46% & Co. to move forward with a new midtown Manhattan office tower without any preleasing, according to people involved in the deal. The planned 470,000-square-foot building at 7 Bryant Park is a bet on the future of the nation's largest office market as the New York City economy gradually recovers from the recession. J.P. Morgan, which is investing the money on behalf of clients, is slated to put in more than $200 million in equity, which would make up most of the project's cost, the people said. Starting construction without tenants, called "speculative" construction, is uncommon, especially during tough times. A wave of such construction in the 1980s left numerous towers around the U.S. empty in the early 1990s, resulting in a more cautious approach since. The project joins a handful of similar planned towers in cities such as Chicago and San Francisco, where developers and investors are putting faith in the recovery gaining steam and forging ahead with speculative office towers planned to open in two to three years. The Hines and J.P. Morgan development is relatively small and in a desirable location overlooking Bryant Park. Moreover, newly built office space in the area is in short supply, said Mary Ann Tighe, chief executive of the New York region for CBRE Group Inc. who is handling the leasing on behalf of Hines. "We think we're hitting the market at just the right time," Ms. Tighe said in an interview Tuesday, adding that she expects rents in the building to be more than $100 a square foot. Newer buildings typically attract higher rents. Rents in Manhattan over the past year have been relatively slow to increase. Rents for top Manhattan buildings stood at $67 a square foot in May, up from $64 at the start of the year, according to real-estate-services firm Cassidy Turley. Meanwhile, Montreal-based real-estate investor Ivanhoe Cambridge last month committed to invest $300 million to start a 900,000-square-foot speculative office tower in Chicago, for which Hines also is the developer. Construction is set to start later this year.

9 In San Francisco, where a booming technology sector has pushed up rents, Tishman Speyer Properties, also joining with J.P. Morgan, plans to move ahead with or without tenants on two office projects. And in another New York project, a developer is constructing a speculative 400,000-square-foot office building south of Union Square at 51 Astor Place. The developer, Edward Minskoff, said he isn't worried about filling it, as there is little competition from other new office space and there are plenty of potential tenants within the larger 400-million-square-foot-plus New York office market. "The inventory in New York is basically old and tired," he said. To be sure, developers such as Mr. Minskoff and Hines with projects under way face risks. The city's financial-services sector has been contracting, and there is considerable uncertainty about European financial markets. Many tenants also are becoming more efficient, using less space for the same number of employees. The vacancy rate in midtown Manhattan was 10.9% in May, according to Cassidy Turley. Hines announced plans for the 28-story tower on 40th Street and Sixth Avenue in August and tapped CBRE to market it to tenants. This year, it retained real-estate-services firm Eastdil Secured to help find an equity partner, and it reached its agreement with J.P. Morgan in recent weeks. The deal is expected to be completed soon, although a groundbreaking is months off. Tenants would be able to move in starting in 2014, Ms. Tighe said.