Well sort of.
Previously leased to Macmillan Publishers for the last 60 years, the building has been sitting vacant since 2019 and supposedly needs something like $100 million in CapEx to make it leasable again. Four of the five current owners have wanted to renovate it, but the fifth kept blocking it, and so the other partners sued for a "partition auction."
That auction happened last week, and even though the four owners were really trying to lock down the 25% share that they didn't own, the auction was won by an outsider at $190 million. That said, a 10% deposit was to be due the following day and, apparently, that never happened. So maybe it hasn't sold yet. But whatever, it's still interesting to think about its purchase price.
According to Wikipedia, the Flatiron Building is 255,000 square feet. So at $190 million, the building was "purchased" for $745 per foot. Assuming that it needs another $100 million, that's another $392 psf, for a total of $1,137 psf.
What I am curious about now is how this compares to other office buildings in midtown Manhattan. Is there any sort of premium for being the Flatiron Building? And what would space in this building lease for following a renovation? i.e. What cap rate is the market demanding right now for an empty office building needing $100 million in renovations? Or, is the play to convert to residential?
I don't know enough about the real estate market in midtown Manhattan to answer these questions with any sort of precision, but I'm hoping some of you do and that you'll leave a comment below.
The NY Times reported this week that, as the ultra luxury real estate market in New York City continues to cool, developers appear to be making two kinds of product adjustments: (1) they are converting the penthouses and rooftops of their buildings from premium residential space into amenity spaces for the broader building and (2) they are shrinking unit sizes to help with overall sales and leasing velocity.
According to the New York Times, condo prices on Billionaires’ Row in midtown are down 20-40% since the peak of the market in 2014 when this record was set. So developers are responding with more studios and 1 bedrooms, and amenity spaces – many of which now include high end restaurants also open to the public – that ensure no other building has something you don’t have.
However, there are naturally some differences between condo and rental buildings. Since 2016, 35% of rentals projects in the city have had some sort of penthouse amenity, whereas the number is only 13% for condo buildings. This makes sense given that amenities are such a big driver of leasing. You definitely want your amenities ready for when your leasing office opens.
What product changes, if any, are you seeing in your market right now?
Photo by Aaron Burson on Unsplash