The success of 200 Fifth Avenue has served in many ways as the template for 28-40 West 23rd Street, and no doubt many other buildings in Midtown South. The building’s developer, L&L Holding Co., guessed the popularity of the neighborhood and bet a big reinvention of the property would draw top-shelf tenants, a gamble that paid off when it landed Grey Advertising and Tiffany & Co. Now the landlord of 28-40 West 23rd Street is in the middle of a similar kind of makeover. The Cohen, Roos and Carmel families, who together own the 600,000-square-foot tower, have plans to create a roof deck and have done deals with tech companies that are invading the neighborhood in droves. After the jump, The Commercial Observer talks to Andrew Roos, a Colliers International leasing executive and an owner of 28-40 West 23rd Street. Return at 10:30 today for a second installment with David Berkey, L&L’s director of leasing.
The Commercial Observer: With all the leasing at 200 Fifth Avenue, is there any space left?
Mr. Berkey: I have a floor and a half and there are deals pending on all of the space.
How much space is that?
It’s roughly 80,000 square feet in total. It’s not a lot of space; it’s 9 percent of the building.
Have these deals been in the works for a while or are they more a product of the increased activity in Midtown South in recent months?
I’ve always had activity on the building—it’s really a special property. The renovation came out magnificent, and a building that’s 100 years old was transformed from a former showroom property into a state-of-the-art office building but one with the feel of a classic property that has warmth and vibrancy. The tenants who have come here—and we knew this would be the case—found it to be transformational in the way they do business.
They utilize all the outdoor spaces we have, the courtyard and the roof. They literally go outside to have meetings. They go up on the roof—it’s big enough so that there are two or three meetings that are happening at one time. The floors are 58,000 square feet and the building has windows on every side. There is no other floor anywhere that I can think of in the city of that size where you’re never more than 30 feet from a window. Big floors like that are usually very deep. Floors at 11 Madison and a building like 1290 Avenue of the Americas. You can get buried on a floor.
Both Grey and Tiffany have found it to be transformational and they have both expanded in the building, as you know. In the case of Grey, there are other business groups that are part of WPP that literally come here all the time because it’s so pleasant. Then you throw in what we did with Eataly. I think it has transformed the whole area and Flatiron. It’s become a fun place to go to seven days a week late into the evening. The park is terrific. Marriott is coming to the clock tower and Related is taking over 1 Madison. You feel all the energy and the coolness, and now all the tenants want to be here.
Do you think that other buildings in the area are trying to follow your template for success now that the neighborhood has taken off?
There are a handful of buildings—less than that even—that have been renovated even close to the degree of 200 Fifth Avenue. There’s 160 Fifth Avenue and there’s 11 Madison, which is good but maybe not to this degree. Another that comes to mind is 51 Madison. And then of course 111 Eighth Avenue. It’s a small group that offers these modern amenities and, yes, a lot of the buildings in the area really do cry out for a big-time renovation. But a lot of them are really just content to benefit from the rising tide. There are some landlords who don’t see a need to put a nickel into their buildings and now that Midtown South is hot they bump their rents from $25 or $30 a foot to $50 and did they do anything? No. At some point tenants will take stock and say it can’t be enough just to be in a hip neighborhood, the building has to give back and there’s going to be that friction in the marketplace. But we put the work in and we’re getting $85 a foot and no one is getting that. I’ll tell you that no one is getting even $75. This building is an island unto itself.
Where does the Flatiron district fit within the greater Midtown South market?
I’d like to think it’s a very unique submarket because of the transit and the park. How many buildings are on a park? Firms seem willing to go to the outer reaches to find what they consider cool and hip but the transit is lacking a little bit. The connection of the No. 7 train is going to be very big—it’s one of the reasons why Scott [Rechler] bought 601 West 26th Street [the Starrett- Lehigh Building]. In neighborhoods like meatpacking, the buildings there are predominantly small and it’s hard to have a Tiffany or a Grey or CS First Boston take space there like they could in a building here in Flatiron. Cushman & Wakefield keeps statistics for what it calls Madison Square and Union Square, which is the Flatiron district basically and it has a sub 4 percent vacancy, according to them. That’s nothing. That’s lower than Midtown South overall.
One thing that we do think is the next thing. Midtown South has certainly had a major transformation and that’s continuing. We just bought 222 Broadway because we think it’s going to shift. We already owned 195 Broadway and everyone thinks of it as the financial district but we look at how Tribeca is stretching down there. For tenants that get pushed out of Midtown South, coming to buildings like 195 Broadway and 222 Broadway, they’re very cool and they have the same feel.
What kinds of renovations are you planning to do on 222 Broadway?
We’re at the infancy of that. We just bought the building. To coin a phrase, we’re going to make it the best possible building it can be from an operational and aesthetic standpoint.
What types of tenants are you doing deals with at 200 Fifth right now? The 80,000 square feet of deals you mentioned?
I can’t really be specific because the negotiations are in process, but that building has from day one attracted every kind of tenant. We have turned away eight out of 10 of the proposals because we want a certain mix. We don’t want an insurance company or a law firm. They’re all fine companies but it doesn’t jibe with the atmosphere we want. We want companies that create energy, that have vibrancy in the work force, that lead to the products of the future. It’s creative and media, and it’s tech.
With so much demand seemingly for 200 Fifth, are you kind of sad also that you don’t have more space to offer?
We came close, you know, to buying the annex building 1107 Broadway that Steve Witkoff eventually got. He outbid us and he’s going to convert the building to residential. We were going to continue operating it as an office property. We had a tenant, Young & Rubicam, who was going to lease virtually all of it, which is another WPP entity—and they were all over as much as Grey was with 200 Fifth. It’s the fish that got away.
Do you wish you bid higher?
I don’t know if you’ve ever been involved in a bidding situation. There’s a frenzy to it and you have to be somewhat disciplined and we are disciplined. We know what we want and what we can do and what is practical and if you don’t go into it with that discipline in mind you can easily end up overpaying and be screwed. Do we wish we paid a little more? Sure. But who knew where that would go? It’s 20/20 hindsight.
Do you own other assets in Midtown South?
The only other asset is 150 Fifth Avenue and it’s 100 percent leased to EMI. It was one of the earliest real estate endeavors we did as a company and it won the BOMA award for our renovation. And 200 Fifth Avenue has won 10 architectural awards including BOMA.