Two Buildings, One Block: Andrew Roos on the Virtues of 28-40 West 23rd Street
Daniel Geiger April 25, 2012, 9:30 a.m.
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: Why is 28-40 West 23rd Street a dual address?
Mr. Roos: The building is actually two combined properties—40 West 23rd Street was built in 1878 and the annex building, 28 West 23rd Street, was added onto it around the turn of the century. Forty is larger. It was the original Stern Brothers department store in 1878. Forty is a six-story building and 28 is a 12-story building, and the two together total about 600,000 square feet. One of the great things about the complex is the buildings were purposely combined—28 West 23rd Street was built as an add-on so the integration between the two buildings is seamless.
When did you acquire the property?
Around 1960—when we acquired it the building was used for mainly light manufacturing and showrooms. In the early 1980s, when the market became overheated in Midtown, that was one of the first times Midtown South really began to become redefined for creative firms that were looking to lower their occupancy costs.
Many of them fell in love with the architecture and decor. Forty is unique—it has a cast-iron facade, which is unusual north of Soho and Tribeca, where most of the cast-iron buildings are located. The building is not landmarked but the district is, the Lady’s Mile. It will never be torn down. It is a jewel and representative of the era in which it was built.
So the recent wave of tenants coming to Midtown South is not the first time the area has come into vogue?
Midtown South became a destination because of the architecture and ambiance of the buildings. The cost of these buildings today or even years ago made them impossible to replicate and this is not the first time that tenants have caught on to that. With this building we have broken one of the cardinal rules of real estate: we fell in love with the bricks. You should fall in love with the cash flow.
What work have you done on the property to help it gain popularity?
We first repositioned it in the mid-1980s. Jerry Cohen had a great idea, to take the open-air shaftway that is in the middle of the 40 building and put a large glass ceiling in to create an inner atrium. It was modeled after the Plaza Athénée hotel in Paris. We added French windows and flower boxes and restored the brick. There were beautiful wrought-iron balustrades. When the windows are open, it’s like being in a French hotel and it took away the burden of having a deep floorplate by connecting tenants to light and air.
You ended up leasing a lot of the space to Ecko, which nearly went bankrupt during the recession. Is the company still a tenant and what happened to its space?
We formerly leased about 250,000 square feet to Interpublic and they downsized around 2000, and then around 2004 we leased their space to Ecko. Ecko was like the Tommy Hilfiger of its day—this really popular label. And their business was strong and growing and they took 270,000 square feet. They were the largest tenant by far. The building has always attracted great tenants—we had Reader’s Digest, Forbes, Mattel. Nike has three floors. Ecko had floors two, three, four, five and six in the 40 building and floors two, three, four and six in the 28 building. We wound up taking floors back: three and four in both properties. We have worked out an arrangement to assist Ecko in subleasing its remaining space, and we have the option to terminate its lease if we find a tenant for its space where a direct arrangement is more suitable. Once we took the space back, we could see the activity brewing in Midtown South with high-tech and media companies.
And that’s who you wound up leasing to?
That’s right. We leased three to Estée Lauder and four to AppNexus and there’s a lot of activity on the remaining floors. We can wait to find a tenant for the sixth floor because Ecko is still on the lease for that floor and subleases the space, part of it to Usablenet. I remember the tech boom of the late 1990s and we’re very aware that not all these companies that you see in Midtown South are going to make it. At some point there will probably be a shakeout and so we have been selective. One of the motivations we’ve had working with AppNexus is we like their business model. The principals had sold their last business to Yahoo. This venture is backed by Microsoft. They’re well funded.
What’s going on with the fifth floor and the other space that is available?
Five was sublet by Ecko to a company called Big Fuel. They have a great name but I’d never heard of them. Then six months later they were purchased by Publicis. Ecko’s lease stretches to 2014. A lot of brand-name tenants have been through the building. We are close to leasing the second floor and we’re looking to create a jewel box on the fifth floor and the penthouse space of 40 West 23rd Street, by combining the two floors into a block and connecting it with the roof space that starts on seven. We’re also looking to help AppNexus expand, possibly on five. Right now we’re preparing to build the roof space, moving the cooling units that are there to the roof of 28 West 23rd Street, which, remember, is 12 stories. A lot of what we’re doing we were motivated and inspired by 111 Eighth Avenue and 200 Fifth Avenue, which are like the bookends of the neighborhood, Google to the south and Grey to the north.
What about the second floor?
We’re marketing the second floor right now. We have gotten in the mid $50s for the other spaces recently and so we’re asking in the $60s for the space.