To REIT or Not To REIT: The Question

Having spent time working with ownership groups that operated like Real Estate Investment Trusts, working for The Winter Organization has been a welcome change for Robert Fink, who joined the group four years ago.

“Real estate is a long-term investment, but when you become a REIT and you’re now issuing stock to the public, everyone is looking quarter-to-quarter,” said Mr. Fink, director of leasing at the firm, in an interview with The Commercial Observer. “Those [are] counteracting forces that sometimes lead to not make the best real estate decisions.”

55th street To REIT or Not To REIT: The Question

423 West 55th Street.

For the Winter Organization, a 100-year-old family business run by brothers Benjamin and James Winter, the ownership group looks to own its properties for periods longer than the 7-to-9 year period that has become popular with REITs.

That could explain the Winter Organization’s slim vacancy rate, which currently stands at an estimated 2.5 percent for its entire portfolio. It helps Mr. Fink, who is the firm’s director of leasing, to let tenants up for renewal know that a Winter Organization-owned building won’t be flipped for a profit the year after they sign new leases.

“I can go into a meeting with tenants and say with conviction ‘we are long-term owners,’” said Mr. Fink.

The company also prefers to develop its properties selectively, especially when it takes C-class buildings with the aim of converting them into B-plus properties

One such property, a former warehouse on 423 West 55th Street, is testament to that.

“They don’t do a lot of development,” said Mr. Fink. “But when they do, it certainly has the vision like they did with [423 West 55th] Street.”

When the building was purchased by the Winter Organization in December 2002, it was “a quasi-warehouse” style of building located on the outskirts of the Midtown business area.

The firm decided to reposition 423 West 55th Street, embarking on a series of cosmetic (and in some instances, radical) alterations to make the property more inviting.

The lobby of the building was repositioned, and was moved from the west side to the east side of the building. The entrance to the lobby, which previously had steps leading up to it, had been lowered to make it more ADA accessible

The facade on the east of the building had also been re-done.

“It was pretty much a gut renovation,” said Stephen Schofel, an executive managing director at Newmark Knight Frank who handles leasing at the asset.

For the renovations, the Winter Organization hired Iu + Bibliowicz Architects, the same firm that worked on the nearby Joan Weill Center for Dance at the Alvin Ailey American Dance Theater (the architects are also tenants at 57 East 11th Street, a Winter Organization-owned building).

“The facade and the lobby were designed to meld in with the beautiful design that they did for the Weill,” said Mr. Fink.

The floor plates were also altered, and the overall changes to the building helped attract what Mr. Fink described as top office tenants and high-profile entertainment companies.

“That lead to the evolution of just a totally different type of tenant in the building,” said Mr. Fink.

One such tenant is Related Management, part of the Related Companies, which is headed by Miami Dolphins owner Stephen Ross. Related had three floors (each with floor plates averaging about 25,000 square feet each), making the company the largest tenant in the building. But that space was spread out on non-contiguous space in the 300,000 square foot building.

Other tenants include Viacom and RHI Entertainment, a TV and internet production company that recently took the top floor in the building.

“[It’s] a gorgeous floor with an open skylight and just 360-degree views and light, it’s really a special floor,” said Mr. Schofel.

There was an opportunity to change the layout for Related Management and give the firm a contiguous block. This would open up long-term space for the Winter Organization, which the firm hasn’t had in the past year.

Related never had contiguous floors and always wanted contiguity with its offices,said Mr. Fink. At the same time, there was another media company, C2 Imaging, which wanted to renew its lease and restructure its space.

“Rather than living through the reconstruction, we moved them down to a Related floor that Related had yet to build but was getting ready to build,” said Mr. Fink.

They renewed C2 Imaging and swapped floors with Related so that the company would have three contiguous floors: 9,10, and 11.

Although asking rents aren’t what they were before the recession hit (that rent peaked in the $40s), the asking rent is now said to be around $39 a square foot.

The Winter Organization has another tenant at 423 W. 55th that has a lease that’s expiring in 2013.

With that lease set to come on the market, the firm now has the ability to offer anywhere from 25,000 to 75,000 feet, 50,000 of which is contiguous.

“There is probably a play to make another 20,000 square feet available, so it’s almost 100,000 square feet,” said Mr. Fink.

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