Even before the Blackstone Group won a contentious bidding war for 1140 Avenue of the Americas, the prewar office building was in the midst of a multimillion-dollar restoration project in early 2011.
Nearly 30 firms were fighting for the right to own the $116 million nonperforming note held by Laurence Gluck’s Stellar Management and partner Rockpoint Group, which bought 1140 Avenue of the Americas from SL Green Realty Corp. for $97.5 million in 2006.
In the end, it was not a REIT but a private equity group that muscled its way past the competition to purchase the note.
The Blackstone Group, a private equity firm co-founded by chief executive Stephen Schwarzman, paid around $100 million for the note, thus giving it control of the leasehold for the 22-story, 231,000-square-foot building. The firm had predicted a recovery in the commercial real estate market and set out an aggressive investment strategy, picking up firms like Centro Properties Group, an owner of shopping centers across the United States, for billions of dollars.
By purchasing the note on 1140 Avenue of the Americas, Blackstone inherited a partially completed (but still modernized) office tower that came complete with new features: a new glass curtain wall and storefront; a brand new lobby, new elevator cabs and mechanicals, new generators. Everything was new … and largely empty.
The building was roughly 75 percent vacant by the time Blackstone assumed its leasehold, said those familiar with the property. Add in that the building was only half-finished, it was in the precise state that the private equity giant wanted it to be in when it took over.
“We essentially took control of a project that was in a partial state of completion in terms of a major renovation, and we completed it within four or five months of taking the keys,” said Josh Glick, vice president of leasing for Equity Office, a real estate firm that was purchased by Blackstone for $39 billion in 2007.
This is hardly a new tactic by Blackstone. The firm had assumed ownership of 1095 Avenue of the Americas when it was halfway through its renovation. Blackstone then completed the building’s remodeling, turning the building into a Class A office tower.
The firm hired MKDA, an architectural firm, to embark upon a comprehensive prebuilt program to accompany 1095 Avenue of the America’s exterior refurbishment. The prebuilts ranged in size from 3,500 to 12,000 square feet and offered open space with abundant sunlight and windows. It is now completely leased, save for a 4,000-square-foot office space in the building’s office tower currently on the market.
But with 1140 Avenue of the Americas, there was a lot of raw space on Blackstone’s hands. The vacant floors in the building had yet to be demolished. The building’s previous owners had started to remodel the vacant floors with their own prebuilt style in mind. Blackstone used its newfound ownership to scrap those prebuilts, demolishing most floors and building new prebuilts to “reflect what we thought the positives were of the building,” Mr. Glick said.
Among the positives the team listed was the renovation itself. The prewar building, which had been built in 1926, received a $45 million renovation in 2010. Designed by Iu+Bibliowicz architects, its facade was stripped bare of a concrete exterior, transforming it into a new glass and aluminum curtain wall on the west and south sides of 44th Street and the Avenue of the Americas.