3Q12 Data Reveals Lingering Uncertainty
There was a time when it seemed certain 11 Times Square would command some of the highest rents in city.
The building, which was developed by a venture between SJP Properties and its equity partner Prudential, was finished in 2010. As one of the newest buildings in Midtown, it is widely considered state-of-the-art, with many of the bells and whistles that tenants are supposed to be willing to pay a premium for, such as towering ceiling heights, LEED-certified efficient systems, a floor-to-ceiling glass façade that offers prodigious light and few structural columns to impede the efficiency of its spaces.
Entering the market at a tough juncture during the recession, SJP Properties nonetheless appeared to take a hard line on rents, and rightfully so: the building cost more than $1 billion to develop. According to several sources familiar with the property and its leasing history, the landlord held fast to projections it had set before the downturn—rents in the $80s per square foot and beyond.
But SJP and Prudential have since appeared to dramatically change tack. Increasingly wary of the vacancy that has lingered at the roughly 1-million-square-foot tower, the partnership is in the process of arranging a nearly 400,000-square-foot deal with the software and technology giant Microsoft. The lease, rumors of which have been circulating in the city’s real estate industry for weeks, is said to be for rents around $60 per square foot, which many leasing experts have called a sizeable discount from what the building owners were originally seeking.
Factoring heavily in the apparent bargain are rich incentives SJP is said to be offering on top of the low rental rate.
“The talk is rents in the $60s per square foot, with around $100 per square foot in work and free rent for at least a year, maybe longer,” Joseph Harbert, president of Colliers International’s eastern region, told The Commercial Observer. “It’s a very aggressive deal. It has been an asset that has taken a long time to rent. They clearly reached for this tenant.”
Prudential has acknowledged the challenges. In recent weeks, an executive was quoted as saying the company would likely not have invested in the speculative tower had it known how difficult it would be to lease it.
Though many leasing experts believe the building has special challenges, such as its proximity to the gritty Port Authority Bus Terminal across Eighth Avenue, the situation at 11 Times Square would appear to highlight a troubling undercurrent in the market. There’s no doubt that the city’s real estate market has bounced back from the serious recession that brought rents crashing down, nor that individual neighborhoods such as Midtown South, despite the lethargy in other areas, have risen to unprecedented popularity. Yet large vacancies have also continued to fester, and big tenants have appeared slow or unwilling to make commitments, giving the sense that a Manhattan recovery, which only a year ago appeared ready to absorb major new office development projects such as those on the far West Side or the World Trade Center site, has begun to stagnate.
“The large corporate users are the area of the market that has been the most sluggish,” Ken McCarthy, an economist at Cushman & Wakefield, said. “These kinds of companies are not ready to take risk because of the uncertainty.”