Kevin Hoo’s Tweet Victory
Kevin Hoo’s prior experience with UBS AG and later Tishman Speyer allowed him to slip seamlessly into a role as a vice president at Savanna in 2011, where as an asset manager he handles everything from financing acquisitions to choosing building finishes, leasing them up and handling day-to-day operations. “We run a fairly lean team here,” he said. “My role has been to play the jack of all trades.” At Tishman Speyer, Mr. Hoo’s acquisition, development, design and construction roles saw him focusing on properties as iconic as Rockefeller Center and the MetLife Building, but as he tells it, Savanna’s recent repositioning of 245 and 249 West 17th Street, now home to Twitter’s New York City headquarters, is the most exciting endeavor he has been a part of. The 141,000-square-foot Twitter lease announced last month was a major payoff for the real estate fund, which purchased the turn-of-the-century building in November 2012, double-timing an expansive renovation and landing one of the biggest names in social media. Mr. Hoo spoke about the turnaround at West 17th Street, his firm’s strategy and other major developments in New York City real estate affecting his firm.
What attracted Savanna to 245 and 249 West 17th Street?
We loved the location, literally a kitty-corner away from Google and a stone’s throw away from Union Square. It’s walkable to the L line, which brings a huge demographic shift in terms of the type of personnel that works for Google, eBay … and come from, say, Williamsburg and along the L.
That area is an epicenter of talent, and we understand that these types of companies really live in a community. They like to be in a community, because they like to share ideas. So when we saw these properties on 17th Street, which are beautiful turn-of-the-century buildings, we just loved the aesthetics and the bones. But they were totally undercapitalized.
Tell us about the overhaul of the property.
Before we closed on the transaction, we had already been actively designing it, so when we did close it, we vacated both buildings very quickly—by the end of January . In nine months, we had completed a heavy construction load, and that construction is something that would typically take 18 to 24 months to do on a large, 300,000-square-foot project. We gutted both buildings, we installed brand new Class A infrastructure, brand new core bathrooms, mechanical units, water-cool HVAC units (which appeal to tenants with a 24/7 work environment), brand new lobbies, brand new cabs and mechanicals for the elevators—everything we could do to position this asset as a modern day asset but with the bones and aesthetics that all these tenants love.
At what point during the renovation did Twitter enter the conversation?
There are very few opportunities for more than 100,000 square feet with a roof deck opportunity in that area of Chelsea and Union Square. Obviously, we know  Astor was one, our competitor, and we had one of those buildings. There were a few tenants circling around, and I would say similar tenants that circled around  Astor circled around us. We are not a glass-and-steel, brand new construction. We are a turn-of-the-century gut renovation. It was apples and oranges, depending on the tenant’s aesthetic [preferences].
When we were undertaking heavy construction, all of these parties were looking at the building, and all of these parties were very interested. We were always in the mix, regardless of who was looking at 51 Astor.
How long will you hang onto the property?
We always look at the opportunity to exit based on the circumstances. So if someone approaches us and says, “We’d like to partner to recapitalize,” we always consider that. If someone wants to buy it outright, we also always consider that. Case in point: 465 Broadway and 15 East 26th Street. Those were very quick turnarounds, and if the opportunity presents itself, we always consider it our fiduciary duty to our fund investors. [The property at] 17th Street was one of those we turned around very quickly, and we’ve stabilized it very quickly, so if people come knocking, we will entertain discussions, but we didn’t go into it with a mindset as to when we would get rid of it.
How will landing Twitter help attract other tenants to building?
I go back to community. When you have hundreds of people in that epicenter, whether it’s Google, Twitter, eBay, they are all packed into a corridor that breeds a community, and that community is akin to Wall Street in its heyday if you were a financial professional.
You want to be the best of the best, and you want to associate with these guys, and I think that community sense in the social media world is what attracts them. So with Twitter in this building, obviously service providers that work with them or horizontally integrated firms that work in that industry will want to be in the building, and already we’re seeing that interest.
In the basement space, you’ll have tenants that want to be either close to Room & Board, which also signed there or service providers [providing the] work/live/play environment that social media and tech companies have.
Talk about your company strategy and its fund structure.
As a natural fallout from working in a fund structure, we don’t have a long-term hold like family offices would have. Our typical lifecycle is nine years from when we raise the funds to when we dispose of assets. We’re always mindful of that at the end of the day. We look at opportunities, and we are very flexible, while in the back of our minds always knowing that at one point in time we will have to exit the asset. So within that time frame—nine years—we need to be confident enough to turn around an asset to achieve the business plan
Your bread and butter is renovating older properties. Why is that?
We have 400 million square feet of office space in New York. When you look at the history of Manhattan and the inventory, on average, the age of these buildings is probably 70-plus years. So when you think of New York City’s reputation as one of the premier office and professional environments in the world, where foreign and domestic capital is continuously searching for opportunities, you understand that it attracts talent, investment and the best of the best. When you have 70-year-old inventory, you can’t just keep building new stuff; you have to use what’s existing. We see that as an opportunity, because we specialize in being able to turn around old assets and bring them to today’s Class A standards and reposition them to achieve the types of work environments that these tenants are looking for today and are willing to pay the rents for.
You’ve signed a lot of tech tenants in Downtown Manhattan. Have you noticed a shift as tech tenants are priced out of Midtown South and move further south?
Yes. The Midtown South tenants tend to be larger and in the bright lights—your Googles and your Twitters and your Facebooks. That’s the area they want to be, because there’s that sense of community. But then you also have service providers in the tech and social media industries that support these guys. And on the other side of the continuum, you have steady-state tech companies that do tech infrastructure, financial and legal-type firms that require a Wall Street address and don’t need to be in Midtown South.
They are being priced out of Midtown South, but there are also tenants that are choosing to be located in Downtown Manhattan, simply because the type of businesses they support are located downtown. We’ve done close to 10 deals in the last 15 months at 100 Wall Street just for tech tenants totaling 50,000 feet, which is nearly 10 percent of its space. These are steady-state tenants, some of whom are listed. They support the infrastructure for stock exchanges, for hedge funds, for legal funds, and they require a little bit more of a corporate-type presence.
Have you benefited from the World Trade Center site development?
We’ve benefited tremendously. It’s a tale of two cities [downtown], because east of Broadway, you have the older generation of buildings, smaller in plate, and they appeal to service providers that don’t require 50,000-square-foot plates. We specialize in that type of building. I saw a stat that over 80 percent of leasing activity in Manhattan is less than 20,000 square feet, and that’s the sweet spot that we play in: 100 Wall Street; 5 Hanover, which we sold; 2 Rector, which we exited; and other buildings we’re looking at downtown now. How has the Trade Center coming up helped us? Anyone who wants to be located near the Trade Center and be a service provider for firms like Group M, Condé Nast and the government, they don’t need huge plates, but they like the plates that we offer in a brand new prebuild, at rents that make sense. So we’ve seen an uptick in activity.