Chrysler Crisis! Is the Famed Skyscraper Only Getting $100M Bids?! [Updated]
RFR and Signa Holding had the winning bid of $150 million
When news hit that the Chrysler Building was on the market, market observers speculated that it would get as much as $800 million.
It looks like they’re off by a measly $650 million.
Since the iconic skyscraper at 405 Lexington Avenue went on the market back in January, bids have been trickling in below $90 million with “a high of $110 million,” as of last week, according to multiple sources.
After Commercial Observer reported this, The Wall Street Journal reported that RFR Realty is the winning bidder with a bid of $150 million. Signa Holding GmbH—Austria’s largest privately-owned real estate company—is partnering with RFR in the acquisition, as first reported by Reuters .
Bidders that CO contacted immediately after the news broke Friday afternoon said the sale price was “surprisingly high.”
The low sale price comes as a huge shock, given that the building is one of Gotham’s most treasured landmarks and the fact that its previous owner, Tishman Speyer, sold a 90 percent stake in the building to the Abu Dhabi Investment Council (ADIC) for $800 million—at the height of the market in 2008—and retained the remaining 10 percent ownership stake, as CO previously reported.
One individual CO spoke to said that the ADIC is “losing a fortune” on the sale.
One of the Chrysler’s many complicating factors is the building sits on ground that’s owned by Cooper Union, which makes a tidy $32 million per year off the property in rent income and serves as the school’s central moneymaker. And the rent will only grow in the future, thanks to the terms of the lease agreement, which is locked into place until 2049 and will get as high as $55 million per year.
“The ground lease is taking the economics out of the building,” said one source familiar with the bidding..
Funnily enough, the ground lease problem isn’t entirely dissimilar to what RFR’s Aby Rosen faced at Lever House at 390 Park Avenue. As one source said: “It’s another case of the ground rents crushing these buildings. The net operating income is too low [to] support the ground rent.”
In the Lever House case, Rosen had to negotiate an acquisition of the ground with its owner and also buy controlling CMBS bonds in order to purchase the asset at fair market value. Rosen stopped the foreclosure on the asset as a result.
But as for the Chrysler building, Cooper Union is very unlikely to negotiate on this cash cow—which funds the majority of its budget—sources said.
The Real Deal reported that RFR was the leading bidder along with Ashkenazy Acquisition. Sources told CO that El-Ad was also in the running and keen to pick up the trophy asset.
The building is also in need of considerable upkeep and renovation, with one source telling Commercial Observer that the new owner would need to pump around $100 million in capital into renovating it.
Prior to the sale closing, bidders had estimated the value of the office building at only $60 million and the value of the restaurant space on the ground floor, which is occupied by the Capital Grille, at $44 million.
Currently, the building is home to Creative Arts Agency, the law firm Moses & Singer and coworking firm Spaces, which signed an 111,000-square-foot lease in September 2018, but other sources said that there was a fair amount of vacancy in the building.
With reporting by Chava Gourarie.
Update: This story was updated to include that RFR and Ashkenazy Acquisition were among the bidders and that a partnership between RFR and Signa was the winner.