Sage CEO Jonathan Iger: 5 Questions

Office owner Sage’s centennial celebration has come and gone, and while CEO and President Jonathan Iger might not know where he wants Sage to be in another 100 years, he certainly knows where he wants it to be in 40 years.

Iger said his 40-year goal is for Sage to become “the Marriott Inc. of commercial real estate.” In other words, he wants Sage as a real estate company and Sage as a real estate brand to become aligned under one name and image.

He’s doing that by highlighting the role of hospitality in the workplace — whether that’s by curating similar scents or playlists at each of Sage’s properties, building a more friendly lobby layout, or elevating the customer experience with custom coffee stations (as is certainly the case at Sage’s 437 Madison Avenue).

Besides that, Iger is focusing on reorganizing and prioritizing his portfolio of office properties along Midtown’s Third Avenue. In November 2024, Sage sold 767 Third Avenue for $88 million to London-based Quantum Pacific, which filed plans in August to convert the 40-story building into 337 residential units. Meanwhile, at 777 Third Avenue, Sage is signing new tenants — in April, private wealth advisory practice Iron Birch Advisors signed a lease for 8,400 square feet at the property.

And Iger isn’t done with Third Avenue, as he said the demand for high-quality office space near Grand Central Terminal is far outpacing supply.

Iger sat down with Commercial Observer at 437 Madison Avenue this week to discuss the firm’s work on Third Avenue and its progress in becoming a real estate brand, as well as what might be next for the office market amid Mayor-elect Zohran Mamdani’s upcoming administration.

The following interview has been edited for length and clarity.

Commercial Observer: Sage turned 100 this year. What would you say is the stress level of ensuring that it gets another 100 years? What are your thoughts on New York City’s office market right now?

Jonathan Iger: I don’t think I can look out another 100 years. It’d be very nice for us to still own our properties, or, more importantly, see Sage and what we call “the Sage flag” across the city in 100 years. … We’ve been talking to a lot of other owners — both in New York City and in other major cities, particularly gateway cities — in flagging their properties as a Sage property and managing it to our exacting standards. We’re hoping to see that Sage flag in every major city over the next couple years.

As for the overall market, I truly believe, for the most part, that rising tides raise all ships. And I believe we’ve really seen the market play out that way in the last 12 to 18 months. People were sounding the death knell for the Park Avenue corridor. All these companies were moving off Park Avenue, and Hudson Yards was the new prime address. Park Avenue owners have raised their rents by $40 to $50 a square foot, even $60 since then, if not more. 

And we’re seeing the same thing on the Madison Avenue corridor. There’s new developments with One Vanderbilt, the repositioning of 22 Vanderbilt, we’re going to see BXP’s redevelopment. You’re going to have the backside of 270 Park, the old Bear Stearns building. You’ve got Vornado purchasing on Madison. You have SL Green purchasing on Madison.

So, 42nd Street — and I’ll include ourselves to 49th and Madison — is going to become the prime corridor in New York City and therefore the country. That only continues to raise the rents and the profile and the values of buildings on Fifth Avenue, buildings on Park Avenue, and our buildings on Third Avenue.

Speaking of, Sage has been unloading and repositioning properties all along Third Avenue. What have been the challenges there? How have tenants been responding?

So far, pretty well. We’ve owned properties in most sub-geographies across New York, including along Sixth Avenue, Park Avenue, in the Plaza District and near Grand Central. We’re a 101-year-old company. We’ve lived through 13 recessions, and we’ve been focused on office every time. For us, it’s just staying power. If we don’t believe in a certain area, then we are prepared to sell. We’re not an owner where it’s more important to hold on to the building than produce financial results for our partners.

So Third Avenue has been interesting. I think the conversions are definitely helping. At the heart of all of this — this is Econ 101 — is supply and demand. And I think too often we look at supply and demand from the perspective of a macro sense. We can see in the clothing industry that there are times where fast retail will do really well and luxury is not doing as well. But we don’t dissect that enough within our markets. There used to be a lot more supply than there was demand, but what we’re seeing for Third Avenue right now is the pendulum is really starting to swing. There’s less supply — we’ve had a tremendous amount of square footage come off. That’s going to create more vibrant neighborhoods.

And you hear in the market, “Well, if I want 100,000 square feet and I’m looking for prime space, I can’t get it.” That’s not true. You can still get it. Most of the people who were looking for that prime space have gotten it. More will come up over the next couple years. But what we’re starting to see in the market is that tenants want new product — not new development, but new product for themselves, specifically by Grand Central. 

If you actually start to look at the supply and demand economics of that, there are only a couple options, unless you want to pay $130 a square foot. So I think Third Avenue has always been viewed as a value play, but that doesn’t mean a cheap play. Take our asset at 777 Third — rents are now in the $80s per square foot. And, I think, as we start to lease up the base of that building, we’re going to get actually pretty close to what we’re doing in this building. And, as long as we can accommodate a tenant’s growth and we haven’t priced them out of our own assets, then our expectation is to keep you.

When you spoke to CO a year ago, you said you plan to transform Sage from a real estate company into a real estate brand. How is that rebranding going?

I think we’re there. It’s been a long journey. It’s 101 years in the making, but it’s been eight years of really having a vision and executing on it. When we think about the commercial real estate industry, there are definitely identifiable companies, but I still think even up to today, the only truly identifiable brand has been WeWork. Obviously, their brand was tarnished, but even beyond that, I still have a lot of respect for WeWork — not just what they’ve accomplished, but what they’re doing now to effectively rebrand themselves.

We believe that commercial properties should be branded, and not because it looks cool to have Sage’s logo outside of a building, but because right at the heart of any brand is consistency. Whether that’s high-end brands, lower-end brands, whether you’re walking into Uniqlo or you’re walking into Chanel. You have an understanding of price point, you have an understanding of how you’re going to be treated in the store, and you have an understanding of the quality of items.

That’s what we’ve looked to achieve across our properties. It’s really an investment in standardizing an operating platform. It’s not about the specific offerings — it’s about the experience that you get. The Sage flag just denotes what you get right when you pass the threshold into our lobby. And, you know, sensory experience is huge.

But, at the heart of it, we do all of this because what we’re really trying to do is elevate every customer touch point. When we’re designing a lobby, we spend time with our architects discussing the size of the desk and the placement of the desk in relation to the revolving doors — because if you spend enough time in a lobby, you can literally see what the walking patterns are. We follow the belief that outside of health, wealth and family, time is our No. 1 commodity. So, if we can streamline the experience of simply getting up to the company office that you’re looking to visit, that’s really what’s behind the brand. It’s not just about having a standard operating procedure or having a scent — it’s everything.

What’s the cost of upgrading and furnishing buildings now given rising costs in general? How does that cost compare to years past?

It’s significant. When I joined Sage at the end of 2010 as vice president, on a gross net-effective rent basis, the standard in New York City Class A properties was if we were to achieve $60 in gross rent, you were going to get somewhere between $60 and $75 in a tenant improvement package, and, for every year of rent, you would get one month of free rent. There was no $10 additional for bathrooms. There was no furniture allowance. This was before COVID.

By 2019, the economics had completely shifted, and landlords are to blame for a part of that. What ended up happening is threefold. Spec suites, or prebuilts, became more of a norm. It wasn’t until about 2010 that you saw landlords like ourselves, where we started taking two floors at a time building spec suites. The problem was those spec suites were costing more than the work letter we were providing. So workloads started to increase. Then the crazy cost of inflation, both on labor and material for New York City, was a further compounding factor. And, then, so many of us, and particularly the public REITs, were able to access and tap such cheap money. What do you care if you’re putting out $140 in work, if you’re financing that at 2 percent? 

We became the tenants’ banks, and we never should have. And, once you offer something to a customer, it’s very hard to pull back.

We are starting to see some of that pullback, though. And I think good landlords and good operators like ourselves can get creative and not cut corners in any way. We’re providing a premium product with premium service, and we’ve discovered efficiencies. But the rising costs have impacted our business in general and have changed what being a core-plus owner is over the last six years.

What do you expect or anticipate from Mamdani’s mayoral administration?

I’ve got companies that are both growing and expanding at our properties, and making commitments for 10 to 15 years. They were doing that in a lead-up to where, to speak bluntly, anyone who thought Mamdani wasn’t going to win was living under a rock. It was a foregone conclusion. The board at PNC, who just signed a lease at 437 Madison Avenue, said, “We have to have a New York presence, regardless of who the mayor is. We planted a flag in the city, and we’re going to continue to.”

Plus, the reason that all the companies are in New York is because they are looking to attract the talent that wants to live in New York. And, if you make it more affordable, particularly for people in their 20s and their early 30s, that’s what companies are fighting tooth and nail for. Companies are throwing out crazy packages to attract that type of talent. 

So the city is resilient. Can the mayor and our far left-leaning City Council have a negative impact in the short term? Absolutely. Do I think some of his policies are going to have a positive impact? Absolutely. Do I think some of his other policies, if effectuated, will have a significantly negative impact? Yes, but it’ll be in the short term. 

I’m not a fan of the individual or his platform. But, when we’re talking about overall economic impact to the city, I’m more of an optimist.

Isabelle Durso can be reached at idurso@commercialobserver.com.