After snatching up Bear Stearns in a stunning $236 million rescue deal, real estate industry sources say that JPMorgan Chase & Co. has a wealth of options with the firm’s headquarters: it could sell the Bear Stearns building for up to $1.2 billion or even back out of a deal to build a new downtown headquarters and instead take over the firm’s 383 Madison Avenue headquarters.
Sources say that JPMorgan Chase is expected to cut at least one-third of Bear Stearns’ employees once it completes the deal, which was reached on Sunday night. That could create a huge amount of office space available for sublease at more than $100 per square foot.
“How they decide to use the building would be beneficial to them either way,” said Scott Singer, executive vice president at Singer & Bassuk Organization.
JPMorgan Chase entered a $290 million lease agreement in June 2007 to build a new headquarters at 130 Liberty Street, the site of the old Deutsche Bank building.
That 92-year lease called for JP Morgan Chase to develop a 40-story office tower that would serve as the headquarters for the investment bank’s 7,000 employees. However, the move is not scheduled until 2012 and developing the site will cost the bank about $2 billion.
“It’s such an easy transition to go into a relatively new building instead of waiting for downtown [to open up]” said Barbara Denham, chief economist at Eastern Consolidated.
A major sticking point could be that the Bear Stearns headquarters, located between 46th and 47th streets, has 40,000-square-foot floor plates, compared with six 60,000-square-foot trading floors planned for the 130 Liberty Street site.
JPMorgan Chase controls more than 5.6 million square feet of space in Manhattan, including 1.3 million at 277 Park Avenue, 1.2 million at 270 Park Avenue, 887,000 at 4 New York Plaza and 829,000 at 270 Park Avenue, according to CB Richard Ellis.
JPMorgan Chase owns all of the space, except for a lease agreement at 277 Park Avenue. The bank’s spaces at 15 Broad Street and 27 Wall Street have been converted to residential.
Dennis Russo, an attorney with Herrick Feinstein, says that JPMorgan Chase should not sell the Bear Stearns building until the markets begin to stabilize, because financing is tight and the office space’s value will go up once the leases turn over.
“I would sublease the space for short terms and basically wait until the market it a little more stable,” said Russo.
Several executives questioned why Bear Stearns failed to sell the building prior to the JPMorgan Chase deal. However, David Tobin, principal at Mission
Capital, pointed out that the building was configured for a single tenant and would have much more value with a stable tenant like JPMorgan Chase behind it rather than Bear Stearns, which imploded after its mortgage-backed investments tanked.
“Whether they hold it or sell it, they’ll probably do well,” Tobin said. “Certainly if they’re the tenant, they get materially more money than if Bear Stearns is the tenant.”
JPMorgan Chase and Bear Stearns officials were not immediately available for comment.
Bear Stearns owns more than 1.1 million square feet of space at its headquarters and leases office space at 230, 237 and 320 Park Avenue and 909 Third Avenue, according to CB Richard Ellis.
The Bear Stearns acquisition is subject to shareholder approval, and a vote is expected within six months.