The Metropolitan Life Insurance Company took a $38 million charge on vacant Manhattan and Queens office space it controls through long-term leases, it said in its annual report issued about a week ago.
The Manhattan-based insurance giant cited the poor economy, which made it difficult to sublease 100,000 square feet of unused space at 1095 Avenue of the Americas and 180,000 square feet at 27-01 Bridge Plaza North in Long Island City. And costs could mount in the future.
“Additional impairment charges could be incurred should market conditions deteriorate further or last for a period significantly longer than anticipated,” the company said in the March 2 filing.
The $38 million charge was arrived at by subtracting the adjusted total of sublease income over the remaining life of the leases from a present value of the gross rental payments, the company said.
Real estate experts expect similar charges to pop up in the filings of other companies as the economy deteriorates.
“Anybody who signed a long-term lease and now wants to shed the space is probably going to be on the hook for some loss, and may have to contribute to broker commissions, free rent and build-out,” said Peter Hauspurg, chairman and CEO of Eastern Consolidated.
In 2006, MetLife signed a 21-year lease for 410,000 square feet at 1095 Avenue of the Americas, at the corner of 42nd Street, with a gross rental obligation of $850 million, company filings state. In 2001, Metlife signed a lease for 686,000 square feet in the six-story Long Island City building.
A company spokesperson declined to comment.
Seth Molod, a partner in the real estate division of accounting firm Berdon, said the charge showed MetLife expected it would not be able to sublet at the rate it signed its leases for. The rents were not disclosed.
“This is an indication that the company does not believe they will recoup the lease payments that they are making. And sublease income, to the extent that they are able to sublet, will be less than their master lease payments,” Molod said.
Part of the trouble is that MetLife was asking too high a rent in Queens, experts said.
Broker Ira Sherman, senior director at Queens-based real estate services firm Greiner-Maltz, said he had not seen a change in asking rents for the building from about $38 to $40 per foot. He said there were sublets in the area available for $18 to $28 per foot.
“I think that price is but one of the ingredients contributing to why finding a tenant is difficult. Add that to receding market demand,” he said, and “it becomes easier to resolve why they would have then taken the steps they’ve taken.”