The Real Deal New York

Manhattan office towers keep getting pricier — but incomes lag behind

Top-grossing buildings seeing modest gains while square foot prices go through the roof

August 20, 2014 02:00PM
By Adam Pincus

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From left: Ric Clark, 245 Park Avenue (Credit: CoStar), 1251 Sixth Avenue, Empire State Building and Anthony Malkin

The sales pricing per square foot for Manhattan office buildings has been surging over the past several years. A look at revenue growth for class A office towers, however, reveals a far different picture.

The numbers tell the tale. Commercial firms such as Cushman & Wakefield report that in Manhattan’s top buildings, known as class A, the average sale price has risen from $783 per square foot in 2012 to $1,310 per foot through the second quarter of 2014. But 20 top-grossing office properties have generated more modest returns.

Indeed, 13 of the top 20 properties — which were ranked by gross revenue, using income and expense data compiled by analytics firm Genesis Computer Consultants — saw revenue increases of less than 10 percent in 2013 compared with 2012. That’s far less than the 35 percent spike in sales pricing between 2012 and 2103, and the 24 percent rise from 2013 to midway through 2014.

The top grossing property, the Empire State Building, is owned by the Empire State Realty Trust, led by CEO Anthony Malkin. It saw its revenue grow by just 8.4 percent to $188 million last year. The second highest was Mitsui Fudosan America’s 1251 Sixth Avenue, which recorded an increase of 3.4 percent, to $179 million.

Rounding out the top five were 245 Park Avenue with revenue of $151 million, which is owned by Brookfield Property Partners where Ric Clark is CEO; Google’s 111 Eighth Avenue, with $143 million; and Stahl Real Estate’s 277 Park Avenue, with $136 million, the Genesis data show.

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Granted, the data does not provide an exhaustive survey of the city’s biggest properties. Instead, it offers a snapshot. The Real Deal‘s ranking is based on information provided by landlords who filed an appeal of their property taxes, a process that requires the filing of income and expense records for assets where they plan an appeal. Typically, landlords don’t file income and expense documents for each property every year, but tend to file two or three years out of four, based on an anecdotal review of top buildings by TRD. Genesis reviewed over 20,000 records from 2013 which it obtained by Freedom of Information Law requests, to update their database.

For example, several large properties are not represented on this list (but have appeared in the past several years) such as Tishman Speyer’s Rockefeller Center towers, Boston Properties’ General Motors Building or the Rockefeller Group’s 1271 Sixth Avenue, each of which would be in the top 20 had the landlords filed appeals.

Some of the buildings on the list did see large increases, often timed with new or renewal leases. The largest in both dollar and percent was at 450 Lexington Avenue, where revenue grew by $25 million, or 47 percent from the prior year. While the current owner RXR Realty did not immediately comment, in 2012 the prior owner Istithmar World, settled a $63 million rent dispute with the building’s largest tenant, the law firm Davis, Polk & Wardwell.

The second-largest dollar jump was at Boston Properties’ 601 Lexington Avenue, where Citibank renewed its lease in 2012 with nearly 500,000 square feet.

Another large increase was at Silverstein Properties’ 7 World Trade Center, which generated a 23 percent increase in revenue in 2013. That growth is a reflection of two large new leases that began part way through 2012. Law firm WilmerHale took 210,000 square feet at the building and investment data firm MSCI grabbed 125,000 square feet.

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