From the December issue: Until last year, The Real Deal‘s annual accounting of real
estate records was a Mad Libs of giddy peaks: The highest price ever
paid for [insert type of real estate] in [insert name of borough] was
catalogued, time and again.
Even in 2008 — before Lehman Brothers fell and the recession
tightened its stranglehold on the city — records were toppled. On the
residential side, Manhattan logged the highest median sale price ever,
$945,276, while on the commercial side, Boston Properties paid $2.9
billion for the GM Building, the highest price ever shelled out in the
United States for an office tower. But many of 2009′s records are record lows, rather than record
highs. For example, the second quarter of the year saw the largest
year-over-year drop — 25.6 percent — ever recorded by appraisal firm
Miller Samuel in Manhattan’s median sale price for apartments. The firm
has been releasing market reports for the last decade. [more]

Office building owners, who were insulated from the downturn at first because of long-term leases, are now slashing rents and piling on incentives to retain tenants whose contracts are up. At Boston Properties’ GM Building in Manhattan, new tenants are paying 17 percent less in gross rents than former tenants did for office space there. SL Green Realty, which owns dozens of Manhattan properties including 100 Park Avenue and 1515 Broadway, offered 6.9 months of free rent and doubled its construction allowance for new lease signers during the third quarter. Sweet tenant deals come with a hefty price tag for owners, though. SL Green’s funds from operations dropped 28 percent in the third quarter year-over-year. According to SL Green CEO Marc Holliday, the large inventory of cheaper sublease space available has been a major contributing factor to declining rents and the need for incentives. Once that inventory is absorbed, he expects the office leasing market to improve. [WSJ]

The New York Observer looked at how the values of New York City’s 10
priciest office towers have shifted since spring 2007. At that time,
real estate professionals surveyed agreed that the GM Building at 767
Fifth Avenue was worth at least $4 billion. Today, based on its
reported income, the building is worth between $1.9 billion and $2.6
billion. Overall, the value of trophy office buildings, including 9
West 57th Street, Rockefeller Center, 200 Park Avenue and One Bryant
Park, has fallen between 25 and 60 percent. [more]

General Motors has been allowed to reject its lease at 601 Lexington Avenue, the former Citigroup Center, as a result of its bankruptcy declaration, according to the second-quarter earnings report from 601 building owner Boston Properties. General Motors, which had leased 120,000 square feet in the building beginning June 1, rejected the lease June 12. The company will instead remain at the General Motors Building, at 59th Street and Fifth Avenue, as it had been considering doing. The 101,000-square-foot lease at the GM Building, also owned by Boston Properties, expires March 31, 2010. Comments

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After rumors that General Motors was looking to relocate from the 100,000 square feet of office space it currently occupies at the GM Building at 767 Fifth Avenue between 58th and 59th streets, Boston Properties, which owns the building, may now be offering GM incentives to stay. GM, which is currently paying $90 per square foot on a long-term lease which expires next spring, may receive six months of free rent if it stays put, among other concessions from Boston. Other locations that were considered when the company went bankrupt last year included office space at the Citigroup Center a few blocks away. [Post]

Even though its lease of 120,000 square feet at 601 Lexington Avenue began June 1, General Motors is in negotiations to renew its lease at Boston Properties’ GM Building instead of moving. The company’s lease for 101,000 square feet at the GM Building, at 767 Fifth Avenue, expires March 31, 2010. Staying at the GM Building would be more cost-effective for General Motors, which could avoid having to renovate the space at 601 Lexington Avenue. Because it is in bankruptcy, General Motors is allowed to reject its leases at any time.

General Motors’ bankruptcy could have repercussions for Mort
Zuckerman’s Boston Properties, which owns the GM Building. General
Motors’ lease for 101,000 square feet at the GM Building expires in
March 2010, and the company’s 120,000-square-foot lease at another
Boston Properties building, 601 Lexington Avenue — the former
Citigroup Center — began on Monday, and expires in May 2019. GM hasn’t
begun construction on the new space, according to a source familiar
with the building. According to a document Boston Properties filed with
the SEC, GM’s bankruptcy gives it the right to reject the leases at any
time, but Boston could, in turn, file a claim for damages, which would
be subject to the limitations under the bankruptcy laws and
availability of funds to pay creditors. [more]

Boston Properties President Doug Linde talked about buying out some of
the GM Building’s under-market leases, including that of anchor retail
tenant FAO Schwarz, after Boston Properties’ $2.8 billion purchase of
the building last year. Cushman & Wakefield’s C. Bradley Mendelson,
Boston Properties’ broker, is now marketing the 66,465-square-foot FAO
Schwarz space, which is spread across three floors, according to the
New York Post. The retailer reportedly now pays just over $70 per
square foot for the space. FAO Schwarz’s lease ends in 2012 and it
appears to be shopping for a smaller store. Comments

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