1540 Broadway sale should spur leasing

Mar.March 10, 2009 02:58 PM

Just three leases were signed at 1540 Broadway in the two years after Macklowe Properties bought the condominium portion of the trophy property for $967 million, according to CoStar, but that should pick up as the heavy debt load has been lifted, brokers said.

Brokers blamed the high price Macklowe’s firm paid for the Times Square building, about $1,067 per foot, and the high rents required to support that, for the low leasing activity.

Investment management firm CB Richard Ellis Investors’ Strategic Partners U.S. Value 5 Fund bought the office condominium portion of the 44-story building March 5 for $355 million, or $392 per foot, from Deutsche Bank, which had taken the property back from Macklowe last year. 

The 905,533-square-foot office condo, between 45th and 46th streets, has a vacancy rate of 22 percent, much of that on the top six floors which are unoccupied.

The purchase price per foot of just under $400 allows the new owners to drop rents below $40 per foot and still pay their investors a return, estimated Richard Economou, executive vice president of Grubb & Ellis, who was not involved in the sale.

“They will definitely have more flexibility in leasing the building. They can go to $35 per foot and achieve a yield,” Economou said, based on an informal analysis of costs, although he did not expect rents to be offered that low.

Rents at 1540 Broadway could be cut dramatically from rents achieved last year at the building and fall below prices in neighboring properties.

The three leases signed in 2007 and 2008 in the building totaled just 22,432 square feet, all on the 25th floor, CoStar data showed. The estimated price paid by the tenants, XL Capital Investment, Ener1 and the Levin Group was between $85 and $90 per foot, according to CoStar.

Other tenants at 1540 Broadway include law firms Duane Morris and Pillsbury Winthrop Shaw Pittman.

Recent leases for Class A office space in Broadway buildings, all signed in October, were for $53 per foot, which Viacom paid for 1.3 million square feet at 1515 Broadway; $63.59 per foot, the net effective rent Pryor Cashman is paying for 110,000 square feet at 7 Times Square; and $87.76 per square foot, the net effective rent New Castle Funds is paying for 3,367 square feet, also at 7 Times Square, Grubb & Ellis data showed.

John Picco, executive director of Cushman & Wakefield, who was not involved in the sale, said the price allows the owner to compete in today’s lower market.

“I don’t think it was a phenomenally low bargain basement price. It is a realistic price in a very uncertain market,” he said.

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