Paramount Group hailed a Midtown Manhattan leasing environment where declining availability could prompt “double-digit” percentage increases in rent and also provided insight into its buyout of a joint venture at 31 West 52nd Street.
The Midtown-based real estate investment trust, which also holds assets in San Francisco and Washington, D.C., saw the majority of its leasing activity in the third quarter take place in New York City, it said in an earnings call Friday.
Paramount signed nearly 307,000 square feet of New York office leases in New York at a weighted average initial rent of $78.73 per square foot. Ted Koltis, the company’s executive vice president of leasing, noted declining availability in the Midtown market that slipped to 10.5 percent in the third quarter.
“Historically, when availability has gone below the 10 percent threshold, there has been a double-digit percent increase in rents,” Koltis said, adding that availability for large-block space in Midtown “is even tighter.”
That environment has Paramount “feeling very positive,” according to Koltis, with the company having secured extended or re-leased a number of large leases that were set to expire toward the end of this year.
At 1633 Broadway, for instance, Paramount not only extended financial services giant Morgan Stanley but leased an additional 160,000 square feet to the tenant, bringing Morgan Stanley’s total space in the 48-story, 2.6 million-square-foot Midtown office building to 260,000 square feet.
Paramount also provided additional details on its $230 million buyout of its joint venture partner at 31 West 52nd Street, a 29-story, 787,000-square-foot office building between Fifth and Sixth avenues.
The deal saw Paramount acquire the roughly 36 percent interest in the property that it did not own. Company chair, president and CEO Albert Behler said the transaction was driven by the desire for a “more proactive” management style at the building.
The company has already succeeded in negotiating to move an existing tenant on the top five floors of 31 West 52nd Street, which Behler said was paying rents “significantly below market,” to middle floors at 1633 Broadway – freeing up more than 100,000 square feet at the top of 31 West 52nd Street to market to new tenants.
“The new space not only better suits [the moving tenant’s] current needs, but now they’re paying market rents,” Behler noted, adding that the deal “could not have been done with the previous joint venture partner” in place and describing the situation as the “largest motivating factor in pursuing 100 percent of this property.”
While that deal fell through, Behler cited “a lot of progress made” at the redevelopment, which will sport an Apple Store-style cube and is scheduled for completion in the fourth quarter of 2016.