Whenever a deep pocketed Chinese investor dishes out billions for a Manhattan trophy building, the question inevitably arises: is this the peak of the market? The question was on peoples’ minds earlier this month when HNA Group agreed to buy 245 Park Avenue for $2.21 billion. But SL Green Realty’s CEO Marc Holliday thinks prices still have room to grow.
“I don’t really see it as a high-water mark at all,” he said during an earnings call Thursday. He argued that the price HNA paid (around $1,220 per square foot) “may be even below average” for a trophy office building in a desirable location. “If you’re looking at a high-water mark I would look at $1,800 to $2,000 per square foot,” he said.
According to Holliday, the price HNA paid was “completely in line and completely understandable” at a time when borrowing costs are below 4 percent.
HNA, a financial conglomerate that started out as a local airline in the southern Chinese province of Hainan, is buying the 1.8-million-square-foot office tower from Brookfield.
During the earnings call, Holliday also explained the decision to sign a “guaranteed maximum price” agreement (which leaves the general contractor on the hook for cost overruns) with Tishman Construction for the office project One Vanderbilt. “A big element of the risk has now been assumed by Tishman, not just cost risk but scheduling,” Holliday said.
Meanwhile, the company’s head of leasing Steven Durels gave an update on the company’s leasing strategy at the tower, where it expects to reach average rents of $150 per square foot. “We are not targeting the big 1-million-square-foot-plus financial user,” he said. “This is a very bespoke and boutique building.” He predicted that SL Green may land one or two more tenants in the 150,000 to 250,000-square-foot range, but that most tenants will likely take just one or two floors.