The Real Deal New York

Morgan Stanley’s search for a 1.9M sf office comes with a catch

Bank wants new landlord to buy 1585 Broadway and the 522 Fifth office condo
By Rich Bockmann | October 06, 2017 03:35PM

From left: 585 Broadway, 522 Fifth Avenue and Morgan Stanley’s James Gorman

Morgan Stanley’s search for a new 1.9 million-square-foot Manhattan headquarters comes with a catch that could make a deal hairier for potential landlords.

The bank is looking to negotiate a lease with a landlord that would in turn buy the two properties Morgan Stanley owns at 1585 Broadway and the office condominium at 522 Fifth Avenue, sources familiar with its search told The Real Deal.

It’s not unheard of for tenants that own their space to set out such a requirement, but it adds another ripple to negotiations that could make a deal more difficult.

“They’re a big bank and they don’t want to deal with it and they’re not the best at it,” said Marcus & Millichap investment sales broker Eric Anton. “They want to say [to a landlord], ‘Solve all our problems for us. Goodbye.’”

A spokesperson for Morgan Stanley did not immediately respond with a comment.

The requirement could prove onerous for landlords who don’t want to take on the extra task of purchasing and then renting up the empty buildings, especially at a time when few trophy assets are trading as sellers and buyers fail to see eye-to-eye on pricing. And there are other tenants in the market that don’t carry the extra baggage.

Deutsche Bank, for example, is reportedly considering leasing 1.3 million square feet at Silverstein Properties’ 2 World Trade Center and 50 Hudson Yards, which is being developed by the Related Companies, Oxford Properties Group and Mitsui Fudosan America. Deutsche’s current headquarters at 60 Wall Street is majority owned by the Singaporean sovereign wealth fund GIC.

As of earlier this year, Morgan Stanley had reportedly been considering purchasing 2 million square feet of space at the 2.9 million-square-foot property at 50 Hudson Yards. But a source familiar with those talks told TRD that they never reached an advanced stage. Sources said the bank’s focus has now turned toward the Manhattan West megadevelopment, and is in talks with Brookfield Office Properties to sign on as an anchor tenant for its second office tower at the megaproject.

The leasing market, meanwhile, remains strong with plenty of demand from tenants. Manhattan leasing volume has totaled 23.5 million square feet so far this year, a 14.4 percent increase over the first three quarters of 2016, according to Cushman & Wakefield.

BlackRock this year signed a lease for 847,000 square feet at 50 Hudson Yards, and Pfizer is taking 800,000 square feet at Tishman Speyer’s Spiral building. EY is in late-stage talks to take around 600,000 square feet at Brookfield’s 1 Manhattan West.

Morgan Stanley bought its 1.3 million-square-foot global headquarters at 1585 Broadway in 1993 for $176 million from a group of banks that took over the speculative project when developer Solomon Equities filed for bankruptcy amid the real estate downturn of the early 1990s.

In 2007, the bank exercised an option to buy roughly 570,000 square feet it occupied at the 522 Fifth Avenue office condo from landlord Broadway Partners at a reported value of $468 million. Last month, the bank renewed a little more than 227,500 square feet at the Rockefeller Group’s 1221 Sixth Avenue, according to Cushman.