New 245 Park owner will have to spend big to modernize 1960s-era tower

Whoever buys HNA Group’s 245 Park Avenue will have to invest hundreds of millions of dollars in order to modernize the 1960s-era trophy tower and attract new tenants.

With tenants like Major League Baseball moving to Sixth Avenue, CoStar data show a new owner will be facing vacancies of roughly 13 percent, according to Bloomberg News. And the building’s largest tenant, JPMorgan – which occupies 40 percent of the tower – is constructing a new headquarters nearby set to be completed by 2024.

“You’d have to put a ton of money into it,” said K Property Group’s Gregory Kraut, who estimated the 1.7 million-square-foot tower will need about $850 million to make upgrades like a new lobby and sprinkler system. It will probably also require another $230 million to renovate spaces for tenants over the next several years.

That’s “a lot of risk even for Park Avenue,” Kraut added.

HNA paid $2.21 billion when it bought the property last year, but the company is under pressure from the Chinese government to unload billions of dollars in commercial real estate at a time when prices are falling.

Manhattan office-building values as of February have fallen 3.4 percent from their peak in April of last year, according to Green Street Advisors.

HNA purchased the building “for anywhere between $150 million to $200 million more than probably some of the more sophisticated New York City investors” would have paid for it a year ago,” Kraut said. “It’s not exactly like we’ve had the market pick up materially since then, so I would venture to say it’s going to be a little challenging for them.” [Bloomberg] – Rich Bockmann