What to do with an aging office building, in desperate need of repairs, that’s bleeding money and sitting on a ballooning ground lease?
As The Real Deal first reported on Friday, Aby Rosen’s RFR Holding and Austrian real estate firm Signa Holding GmbH agreed last week to purchase the landmark skyscraper at a steep discount. But they’ll now have to grapple with the same issues that plagued the seller, Abu Dhabi’s Mubadala Investment Company.
Mubadala paid $800 million to acquire a 90 percent stake from Tishman Speyer in 2008 but never did quite rectify the issues associated with a nearly 100-year-old office building. But a hotel conversion could be the solution.
Rosen said in an email on Tuesday that he would consider converting the tower into a hotel, Bloomberg reported.
Scott Rechler’s RXR Realty, whose bid reportedly lost to Rosen’s $151 million offer by just $1 million, had also considered bringing a hotel to the 68-story tower as part of a mixed-used conversion, per Bloomberg.
Whatever happens to the 1930 Art Deco building, necessary upgrades could cost hundreds of millions of dollars. With the amount of modern, amenities-packed office space coming on line at Hudson Yards and beyond over the next few years, keeping the building as offices would also be a risky move. (Even then, it would still have to compete with old rival the Empire State Building.)
The average rent at the Chrysler Building is around $50 per square foot, half the average asking rent for new office space at Hudson Yards.
“It’s a magnificent building with uninterrupted views from the high floors but changing use is not without issues,” Newmark Knight Frank’s Lawrence Wolfe told Bloomberg. The large floor plates that office tenants prefer can be tricky to convert to other uses, and it could be difficult to create a dedicated entrance for hotel guests in the landmarked lobby.
A block away, RXR is joining TF Cornerstone and MSD Capital on their $3 billion redevelopment of the Grand Hyatt hotel at Grand Central, which will involve transit upgrades at the terminal and subway station. Rechler stepped down from his position on the MTA board last month to avoid a conflict of interest. [Bloomberg] — Kevin Sun