Since it was built in 1968, the 490,000-square-foot warehouse at 909 Third Avenue in Midtown has been home to the United States Postal Service’s main mail handling facility in New York City. The warehouse forms the base of a 32-story office tower designed by Emery Roth & Sons, giving the building — which occupies the block between 54th and 55th Streets — a unique shape.
Vornado Realty Trust acquired the leasehold interest in the property in 1999, and has since invested more than $184 million in capital improvements, including two major renovations that added outdoor amenity space and led to the building receiving LEED Gold certification.
According to a new rating report from DBRS Morningstar, Vornado is currently lining up a $350 million CMBS refinancing for the building that’s expected to close in mid-April. The document also provides an inside look at the property’s finances.
As of December, the 1.35 million-square-foot property was 98 percent leased to 15 tenants, according to the DBRS report. Investment grade-rated tenants account for 66 percent of the rentable area.
In terms of annual rent paid, the building’s largest tenant is IPG DXTRA, a subsidiary of the Interpublic Group of Companies, one of the “big four” global advertising shops. IPG first moved to the property in 2013 with 230,000 square feet of direct space, and expanded its footprint a few years later by subleasing 112,300 square feet from Forest Laboratories.
Forest Laboratories, which is now part of pharmaceutical conglomerate Allergan, is the property’s second largest office tenant with nearly 169,000 square feet, including space subleased to other tenants. Financial advisory and wealth management firm Geller & Company rounds out the top three with 126,000 square feet on the 15th through 18th floors.
While office tenants at 909 Third Avenue pay between $60 and $80 per square foot in annual gross rent, USPS’s rent is far cheaper at $14 per square foot. According to an appraiser estimate cited by DBRS, market rent for the industrial space could be as high as $55 per square foot on a triple-net basis
“Due to the unique nature of the space, mission critical location in the heart of Manhattan, renewal history, and severely below-market rents, DBRS Morningstar assumed that the USPS will continue to extend its lease through the final maturity date in October of 2038,” the report says.
Thanks to its solid investment-grade rent roll, the building’s finances have hardly been impacted by the pandemic. A 385-square-foot coffee shop on the ground floor is the only tenant that is behind on rent, and no tenants have been granted rent relief.
Vornado pays $1.6 million per year in ground rent at the property, with no rent steps or resets through 2063. The fee owner is “an affiliate of Mendik Company,” according to the DBRS report, while public records indicate that its president is Mark Karasick, a principal of 601W Companies.