UPDATED April 30, 2021, 11:25 a.m.: At least one developer is looking at the office market through rose-colored glasses.
Rockrose Development purchased a 14 percent interest in a 218,000-square-foot office building at 11 East 26th Street in Nomad for $32.9 million. The investment values the pre-war building at $235 million, down only slightly from its pre-pandemic valuation of $246 million.
The purchase gives Rockrose a 42.5 percent tenant in common interest in the building, according to property records, which is a non-controlling share. Adams & Company’s David Levy, whose firm is the managing agent for the building and first bought into it in 1968, said he expects no major changes to the property.
The 21-story building, which faces Madison Square Park, has retained most of its value even as the broader office market struggles. Current tenants include Anbau Enterprises, Ford Models, the National Museum of Mathematics and Bluewolf, owned by IBM.
In 2018, Rockrose purchased a 7.5 percent interest in the property, which valued the building at roughly $110 million. The offices notched a $246 million valuation in March 2020, when limited liability company Steep Hill, an affiliate of Rockrose, acquired an 11 percent interest in the building for $16 million. The change in valuation — from $110 million to $246 million in two years, and the post-pandemic decline to its current $235 million — “reflects where the market is today and where it was,” said Levy.
The pandemic has hammered the office market, particularly in Manhattan, where availability hit an all-time high of 16 percent in the first quarter of 2021. While some companies are starting to bring their workers back to offices, others including Google and Facebook have made provisions for their employees to work from home forever. And more large office tenants are expected to reduce their footprint in the months and years ahead.
“We’re all looking to see what happens in the next six to twelve months,” said BMO real estate analyst John Kim. “Utilization of office space is low despite many people getting vaccinated, and some employees are likely to resist a return to the office.”
Still, newer properties with long-term tenants are trading at or above pre-pandemic prices, according to Kim, who cited the late 2020 deal for SL Green’s 410 10th Avenue, which sold to 601W Companies for $950 million. Amazon signed on in 2019 as the anchor tenant, and the building is currently undergoing a major redevelopment.
Rockrose’s New York City portfolio consists mainly of residential buildings concentrated in Long Island City, though it also owns a boutique office building next door to the 26th Street property. The company did not reply to a request for comment.
Correction: This story has been revised to reflect Rockrose’s full tenant in common interest in the building at 11 East 26th Street. An earlier version stated incorrectly that Adams & Company had a controlling interest in the building; the company is the managing agent for the building.