Following the hedge funds

Boutique financial firms are snapping up office space in Midtown (especially in the ritzy Plaza District) at eye-popping prices
By Guelda Voien | November 01, 2013 07:00AM
From left: Richard LeFrak, 810 Seventh Avenue, 99 Park Avenue and Aby Rosen

From left: Richard LeFrak, 810 Seventh Avenue, 99 Park Avenue and Aby Rosen

Even as big banks continue to suffer, some segments of the financial services industry are improving. The evidence of that can be found in the city’s priciest office leasing market, Midtown, and especially in the ritzy Plaza District.

Indeed, 5.6 million square feet of office space was leased in the second quarter in Midtown — up from just over 2 million the previous quarter and the highest quarterly volume since 2007, according to numbers from commercial firm Colliers International.

And sources said hedge funds, private equity firms, sovereign wealth funds, and other smaller financial firms are driving much of that improvement, with some leases even clocking in over a stunning $200 a square foot.

Indeed, brokers pointed out that some of the priciest buildings in Midtown — the Seagram Building, 9 West 57th Street and the General Motors Building — have signed new boutique financial tenants in the last six months. But while the increase in activity among boutique financial firms is good news for landlords and brokers, it is no substitute for the activity that larger banks were posting in the area before they started scaling back, sources said.

That’s because these smaller firms need far less space — and because they’re often picky about the type of space they want (sweeping views of Central Park is a common criteria.) As a result, they don’t jump at everything they’re shown, sources noted.

“[Saving] money is not the key driver” in how these firms make leasing decisions, said Marisa Manley, president of Commercial Tenant Real Estate Representation, a real estate consultancy. “It’s prestige and personal preference.”

The buildings that are coveted by these firms — especially those with internationally recognizable addresses on Fifth or Park avenues — are seeing pre-recession rents.

While the Plaza District — the area between Sixth and Third avenues from 47th to 65th streets — had the highest vacancy rate of any Manhattan submarket last year because of its dependence on banks, its fortunes have since reversed. The district, traditionally Manhattan’s priciest, saw leasing skyrocket 255 percent between this year’s first and second quarters. Meanwhile, rents grew 3.4 percent between 2012’s and 2013’s third quarters, to $77.59 per square foot, according to Colliers’ numbers.

Other Midtown stretches in the higher price strata, such as the Fifth/Madison and Park Avenue submarkets, also saw numbers skyrocket, according to stats from Cassidy Turley. In the Fifth/Madison submarket, average asking rents grew 33.4 percent, to $106.59 in the third quarter, year-over-year; while on Park Avenue they jumped to $89.83, up 16.5 percent from last year at this time.

And so far this year, 50 office leases in Manhattan with rents north of $100 per square foot were signed, compared to 41 in all of 2012, according to Colliers’ data. That means that those high-priced leases — which are virtually all clustered in Midtown — are on pace to nearly double this year.

Nonetheless, some brokers warn that the uptick could be temporary, and that if the financial markets slide these firms could pull back their office space needs. “It is still a tenant’s market,” said Neil Goldmacher, vice chairman at Newmark Grubb Knight Frank, citing a vacancy rate in Manhattan overall hovering around 11 percent.

And landlords are now finding themselves catering to the demands of hedge funders — who are used to getting their way, sources said. “It’s like, ‘We want what we want, and we want it now,’” said Manley, referring to renting space to powerful financial executives.

Below is a look at some of the recent leases that hedge funds and other boutique financial firms have inked in Midtown.

Corsair Capital

One of the country’s older private equity firms, Corsair, signed a 10-year, 16,500-square-foot renewal and expansion at 717 Fifth Avenue in July. Corsair now occupies the 23rd and 24th floors of the SL Green-owned tower. According to one source, rents in the building start at $110 per square foot.

400 Capital; Canada Pension Plan Inv. Board

Both the $800 million New York-based hedge fund and the group of Canadian pension funds took full-floor spaces of about 10,000 square feet at 510 Madison Avenue in July. The glass tower, which Harry Macklowe lost to Boston Properties during the downturn, was once looking to get rents around $100 a square foot, said Goldmacher. That would have bumped the tower into an elite tier of Manhattan buildings that command three-digit rents. However, Boston Properties is currently asking rents in the upper $90s. CBRE brokers represented all of the parties involved.

Northern Trust

The LeFrak Organization signed massive Chicago-based investment manager Northern Trust to a 25,000-square-foot lease at 40 West 57th Street, according to published reports. Northern Trust, which had $97 billion in assets as of June, took the entire 21st floor; rents were not disclosed but are reported to be over $100 per square foot for many prime spots in the building. Gus Field of Cushman & Wakefield represented Northern Trust, while Howard Fiddle of CBRE negotiated on behalf of LeFrak. “We are delighted that yet another elite company has chosen 40 West,” LeFrak CEO Richard LeFrak said in a statement.


This Singapore-based sovereign wealth fund leased a full floor at Aby Rosen’s Midtown trophy tower 375 Park Avenue (aka the Seagram Building) in August, as TRD first reported. The space, which spans the entire 14th floor, was on the market for $145 per square foot, said Goldmacher, who represented the fund. While that asking rent might seem high, Goldmacher noted that RFR “has been trying to get rents even above that on certain floors” at the tower. The new space measures a little more than 20,000 square feet, according to Property Shark. The office is Temasek’s first in New York City.

Och-Ziff Capital MGMT

In June, Sheldon Solow famously rented space at his 9 West 57th Street at more than $200 per square foot — a benchmark some analysts were surprised to see so soon after the downturn. Och-Ziff Capital Management — one of the world’s largest hedge funds and one of very few publicly traded alternative asset managers — leased 95,000 square feet in a renewal and expansion, according to CoStar. That deal included a $100-per-square-foot transaction on the 13th floor and a $210-per-square-foot deal on the 39th and 40th floors, said John Ryan III, a principal at Avison Young, who was not involved in the deal. He said that only when “rent is not driving the decision” does such pricey trophy space make sense.

Omega Advisors

Billionaire hedge fund manager Leon Cooperman’s Omega Advisors’ lease at 810 Seventh Avenue, reported in July, actually seems like quite a deal when compared to some Manhattan leases by similar funds. Omega nabbed 17,000 square feet in a deal for the entire 33rd floor, facing Central Park, for rents in the low $60s per square foot, according to Goldmacher, who represented Omega. The firm, he said, lucked out, because the space was already configured for a trading floor and SL Green offered to pick up the tab for Omega’s further modifications. “It was a fortuitous situation for both landlord and tenant,” Goldmacher said. SL Green was represented by a team from Cushman & Wakefield.


When the Durst Organization first broke ground on the building that became the Bank of America tower at 1 Bryant Park, chairman Douglas Durst told the New York Post, “Our rents will have a ‘1’ in front of them.” In April, the company achieved this feat, leasing a renewal and expansion for hedge fund QFR, which, according to its website, specializes in investments in “non-G7 countries,” for about 43,000 square feet. A source with knowledge of the deal said taking rent was “north of $100 per square foot.” With the deal, the building is now 99 percent leased, according to CoStar. Cushman’s Jared Horowitz represented QFR, while Tom Bow represented Durst in-house.

Long Pond Capital; Meru Capital; Wunderlich Securities

Three financial firms signed leases at Plaza District trophy 527 Madison Avenue in September. New York City-based hedge fund Long Pond Capital signed a four-year, 8,200-square-foot lease for the 15th floor of the Mitsui Fudosan-owned tower, while Memphis-based fixed-income brokerage and financial advisory Wunderlich Securities took 8,600 square feet on the 10th floor for five years. Meru Capital, a hedge fund, also signed an approximately 8,000-square-foot lease, renewing its 17th-floor space for six years at $85 per square foot, according to CoStar. The three leases bring the vacancy in the approximately 200,000-square-foot building down to 5.9 percent, according to CoStar. “Full-floor layouts and city views” attracted the firms, said James Frederick, principal at Cassidy Turley, who, along with colleague Peter Occhi, represented the landlord in all three transactions. He declined to comment on rents.


The hedge fund Contour doubled its space at 99 Park Avenue in September, to about 4,500 square feet on the 26-story building’s 15th floor. Asking rents in the Eastgate Realty-owned building are reportedly in the $50s per square foot. Contour signed a relatively short four-year lease. “You’re starting to see the boutique financial sector grow,” Newmark Grubb Knight Frank’s Eric Cagner, who represented the tenant, told Crain’s. “But after the last downturn, they’ve also figured out how to do more with less.”