Hello, 3 Columbus

Tenants in line behind Young & Rubicam, as fortunes for troubled tower improve

Dec.December 29, 2011 04:42 PM

Steven Durels, SL Green's leasing director, overlooking Columbus Circle last month

The announcement early last month that advertising giant Young & Rubicam had signed for nearly 340,000 square feet of office space at 3 Columbus Circle, the former Newsweek Building, was a much-needed boost for the closely watched tower.

The 26-story, 768,565-square-foot tower was, of course, famously at the center of a battle in 2010 between developer Joseph Moinian and the Related Companies’ Stephen Ross. After Moinian defaulted, Ross attempted to wrest control of the building from him by buying the note and having his partner file to foreclose. However, powerhouse landlord SL Green Realty stepped in as Moinian’s savior and paid off the mortgage to squelch the foreclosure. Moinian and SL Green, which is headed by Marc Holliday, successfully finished a $175 million renovation — which included doubling the size of the lobby and cladding the exterior in glass — in the early fall.

“This is the type of building, I think, that put SL Green on the map,” said Richard Bernstein, a vice chairman at Cassidy Turley who is not involved in any deals at 3 Columbus Circle. “Nobody really does this better — take a kind of B+ building and understand how to get the most out of it, and minimize the hurdles.”

Yet until last month, more than 630,000 square feet of office space in the building sat empty — even amid a wide marketing push started last January by both the owners and Newmark Knight Frank brokers James Kuhn, Scott Klau and Brian Waterman, who were retained as co-brokers.

As a result, many in the industry and in the real estate press have speculated about the tower’s struggles. Indeed, before Thanksgiving one broker equated 3 Columbus Circle’s renovation to “lipstick on a pig” when talking to The Real Deal.

However, during much of that time, SL Green and its partners were quietly negotiating the Young & Rubicam deal.

And, according to Steven Durels, SL Green’s leasing director, the building had another big tenant, also a marketing firm, interested in anchoring 3 Columbus Circle.

“I don’t think this is widely understood — we had another tenant who we were in negotiations with, in term-sheet negotiations with,” Durels said in an interview early last month. “We were probably 24 hours away from drawing a lease for the tenant for about 280,000 square feet. And Young & Rubicam entered the picture.”

Young & Rubicam — whose parent company, WPP, leases space in another SL Green building, 100 Park — closed in six weeks, Durels said, even though the deal involved a complicated arrangement of commercial condo trades and office leases.

The advertising firm will take 214,372 square feet of space covering floors three through eight in a condo deal reportedly valued at $144 million. It also signed a 20-year lease for 124,760 square feet of space on floors nine, 10, 18 and 19. As part of the deal, the firm gets the naming rights to the tower, which is located right off Columbus Circle. Young & Rubicam — which was represented by CBRE brokers Mary Ann Tighe, Gregory Tosko, Christopher Mansfield and Lauren Crowley — is expected to move once the lease starts Aug. 1. According to the New York Post, the company is currently trying to sell its headquarters at 285 Madison Avenue, where one of its employees was killed in an elevator accident last month.

Certainly, the owners at 3 Columbus still have leasing challenges. And the effort to fill up the rest of the building — nearly 430,000 square feet — will continue into 2012. That includes leasing up the 48,000 square feet of retail space. (Most of the office space left at 3 Columbus Circle is on floors that have about 21,000 square feet of space; Young & Rubicam’s floors were slightly bigger, at just under 35,000 apiece.)

But Durels said there are deals in the works at the tower, which was rebranded from its previous 1775 Broadway address to one capitalizing on Columbus Circle’s cachet.

“These are the premier floors, in the upper third of the building, with unobstructed views of Central Park,” Durels said.

He said the owners are in negotiations with a tenant that plans to take nearly all of one floor. In addition, the owners are dividing up another of these floors into spaces of 3,000 to 5,000 square feet for tenants to create smaller offices.

Durels noted that the owners are in talks with financial services firms, nonprofits and entertainment-related businesses. He said the deals could be announced at any time.

He said that if they all get finalized, there would be only about 110,000 square feet of office space left to lease in 2012.

Tower floors (floors at the top of the building) are asking $80 a square foot. Meanwhile, floors in the middle of the building, including where Young & Rubicam leased, are asking $68.

Both asking rents are higher than the $62.13-per-square-foot average asking rent for the Midtown West submarket as of October, according to data from Cassidy Turley.

SL Green will also continue to market the 48,000 square feet of retail space on the first two floors (more than 40,000 square feet of that is on the second floor, which fronts Eighth Avenue and Broadway).

Jeffrey Roseman, the Newmark Knight Frank broker heading up the retail effort, said that both international and domestic brands have been checking out the space, including fashion brands. He said that two “very strong contenders” had emerged late last month.

“With the popularity of Uniqlo and H&M and Zara and Topshop, the city has become extremely in demand,” Roseman said. “The best thing is, Time Warner Center has really sort of paved the trail for Columbus Circle. Retailers now really understand the significance of it.”

The owners are asking in the mid-$300s per square foot on the ground floor and about $150 a foot annually on the second floor.

The space could also be turned into and sold as a retail condo — SL Green has partnered with Jeff Sutton on numerous high-profile retail deals like this in recent years. Durels said that is not something the owners are pursuing, and Sutton declined to comment.

According to Durels, a half-dozen prospective tenants have already looked at it — most of them in the apparel business. The asking rent has not been disclosed, but given the Columbus Circle location, it should reach into the mid-$100s a foot annually.

“We’ve been selective with the type of tenant we want to complement the renovation,” Durels said. “We think we should wait until we have a sufficiently upscale tenant that’s appropriate for the property.”

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