Remaking 11 Madison

Once known as the Metropolitan Life North Building, 11 Madison Park has had its share of ups and downs over the years.

But most recently it’s been a pioneer for Midtown South, the coveted area that tech tenants are flooding into. The property, which is owned by the Sapir Organization and the CIM Group, has seen a recent wave of blockbuster office leases, establishing it as an important player on New York’s tech scene.

The 2.3 million-square-foot, 30-story tower’s biggest score so far is tech giant Sony. After selling its headquarters at 550 Madison Avenue for $1.1 billion, the electronics giant inked a 500,000-square-foot late last year for the top 10 floors of the building.

While Sony may be a technology stalwart, some of its newer (and hipper) counterpart tech companies also signed on in the building. Last month, for instance, the popular consumer-review website Yelp inked a 151,200-square-foot deal for the 14th and 16th floors.

In addition, non-tech but still buzzworthy tenants have inked deals. In July, for example, news broke that Hollywood agency William Morris Endeavor — which represents celebrities like Justin Timberlake and Hugh Jackman — inked a 70,000-square-foot deal for the entire 18th floor.

Sources say tech companies like Yelp are feeding off each other and the area.

“These companies can’t have campuses like Google has in California, so instead they become integrated with the community,” said Ashkán Zandieh, founder of Re:Tech, a national real estate tech coalition. “They need to be in the best neighborhoods with the best gyms, food, coffee shops, retail and bars.”

Ups and downs

At a planned 100 stories, 11 Madison — which sits between East 24th and 25th streets and counts the three-star Michelin restaurant Eleven Madison Park as a retail tenant — was supposed to be the tallest building in the world when it was conceived in the late 1920s. But the Great Depression halted those plans, and the building never rose above 30 floors.

Then in the mid 1990s, the insurance company MetLife poured nearly $400 million into transforming what had become a stuffy prewar building into a state-of-the-art office tower.

The renovation, which attracted anchor tenant Credit Suisse, paid off just in time for the dot-com boom and the emergence of New York’s Silicon Alley.

Tamir Sapir, who got his start in real estate by owning a small electronics store around the corner, paid $675 million for the property in 2003. Seven years later, his firm sold a 49 percent equity stake in the building to CIM — founded by Richard Ressler, Shaul Kuba and Avi Shemesh — for $469 million.

The partners, who declined to comment, listed the granite Art Deco building for $1.5 billion in 2012, but ultimately pulled it from the market and focused on renewing Credit Suisse’s lease — which could have lowered the sale price by hundreds of millions of dollars if it was not renewed, according to published reports.

And that seems like it was a smart move.Sources said the owners have capitalized on some seriously good timing. For starters, Credit Suisse was downsizing to about 1.2 million square feet from 1.96 million square feet at the same time that Sony was on the market for a new headquarters.

“[Sapir and CIM] didn’t reposition the building. The building is already gorgeous. They didn’t need to,” said David Falk, tri-state president of Newmark Grubb Knight Frank, who has shown tenants space in the building.

Instead, he said, the owners seized on the rare opportunity to lease the available full-floor spaces. “It was a confluence of events wherein they were getting space back [from Credit Suisse] and at the same time there was a need for large floor plates from tenants in the tech sector,” Falk told TRD. “It was really timing.”

Falk added that the Sony deal also rearranged how tenants are stacked in the building, making way for mid-sized companies like Yelp.

“None of these other deals were going to happen without Sony,” Falk said.

Another factor working in the building’s favor, of course, is the arrival of both Midtown South as a tech hub and, specifically, the Flatiron District as an upscale destination, with new hotels like Centurion Realty’s Gansevoort Park Hotel on Park Avenue South and Ian Schrager’s Edition Hotel at 5 Madison Avenue (see related story, page 50).

“Because of the hotels, new residential buildings, restaurants and retail, it’s very busy, which is what tenants want,” Falk said.

Stacking up tenants

Data from the research firm CoStar Group offers a roster of some of the other big tenants in the building.

It shows that Fidelity Investor Center inked a 22,000-square-foot ground floor and mezzanine-level retail space late last year.

Meanwhile, Credit Suisse’s downsizing at the base of the tower freed up room for Sony at the top. CoStar pegged the investment bank’s starting rent at $70 per square foot, though it’s unclear whether that is the asking or taking rent. The firm was paying $51 a square foot before its renewal.

A slew of marketing and communications companies, including the international advertising and marketing group WWP’s Enfatico and Millward Brown, have space in the building, along with consumer market research consulting firm the Futures Co.

Other tenants include institutional venture capital firm the Sprout Group (an affiliate of Credit Suisse), Gould Paper Corp. and the Madison Square Park Conservancy. The 17th floor is the only full-floor space still available.

As far as rents, CoStar pegged Yelp’s at approximately $85 per square foot, though brokers said it was probably a little less. CBRE brokers who represented both Yelp and the landlord declined to comment. And according to news reports, William Morris paid less than the $92 per square foot asking price.

“No one has rented space above the low $80s in Midtown South, except in new construction buildings like 51 Astor Place,” said one Midtown South broker who asked to remain anonymous.

Nevertheless, Falk said the rents being achieved represent major growth for Midtown South.

“These rents are the same as on Park Avenue, Sixth Avenue and Madison Avenue,” he said.

“To think that a building in Midtown South, the Meatpacking District, or Soho could have the same rent as a skyscraper in on Park Avenue is pretty crazy.”