When developer Edward Minskoff set out to build a new office tower in the East Village, with asking rents ranging from just under $90 to $120 per square foot — roughly double the average in the surrounding area — many in the industry questioned his logic. And for good reason.
When the project broke ground in 2011, the economy was still recovering from the recession. Few developers were building new office space, especially without tenants lined up. Nonetheless, Minskoff landed a $165 million loan to build on a full block in Astor Place, without a robust office market there.
The 12-story building — an angular modern glass structure in the midst of an area known for its decorative 19th-century stone edifices — launched leasing in June 2013. Nearly four months later, it hadn’t signed one tenant. The lack of activity generated headlines about the uphill climb Minskoff and his leasing team from commercial firm JLL would face. Both Facebook and Microsoft considered space there and then walked — Facebook to Vornado Realty Trust’s 770 Broadway, and Microsoft to 11 Times Square.
“We faced a lot of negativity,” Minskoff told The Real Deal last month. “A lot of naysayers piped up and made comments about how we weren’t leasing, but they really didn’t know what they were talking about. People love to be negative. It’s human nature.”
But Minskoff’s gamble on the building, which according to published reports cost north of $300 million, appears to be paying off now.
Last October, 51 Astor secured its first tenant when 1stdibs, an online auction site specializing in high-end vintage goods, inked a 15-year lease for the building’s entire 42,232-square-foot third floor, paying slightly below asking rents in the low-$80s per square foot, according to CompStak data.
Minskoff vowed to have the building fully leased by the end of this past January. And while he did not achieve that goal, 51 Astor was more than 85 percent leased last month and reportedly getting close to filling the rest of its spaces. In addition, the building has incited competition between major tech and social media companies, vying for the same spaces.
The question is, how did the building turn its leasing luck around?
“I think all the tenants that have signed in the last several months have validated Edward’s vision,” said JLL’s Paul Glickman, whose team is handling 51 Astor’s leasing.
“We always expected that tenants would need to see the completed building to get a sense of its quality and its place in the surrounding neighborhood.”
Since that 1stdibs lease, Glickman’s high-profile JLL team — which also includes the president of the firm’s New York operations, Peter Riguardi, and Mitchell Konsker and Cynthia Wasserberger — has secured 325,000 square feet of space in the 400,000-square-foot building, largely targeting tech firms.
Minskoff has offered concession packages in the form of construction build-outs, free rent and other perks. But he has remained steadfast on asking rents, despite accepting rents in the low-80s for the building’s lowest floors.
David Falk, who was part of the Newmark Grubb Knight Frank team that represented 1stbids, attributed the building’s turnaround to its prescient timing.
“In the last five months, there have been probably five or six household names with great credit that wanted to be in a high-image building,” Falk said, referring to recent deals with companies like Twitter, Mashable and IBM. “These tenants wanted to make a statement, and there were only so many buildings in that area that had both a large vacancy and a high profile.”
The biggest and most noteworthy of the deals that 51 Astor secured was with IBM’s Watson Group, the company’s incubator for entrepreneurs. In December, the Watson Group and social media giant Twitter went head-to-head for 120,000 square feet, covering floors four through seven. The space includes a large outdoor terrace — a major draw for the creative employees at many tech firms — and was the most affordable space of that size in the building because prices escalate for higher floors.
Ultimately, Twitter lost the space and opted to move into Savanna’s 245-249 West 17th Street. IBM paid rents ranging from the low-$80s per square foot to more than $90, according to CompStak data. That was slightly under asking rent for the space.
When asked if a bidding war had broken out between IBM and Twitter, Minskoff said he “wouldn’t call it a bidding war,” but that it was “the closest thing to a bidding war we’ve seen.”
He added that money was not the deciding factor. “Twitter didn’t get outbid. It was a matter of timing,” he said. Minskoff said that what tipped the scales in IBM’s favor was his history with the company, noting that he’s had a “21-year relationship with IBM, going back to a transaction at 590 Madison back in 1994.”
One source close to the deal said, “he might have been able to fit Twitter in as well as IBM, but the economics get very expensive as you go up the building.”
Nonetheless, the fact that two companies were competing over the same space is indicative of 51 Astor’s strengthening position — despite the fact that the building faced several unique challenges out of the gate.
“Minskoff took some risk,” said Greg Kraut, principal at commercial firm Avison Young. “He had a lot of money invested in it. I think the only issue was knowing if he would get the kinds of three-figure numbers that he needs [for the top floors].”
Part of the gamble was building in a far-flung area to the east of Midtown South’s tech nerve, where the only other office building of significance is 770 Broadway. But Newmark’s Falk added that tech tenants are flexible when it comes to location.
“Tenants in the tech sector aren’t saying to me, ‘I want to be on Fifth and 20th Street.’ They’re saying, ‘We want a building that reflects our image,’ ” Falk said.
In addition, because the building has relatively small floor plates, it wasn’t targeting giant corporate tenants who often make leasing decisions years in advance. The tenants it was going after often want to see the spaces they’re taking before committing. As a result, the JLL brokers had to wait until the space was ready to fully begin marketing it.
“Sometimes these leasing decisions are made by the head of the company, and they like to feel and touch what they are buying to fully appreciate what the building has to offer,” Glickman said.
One such decision came a few months before the IBM deal, when St. John’s University signed a lease, giving the building — which is required by zoning laws to lease about 50,000 square feet to an educational institution — a crucial victory.
Glickman and his team had been in talks with St. John’s since the building launched. The school walked away from negotiations over the summer, but in December ended up signing a 71,000-square-foot lease for its School of Risk Management, a division of its business school.
In recent months, 51 Astor has seen two more full-floor deals — one with Mail Online, the web branch of the British tabloid the Daily Mail, for the 25,400-square-foot ninth floor; the other with Claren Road, a financial asset manager, for the 12th floor, which is the same size. Though the rent was not available, sources speculated that Claren may have paid as much as $120 per square foot for the top-floor space, which would make the deal one of the most expensive ever in Midtown South. (Commercial brokerages include Astor Place inside the boundaries of the Midtown South office market despite the fact that it is fairly far south.)
The Mail Online paid in the high-$90s per square foot, according to CompStak.
Timing is everything
Courting the tech sector in booming Midtown South — where there is a shortage of high-efficiency floor plates — has also helped buoy 51 Astor.
And the building stands in contrast to the 1.1 million-square-foot 11 Times Square, a spec tower developed by SJP Properties, which has struggled to attract tenants.
From the time 11 Times Square kicked off leasing in 2008, until 2012 when it signed a 230,000-square-foot deal with Microsoft, the project sat 60 percent vacant, as TRD has reported.
In addition, sources noted that 11 Times Square was being erected in Midtown as rents were peaking, but that Midtown rents stagnated after the recession. Between January 2008 and 2014, Midtown rents have only grown 2.3 percent, to an average of $70.20 a square foot, according to data from CBRE and Colliers International.
Meanwhile, construction of 51 Astor Place was ideally timed to the market. Asking rents in Midtown South increased 46 percent to $55.79 a square foot in February from $38.21 in 2011’s first quarter.
“These buildings are from different times,” Kraut said of the two spec towers. “There were a lot of blocks of space on the market three years ago, and now 11 Times Square is five years old. It’s not a brand-new building anymore.”
Kraut added that many tech companies are eschewing areas like Times Square while fueling the growth of office markets further Downtown.
Not done yet
Despite the building’s success, 51 Astor still has some 75,000 square feet to lease. It also has three retail storefronts, totaling roughly 15,500 square feet, all of which are currently vacant.
Minskoff said that JLL is talking with half a dozen companies, any of which he would be happy to have in the building. He estimated that the last of the office space would be spoken for in about 45 to 50 days. The building is seeing about five or six tenant showings a week, sources said.
“We are hoping to attract the vast numbers of companies in the technology field that have expanded in New York City,” Minskoff said. “And I don’t think we have competition. Most of the inventory in Manhattan is north of 50 years old.”
“There is an old saying,” he added, “that an ugly building that is 100 percent leased is beautiful, but a beautiful building that is 100 percent leased is gorgeous.”