New Yorkers who avoided Times Square in years past, when it was the seedy underbelly of Manhattan, are now just as likely to steer clear of the city’s tourism epicenter because of the pedestrian-packed sidewalks.
But those same crowds are irresistible for New York City developers and high-flying investors. The high-traffic area not only hit new retail rent records recently — asking rents for stores hit a record $2,400 per foot this spring, according to the Real Estate Board of New York — but also, the potential for raking in cash from high-tech LED billboards is spurring a real estate frenzy.
Since 2012, more than a dozen key buildings have changed hands in the core part of Times Square, from roughly West 41st and 52nd streets, around Broadway and Seventh Avenue.
For example, 5 Times Square, the headquarters of Big Four accounting firm Ernst & Young, sold for $1.5 billion in June. That came on the heels of Mort Zuckerman’s Boston Properties selling its 45 percent stake in the ground-lease of neighboring 7 Times Square last fall.
Meanwhile, investor Jeff Sutton and real estate investment trust SL Green Realty are strategically consolidating their grip on Times Square retail.
And although residential construction is still rare in the area, developers are going gangbusters on hotels, offices and retail.
“What you’re seeing is a combination of things: a lot of restaurants opening up, hotels opening up, some lounges, the whole place becoming more of a 24-7 environment,” said Elliott Ingerman, a principal of Tribeca Associates, which bought 130 West 42nd Street with a partner.
This month, with the help of research firm Real Capital Analytics, The Real Deal runs down some of the recent activity in the area.
1 Five Times Square
The $1.5 billion sale of the Ernst & Young building was the highest price paid for a New York City office building since Google’s roughly $2 billion purchase of 111 Eighth Avenue in late 2010, sources say.
The buyer of the 1.1 million-square-foot, 42-story glass office tower, which sits on Seventh Avenue between West 41st and 42nd streets, was a partnership led by local investor David Werner. The seller was AVR Realty.
The accounting firm, whose lease expires in 2022, was paying about $52 million in annual rent, or $48 a square foot, in 2007, according to regulatory filings. But office rents often rise over time, so that’s presumably higher today.
The building also has 37,000 square feet of retail space, which is divided in three. One of those spaces houses a Red Lobster, which as of 2007 was paying about $105 a square foot for its 14,500 square feet, though terms were likely renegotiated when that lease expired last year. The Disney Store and Champs Sports occupy the other two storefronts.
Werner, who did not return a call for comment, has been active on other nearby blocks, too. Last year, he bought the ground lease for the Milford Hotel, on Eighth Avenue at West 45th Street, for $325 million, as part of a joint venture with Deutsche Bank’s wealth management arm.
But Werner has unloaded investments in the past and could do the same here, analysts say. In 2012, he and his partners purchased One Court Square in Long Island City for $481 million and then reportedly sold the controlling stake to Savanna Partners this year for an undisclosed price. The deal hasn’t closed.
“David Werner is a flipper. He’s not a holder,” said Robert Shapiro, a longtime land assemblage expert with City Center Real Estate, who’s had a hand in many key Times Square deals over the years, and owns minority stakes in the Renaissance New York Times Square Hotel and in 1600 Broadway, a nearby condo.
2 Seven Times Square
Last fall, the sovereign wealth fund of Norway bought a 45 percent stake in this 43-story office tower, on Broadway between West 41st and 42nd streets for $684 million in cash. The seller and developer, Boston Properties, retained the majority stake in the tower and will manage and lease the building, according to a company earnings report.
The deal was apparently a good one for the REIT. It reported a $386 million profit on the sale.
The 1.3 million-square-foot building is almost fully occupied and has a roster of tenants that include law firms as well as Ann Inc., the parent company of Ann Taylor clothing stores. Office rents range from $45 to $85 a square foot, according to the data firm CoStar Group.
The restaurant chain Ruby Tuesday, which opened in 2007, has a 5,600-square-foot space on the ground floor.
This wasn’t Zuckerman’s only sale to the sovereign wealth fund. His firm recently sold the fund, which is rich in oil revenue, a stake in 601 Lexington Avenue.
Bruce Mosler, the chairman of the global brokerage at Cushman & Wakefield, and an active player in Times Square’s 1990s redevelopment, said the neighborhood should continue to fare well, even if firms like Condé Nast are decamping for locations Downtown. (The publishing giant is, of course, moving to One World Trade Center.)
“I think Times Square continues to be very attractive,” Mosler said. “It still has relatively new product and that’s efficient.”
3 1619 Broadway
Perhaps no building embodies the transitional nature of Times Square like the prewar 11-story, 175,000-square-foot Brill Building at 49th Street.
The building is best known for the music studios it housed in the mid and late 20th century — marquee names including Carole King and Phil Spector wrote some of their hits there.
For years, Colony Music, which sold sheet music, occupied the 45,000-square-foot retail space. But that store shuttered in 2012, after owner Stonehenge Partners reportedly raised rents. Stonehenge did not return a call for comment.
A year later, Stonehenge sold the building for $186 million to Allied Partners in a deal that included 30,000 square feet of air rights, as well as approved exterior signage that was expected to be a significant source of revenue. Sources familiar with the site say Allied will not add extra floors to building, but does plan to install 10 city-approved billboards imminently.
Building owners have increasingly created commercial “condos” for their billboards — selling them as separate real estate. When those billboards are rented, they can fetch millions of dollars annually.
“The sum of the parts is worth substantially more than the whole,” Howard Michaels, the founder and head of the real estate investment advisory firm the Carlton Group, told TRD last summer. “Selling an asset in pieces brings in more money than selling the whole thing.”
The retail spaces, and the billboards will be the major revenue drivers at the address, brokers say.
Yet Allied has not yet announced any permanent tenants for its three floors of retail space. The current tenant in the ground-level space sells New York–themed souvenirs, but that store is slated to close soon, brokers say.
Four more permanent tenants are close to signing, said Newmark Grubb Knight Frank’s Jeffrey Roseman, who is marketing the retail spaces. Asking rents are $1,000 per square foot for the ground floor, he said.
Roseman also said the Songwriters Hall of Fame will relocate to the building from Los Angeles in a portion of the retail space. “This place is like the Yankee Stadium of the music world,” Roseman said.
The upstairs offices, which were initially envisioned for entertainment companies, according to news reports, appear to still be empty.
Eric Hadar, the chair of Allied and an investor in Halstead Property and Brown Harris Stevens, did not return calls for comment, and neither did Brickman broker Paul Kotcher, who is leasing the office space.
4 1552 Broadway/1560 Broadway/155 West 46th Street
Many of the older buildings in Times Square are far narrower and shallower than national retailers prefer, making it tricky to orchestrate sophisticated deals, brokers say.
But SL Green and Jeff Sutton have teamed up to find novel ways to tap the area’s lucrative retail market, which is exactly what they did at this prime corner of 46th Street and Seventh Avenue.
Today, that corner is home to Express. But installing the clothing store, which replaced a longtime TGI Friday’s, was anything but simple.
It started back in 2011, when the duo purchased 1552 Broadway — a four-story landmarked building known as the I. Miller Building for the famed shoe store that was once located there — for $137 million. That structure offered Express 15,000 square feet of space, but it was not enough.
So SL Green and Sutton struck a deal later that year to purchase a 99-year lease for three floors next door at 1560 Broadway, a 17-story office tower owned by the Actors’ Equity Association union and controlled by Newmark & Co. Real Estate. The interior walls were then removed to create a wider retail space.
But Express wanted even more room, prompting SL Green and Sutton to buy 155 West 46th Street for $8.4 million in 2012. The partners then razed the narrow building and, in an architecturally complicated move, built a new structure to serve as the entrance to the elevated main lobby for 1560 Broadway, which the building’s owners have leased back from Sutton and SL Green.
In shifting the lobby slightly to the east, Express was also able to grab more space for the rear of its store. That store, with 30,000 square feet, opened last spring.
Meanwhile, SL Green and Sutton also replaced some conventional billboards with a massive 9,000-square-foot LED billboard that’s mounted to 1560 Broadway and features ads from Express. The owners couldn’t mount it on 1552 Broadway because the building is a landmark.
All in, Express is paying $20 million a year for its 15-year lease, for both billboard and buildings, according to a source close to the deal.
Sutton and SL Green’s 99-year lease at 1560 also includes the ground-floor retail space, which currently houses a McDonald’s and the Times Square Alliance, the business improvement district. Real estate sources say those spaces will also likely be combined for a retail play, though no building permits have been filed yet.
SL Green was not available for comment. A call left at Sutton’s Wharton Properties was not returned.
5 719 Seventh Avenue
In June, SL Green acquired this 8,000-square-foot building, which mostly fronts West 48th Street, for $41 million, from Kenneth and Jeffrey Rothstein.
The REIT, led by CEO Marc Holliday is now preparing to demolish the three-story structure and tap the unused development rights to construct a 25,000-square-foot retail complex, according to published reports. No building permit applications had been filed at press time.
Brokers say a spat between SL Green and Great Locations New York — which pays an annual rent of about $840,000 and sublets the space to the Smiler’s deli and the other existing tenants — has delayed the project. Great Locations’ lease expires next year.
6 701 Seventh Avenue
This site, at the northeastern corner of West 47th Street, is one of the most significant projects in the city.
In 2012, a team including developer Steve Witkoff, Howard Lorber’s New Valley, Boston-based Winthrop Realty Trust and the Indianapolis-based shopping center developer Maefield Development paid $430 million for the site, according to Real Capital Analytics. In 2013, Winthrop chipped in another $340 million, records show.
In addition, Barry Sternlicht’s Starwood Property Trust and other firms kicked in $815 million in construction financing, according to news reports.
The owners are planning a 39-story hotel-and-retail mixed-use tower to be anchored by a 452-room Marriot Edition by Ian Schrager that’s set to open in 2017.
The site’s former building, which contained a Tad’s Steaks and Sbarro pizza joint, has been razed.
Besides the hotel, the project — which has been dubbed 20 Times Square — will contain 40,000 square feet of entertainment space, including several floors of restaurant, event and outdoor spaces, at the base of the hotel.
That will be the real cash cow, brokers say: 76,000 square feet of retail spanning six levels — with four floors above ground and two below.
In addition, the building will be wrapped in a 20,000-square-foot LED billboard, the largest in Times Square, according to Maefield’s website.
That sign, plus retail rents, could be worth $50 million a year, Witkoff said in 2012, so presumably even more today. Witkoff did not return calls for comment.
As for the retail lease up, no tenants have been signed yet, said Andrew Goldberger, a vice chairman with CBRE, who is part of the team marketing the space.
But “we’re talking to people for the whole thing,” he said.
Rents have not been set for the space, which is scheduled to open by the end of 2016, Goldberger said, though he added that $2,500 per square foot for the ground floor in the current Times Square market is not out of the question.
7 1535 Broadway
This Broadway property, which runs from West 45th to 46th streets, contains the Marriott Marquis Times Square, a massive 49-story, 1,960-room hotel. It’s also been the site of a flurry of significant activity.
Last winter, Host Hotels and Resorts, the property’s operator, bought the land under the building from the state-run Empire State Development Corp. for $20 million, in a controversial transaction that critics derided as a sweetheart deal because of the low price.
Vornado Realty Trust is revamping and expanding the retail portion of the building, which it controls, as it did with the retail on the lower floors across the street at 1540 Broadway. Last year, Sunglass Hut paid $2,000 a square foot for space in the latter building, Vornado said at the time. The discount clothing store Forever 21 is also there.
In addition to its $140 million revamp of the retail at 1535 Broadway, CEO Stephen Roth‘s Vornado is installing a six-story, 300-foot-wide LED billboard on the tower. On a recent morning, construction crews were installing the screen.
A Vornado spokeswoman did not return a call for comment.
8 130 West 42nd Street
This 30-story, 250,000-square-foot office tower, once known as Bush Tower, traded last fall for $150 million.
American Properties, which controlled the site since the early 1980s, sold the ground lease to the joint venture of Tribeca Associates and Meadow Partners, a global asset manager.
The new owners, who are calling the 1918 building by its address, are now revamping and expanding the lobby and making some other improvements.
“The idea is to make it much more modern and befitting of its neighbors,” said Tribeca’s Ingerman, who said the owners are looking for hedge funds and tech firms for the office space. Asking rents are now at $75 per square foot, according to CoStar, compared with $60 a few years ago. The building also has a 19,000-square-foot retail space, but Ingerman declined to say what changes, if any, would occur there.
9 1565 Broadway
Two years ago, Sutton bought this famed four-story building for $30 million. Its former tenant was the Roxy Deli, known as much for its glittering neon sign as its pastrami sandwiches. Then, last winter, Sutton turned around and re-leased the 5,200-square-foot space to a Radio Shack franchise. It’s unclear what Sutton is charging the electronics chain, but that block typically commands upwards of $2,000 a square foot in retail rent.
In any case, that Radio Shack rental is short-term, while Sutton decides on a more permanent tenant, a source close to the deal said.
The 5,159-square-foot retail space is next door to the American Eagle-occupied 1551 Broadway, which Sutton owns outright after buying out partner SL Green. But the duo also co-owns 1552 Broadway, located across the street, as well as 1560 and 1604 Broadway. Asking rents in this stretch can run north of $2,500 per foot.
According to Newmark Grubb Knight Frank Retail, which is marketing three retail spaces at SL Green’s 1.75 million-square-foot office tower at nearby 1515 Broadway, along with the tower’s pair of LED signs, the area has extremely compelling numbers for retailers. There are 100,000 pedestrians every night from 7 p.m. to 1 a.m., the firm says; also, 17,200 hotel rooms are packed into the area.
10 250 West 43rd Street
Real estate mogul Joseph Chetrit signed a $190 million contract last month to buy the Hotel Carter, a 600-unit Emery Roth-designed high-rise that fell on hard times in the 1970s along with the neighborhood but has yet to share in the renaissance. The hotel was named three times by the travel website TripAdvisor as the dirtiest hotel in the U.S., though recent reviewers say it is merely “worn” and “could use updating.”
Chetrit — who bought the Sony Building on Madison Avenue for $1.1 billion last year — is expected to renovate the property but to keep it as a hotel, a source told TRD. Cheetah’s, a strip club on the ground floor, will remain for a few years until its lease runs out, according to the source. The hotel’s name will also likely change, the source said.
The 1930 property, which was sold by the heirs of Vietnamese shipping magnate Tran Dinh Truong, was the subject of an intense bidding war, according to news reports. Aby Rosen, Highgate Holdings and the CIM Group were all bidders, the source said. Occupancy rates in the neighborhood held above 80 percent even during the recession, brokers said.