New 245 Park owner will have to spend big to modernize 1960s-era tower

Property needs as much as $1B in renovations to compete

245 Park Avenue and HNA Group Chairman Chen Feng
245 Park Avenue and HNA Group Chairman Chen Feng

Whoever buys HNA Group’s 245 Park Avenue will have to invest hundreds of millions of dollars in order to modernize the 1960s-era trophy tower and attract new tenants.

With tenants like Major League Baseball moving to Sixth Avenue, CoStar data show a new owner will be facing vacancies of roughly 13 percent, according to Bloomberg News. And the building’s largest tenant, JPMorgan – which occupies 40 percent of the tower – is constructing a new headquarters nearby set to be completed by 2024.

“You’d have to put a ton of money into it,” said K Property Group’s Gregory Kraut, who estimated the 1.7 million-square-foot tower will need about $850 million to make upgrades like a new lobby and sprinkler system. It will probably also require another $230 million to renovate spaces for tenants over the next several years.

Sign Up for the undefined Newsletter

That’s “a lot of risk even for Park Avenue,” Kraut added.

HNA paid $2.21 billion when it bought the property last year, but the company is under pressure from the Chinese government to unload billions of dollars in commercial real estate at a time when prices are falling.

Manhattan office-building values as of February have fallen 3.4 percent from their peak in April of last year, according to Green Street Advisors.

HNA purchased the building “for anywhere between $150 million to $200 million more than probably some of the more sophisticated New York City investors” would have paid for it a year ago,” Kraut said. “It’s not exactly like we’ve had the market pick up materially since then, so I would venture to say it’s going to be a little challenging for them.” [Bloomberg] – Rich Bockmann