The Daily Dirt: What is Class A office?

Somerset Partners and Meadow Partners handed a Class A Midtown office building to their lender, Fortress Investment Group, earlier this week.

The partnership purchased the 237,000-square-foot building in 2019 for $122.5 million. Fortress is expected to sell it for a fraction of that price. 

The story piqued my interest because it hit on something that everyone has been talking about this year: Class A office. 

The term “Class A” gets thrown around indiscriminately these days. And why wouldn’t it? The “flight to quality” narrative has dominated conversations about office buildings — insisting that Class A will survive or even thrive while Class B and C are doomed.

“Every landlord thinks they have Class A,” Related Companies CEO Jeff Blau said in June. “There is a big difference between a 50-year-old, well-taken-care-of building and a new building.”

Unfortunately for Somerset and Meadow, their tower at 300 East 42nd Street falls into the first category. The 31-story building was built in 1964. The partnership invested millions into renovations, including a new lobby, elevators, and other amenities. But rents at the property have sat around $60 to $70 per square foot, far below the $200+ premium that top-notch office buildings — like Blau’s 30 Hudson Yards — can demand. 

So, what makes a true Class A building? Class A office should be new. If it was built before the Clinton administration, then it might be time to ask some questions. It should have the accessibility and state-of-the-art systems necessary to command above average rent for the area. And, perhaps most importantly, it should have some cachet in the market. 

With office supply and demand so out of whack, the industry should be a bit more restrictive about what it considers Class A. 

After all, Somerset and Meadow aren’t the only office landlords to throw in the towel on a “Class A” property. 

RXR’s Scott Rechler announced earlier this year that his firm would hand over several buildings to lenders, including 61 Broadway. RXR’s website describes the building, built in 1913, as “premier, Class A office building situated in the heart of Downtown Manhattan.”

It seems all of these landlords are heeding Blau’s advice to Class B owners: “Take what you can and run.”

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What we’re thinking about: What do you think makes a Class A office? Are there hard and fast rules? Or is it open for interpretation? Send a note to david.westenhaver@therealdeal.com.

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Closing Time

Residential: The priciest residential closing Friday was $6.7 million for a condo at 15 Mercer Street in Soho.

Commercial: The most expensive commercial closing of the day was $20 million at a foreclosure sale for a quartet of Harlem rental properties at 110 and 120 West 116th Street, 1917 Adam Clayton Powell Boulevard and 110 St. Nicholas Avenue.

New to the Market 

The priciest residence to hit the market Friday was a condo at 760 Madison Avenue in Lenox Hill asking $32.5 million. Douglas Elliman has the listing.

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A thing we’ve learned: Ellis Island was once the gateway to New York for immigrants from across the world. Now, immigration officials are calling the Roosevelt Hotel the new Ellis Island, thanks to its prominent role in the city’s effort to cope with an influx of immigrants. The hotel has become an intake center for tens of thousands of migrants and a shelter for a select few.

Elsewhere in New York

— U.S. Sen. Bob Menendez of New Jersey was indicted Friday on charges of bribery. Prosecutors said Menendez and his wife accepted cash and gold from Egyptian officials in exchange for political favors. In 2020, Menendez allegedly pushed then-Secretary of State Mike Pompeo to intervene in negotiations around key foreign policy issues for Egypt. Authorities found $100,000 in gold bars and $480,000 in cash at Menendez’s home.

— Mayor Eric Adams ignored requests from city regulators to disclose the identities of suspected political supporters who raised over $300,000 from 500 donors without proper disclosure, according to The City. This violated campaign finance laws aiming for transparency. The city’s matching funds program added $522,000 in public funds to Adams’ 2021 campaign.

— Congestion pricing is still a ways away — the program will begin in May. But the MTA announced Wednesday that it will not be increasing its bus service to make up for the expected spike in demand, Gothamist reported. That’s because bus and subway ridership are still well below pre-pandemic levels, and congestion pricing is unlikely to change that, officials said. The policy goes against past examples of successful congestion pricing programs, like London’s, which paired the driving tax with an increase in bus service.