Strategy at 175 Water: Discount While Office Tenants Dig In

The ownership of 175 Water Street is attempting to draw in buzzy office tenants on discounted, short-term deals to attract higher-paying deals down the road.

Tenants are paying pennies compared to other companies in the neighborhood, but may find themselves in a predicament in quick order, the New York Times reported.

99c purchased the former AIG headquarters two years ago for $252 million. The limited liability company was founded by Quebec businessman Carlo Bellini, who more recently snapped up 180 Maiden Lane for $297 million in a short sale. Dawson Stellberger, a partner at Bushwack Capital, is also involved in 99c.

Also known as the WSA (Water Streets Associates) building, 175 Water Street is also connected to Ken Dart, a plastics billionaire based in the Cayman Islands who does not speak to the media.

The brain behind the building’s unusual branding is Gabriella Khalil, founder of the Palm Heights hotel on Grand Cayman island and wife of Matthew Khalil, a real estate developer based in the United Kingdom. Gabriella did not have any known hospitality experience prior to the hotel’s founding.

She is in charge of furnishing 175 Water Street and envisions the building to include production facilities, art galleries, restaurants, bars and a four-level department store. FACT (fashion, arts, creative and technology) tenants are being specifically targeted.

Many tenants are signing discounted two-year leases, one paying as little as $11.20 per square foot. Third-year options would see rents double, but that’s still a bargain compared to the downtown average of $57.16 per square foot, according to CBRE.

It’s not just about tenants and amenities for the 31-story building; it’s also about buzz. High-profile events unfold at night on a regular basis, bringing the likes of Emily Ratajkowski, Kendall Jenner, Bad Bunny and Tim Cook to the property.

How it all shakes out financially remains to be seen. The ongoing renovation of the property is projected to cost $150 million and ownership took out a $165 million mortgage on the property.

In ownership’s backpocket, however, is a $41.3 million tax incentive obtained through the M-CORE program and $39.8 million in additional tax breaks.

— Holden Walter-Warner