Interpublic, Chase, Rockrose take a big bite in New York Two leases and one transaction are a sign of the times in New York. Tenants still hunger for large blocks of space, while owners and developers will pay big money for prime office locations and the eye-popping rents that come with them.
In a consolidation move, The Chase Manhattan Bank, New York, has leased 556,000 sq. ft. for 20 years at 1166 Avenue of the Americas from New York-based Edward J. Minskoff Equities. Chase Manhattan will merge operations from several of its existing Midtown locations. Chase leased 14 floors that Minskoff acquired last year as a commercial condominium. Insignia/ESG represented Chase Manhattan, while Cushman & Wakefield represented Minskoff.
At 622 Third Ave., The Interpublic Group of Cos. has signed a 21-year, $500 million lease for more than 450,000 sq. ft. for McCann-Erickson Worldwide, Interpublic's marketing and communications subsidiary. As part of the deal, building owner Cohen Brothers Realty Corp. will rename the 39-story tower McCann-Erickson WorldGroup at Grand Central Plaza. New York-based Cohen Brothers acquired the 900,000 sq. ft. building in 1998. New York-based Cushman & Wakefield provided third-party representation for Interpublic.
On the acquisition side, locally based Rockrose Development Corp. has acquired the long-term leasehold interest in 645 Madison Avenue for $49.5 million. Rockrose acquired the 22-story, 150,000 sq. ft. building from a venture between New York-based Equitable Life Assurance Society and Nippon Life Insurance of Japan. 645 Madison's upper floors are occupied by a number of boutique office tenants, while the first four floors are occupied by Ann Taylor's flagship store.
Charlesbank takes a chance in Chicago's Central Loop Boston-based Charlesbank Capital Partners LLC has acquired 200 West Monroe in Chicago's CBD on behalf of Harvard University's endowment. Charlesbank purchased the 23-story Central Loop building from Philadelphia-based Cigna Investment Management for $60.5 million.
The 645,000 sq. ft. building is 90% occupied with Chicago-based LaSalle National Bank occupying 406,000 sq. ft. Chicago-based Douglas Elliman-Beitler will manage the building.
Atlanta blooms with leases, new development Atlanta's CBD and the city's North Fulton submarket show little sign of slowing down. In a deal brokered by the local offices of Insignia/ESG and Julien J. Studley, both of New York, locally based Turner Broadcasting System Inc. (TBS) has leased an additional 140,000 sq. ft. at Centennial Tower downtown. Also in Atlanta, New York-based Sonnenblick-Goldman has been retained to advise Taconic Investment Partners LLC, The Benenson Capital Co. and Angelo, Gordon & Co., all of New York, in the $78 million redevelopment of 180 Peachtree St.
Commonly known as the Macy's Department Store building, 180 Peachtree will be retrofitted into a two-tiered, mixed-use project called @tlanta exchange. Macy's will continue to use the first three stories for a 240,000 sq. ft. department store. The remaining 450,000 sq. ft. will be converted into telecommunications, Internet and new media office space. The joint venture plans to take advantage of the massive fiber network installed in downtown Atlanta during the 1996 Summer Olympics while maintaining the building's early 20th Century architecture.
Around the corner from 180 Peachtree, TBS already leases 110,000 sq. ft. at Centennial Tower, a 36-story, 637,000 sq. ft. building adjacent to CNN Center.
Atlanta's North Fulton and Central Perimeter submarkets also broadcast strong growth signals.
Dallas-based L&B Realty Advisors has acquired Morgan Falls Office Park in the Central Perimeter submarket from Dallas-based Archon. The 258,000 sq. ft. development was built in 1987, and consists of four single-story office buildings surrounding one three-story building.
In North Fulton:
* Ottawa-based Nortel Networks Corp. reportedly has plans to add two 180,000 sq. ft. office buildings after leasing 246,000 sq. ft. in North Fulton only two years ago. Nortel already owns the land for the development, which will be handled by Atlanta-based Barry Real Estate Cos. Total cost for the new development is expected to be as much as $55 million.
* Locally based The Myrick Co. will develop a $60 million, 460,000 sq. ft. Class-A campus for Amberjack Ltd., a subsidiary of Bloomington, Ill.-based State Farm Insurance Co. The first two phases - a two-story, 49,028 sq. ft. building and a six-story, 142,000 sq. ft. structure - will be completed this fall and in early 2001, respectively.
With preleases, Law, Hines are Bay area high rollers Houston-based Hines, with its National Office Partners joint venture with the California Public Employees Retirement System (CalPERS), continues to thrive in the San Francisco Bay area. Not to be outdone, Menlo Park, Calif.-based Law & Associates is managing member of a venture - University Circle Investors - to develop a mixed-use development in resurgent East Palo Alto, Calif.
University Circle Investors will break ground in May on a $240 million, mixed-use development composed of 465,000 sq. ft. of office space, 15,000 sq. ft. of retail and a 230-room hotel. Initial occupancy is slated for late 2001. San Francisco-based Brobeck, Phleger and Harrison has preleased 190,000 sq. ft. for 12 years with two 8-year options and an option for additional space. The joint venture hopes to capitalize on extremely tight market conditions in the Bay area while working to revitalize East Palo Alto. The Law-lead venture donated $3 million to East Palo Alto for job training programs.
On behalf of National Office Partners, Hines reportedly has preleased the entire 665,000 sq. ft. 560 Mission St. building to Chase H&Q, a division of Chase Manhattan, for its West Coast headquarters. The deal's estimated value is $600 to $650 million - $60 to $65 per sq. ft. over the 15-year lease. The South of Market building will be known as the Chase H&Q Building. According to The San Francisco Business Times, the lease's price tag makes it San Francisco's largest deal ever.
After receiving approval last year, construction is slated to begin at 560 Mission St. in May, and the 31-story building should be completed in early 2002. Chase H&Q will move from its current West Coast headquarters at One Bush St.
In Redwood City, Calif., Hines has acquired Woodside Technology Center on behalf of National Office Partners. Hines purchased the 253,000 sq. ft., Class-A suburban office complex from The Carlyle Group, Washington, D.C., for an undisclosed amount. The office campus is fully occupied by five tenants. Los Angeles-based CB Richard Ellis brokered the deal.
But Hines' good news is not limited to the Bay area. The company has completed the renovation of the Torre Del Angel building located at Reforma No. 350 in Mexico City. For its Mexico headquarters, The American Express Co. has signed a 10-year lease for 103,000 sq. ft. in the 21-story, 220,000 sq. ft. Class-A structure. Hines will locate its Mexico headquarters at Torre Del Angel, as well, and manage the building.
Cushman & Wakefield also represented both landlord and tenant in New York-based Max Capital's lease of 100,000 sq. ft. at 230 Park Ave. to Swiss Re Capital Partners, a division of Zurich-based Swiss Reinsurance Co. Swiss Re will lease part or all of six floors in 230 Park Avenue, which is undergoing a $50 million renovation. To attract and accommodate Swiss Re, Cushman & Wakefield simultaneously negotiated a 40,000 sq. ft. buyout of an existing tenant.
Even the bad news has a silver lining Office markets should remain healthy through the next year, even with the Fed's penchant for bumping up interest rates every few months, according to New York-based Cushman & Wakefield.
While a few trouble spots do exist, overall, high-tech companies continue to push demand for office space, particularly in 24-hour CBDs such as San Francisco, Boston, Chicago, Washington, D.C., and New York. Suburbs surrounding Boston, San Francisco and Washington, D.C., are also hot spots. In fact, the San Francisco Bay area's vacancy rate is practically nil, much like its CBD.
"Primarily, the high-tech and new media firms are the real drivers, so the markets that you see on our list that are doing well and that we anticipate will continue to do well in 2000-2001 are the ones that have the heaviest concentration and projected employment growth in those sectors," says Maria Sicola, senior managing director of Cushman & Wakefield's research services.
Cushman & Wakefield (C&W) predicts that downtown office markets should maintain vacancy rates below 9%. CBD rent growth is projected at 5% to 7%. In the suburbs, C&W predicts vacancy rates of 11% to 12%, perhaps higher in markets with significant speculative development such as Dallas and Atlanta. With higher vacancies, suburban rent growth is projected at 3% to 5%.
Taut CBD markets may squeeze new high-tech firms into the suburbs, Sicola says, but the amount of older space available for renovation will be the linchpin.
"As the space in CBDs gets tighter and tighter and rents escalate, the question is, will these new companies, especially the startups, be able to afford the $50, $60 and $70 [per sq. ft.] rents?" says Sicola. "If they are able to find some of the older-class space - the Class-B and Class-C - that can be renovated and is less costly than the Class-A, we think that, because of the features and benefits of the 24-hour city, they'll likely be retained in the CBD. If not, the suburbs are certainly going to become an option for them."
While the Atlanta and Dallas suburbs are potential trouble spots, both markets are expected to maintain strong job growth. Atlanta is already seeing more build-to-suit development in the suburbs, and a decline in spec construction in both markets would put them back in balance.
"If we don't see construction levels increase and we achieve the predicted strong employment [growth], they'll be able to absorb that space over the next two or three years," says Sicola. "Beyond that, if the pace of construction doesn't slow, then we could see trouble."
And what about those ever-climbing interest rates? Sicola and C&W do not think that quarter-point increases will make that much difference, and if the Fed continues to increaserates, it will have a positive effect on some markets.
"I think it would take something a little more striking [than a quarter-point increase] to really have an impact," says Sicola. "But, again, the good news is that if interest rates continue to go up, it's going to keep credit restricted and continue to slow down the pace of construction."
Rising interest rates should have little effect on investment sales, too, Sicola says. "What you've seen in the markets is that properties have already peaked in terms of value," she says. "A lot of the appreciation and equity taking has already occurred."
Across the board, vacancy rates are at least half of what they were a decade ago.