Brookfield Embarks on High-Price Makeover of Fifth Avenue Tower
October 15 2019 - 4:15PM
Dow Jones News
By Peter Grant
Real-estate giant Brookfield Asset Management is starting a $400
million overhaul of the tower at 666 Fifth Avenue, undeterred by a
lackluster office leasing market in Midtown Manhattan and an aging
bull market in commercial property.
Toronto-based Brookfield said it would deliver 1.6 million
square feet of modern office space and expects to begin
construction in 12 to 18 months after roughly 10 business tenants
vacate the building. Brookfield officials said they expect to
complete the project in early 2023.
Brookfield purchased a 99-year lease of the property in a 2018
deal that valued it at $1.29 billion. When finished, the project
will be one of the costliest office building makeovers ever in New
York.
"The building in its current state is probably a $60- to
$70-a-square-foot building," said Ric Clark, Brookfield Property
Group chairman, referring to current rents. "After investing this
money, we expect to get substantially higher rents."
He said Brookfield is aiming for an average of more than $100 a
square foot, though the firm hasn't started marketing the property
and no leases have been signed.
The tower is one of the best-known office buildings in the city.
It was owned by a venture led by Kushner Cos., which is owned by
the family of Jared Kushner, President Trump's son-in-law and
senior adviser. The building was facing a possible default on its
mortgage coming due in 2019 when Brookfield acquired it, according
to public loan documents. The Kushners still own the land under the
building.
The lease gives Brookfield complete operational, leasing and
development control.
Brookfield plans to upgrade the 1950s-era building between 52nd
and 53rd streets, which has fallen behind more modern competitors
because of low ceilings and numerous columns. It plans to eliminate
many of those columns and offer double-high ceilings and add four
terraces on the 39-story building.
"It's kind of a dinosaur," said Mr. Clark. "You can basically
feel the wind coming through it."
The firm also plans to replace aluminum cladding on the exterior
of the building with floor-to-ceiling windows and change the
building's address from 666 Fifth to 660 Fifth. A Brookfield
spokesman said the firm is changing the name because "it will be a
completely new building with a completely new identity."
The $400 million price tag on the project, designed by
architecture firm Kohn Pedersen Fox Associates, includes $300
million to overhaul the exterior and core of the building and $100
million for tenant interior work.
Brookfield is moving ahead with the project when the Midtown
market is showing signs of softening because of slow leasing and
increasing development. The "availability rate," which includes
vacancy and space coming on the market, increased to 11.5% in the
third quarter, its highest level since the third quarter of 2017,
according to commercial real estate services firm CBRE Group
Inc.
But the situation is slightly better for developers who are
building from the ground up or giving existing buildings makeovers.
For example, Rockefeller Group International, a subsidiary of
Mitsubishi Estate Co., had fully leased 1271 Sixth Avenue while an
overhaul of that building was in progress. SL Green Realty Corp.
has leased about 60% of One Vanderbilt, a new 1,401-foot office
tower above Grand Central Terminal that is still under
construction.
CBRE said that 42% of the blocks of office space larger than
50,000 square feet leased in the first half of 2019 were in new or
renovated buildings, up from 41% in 2018. Tenants today are more
willing to pay up for modern space than they were in the past to
attract a millennial workforce at a time of low unemployment,
analysts say.
The younger workforce "has a completely different expectation of
what a workplace should offer them," said Nicole LaRusso, CBRE's
research director for the New York region.
Write to Peter Grant at peter.grant@wsj.com
(END) Dow Jones Newswires
October 15, 2019 16:00 ET (20:00 GMT)
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