- REAL ESTATE EDUCATION
- GIVING BACK
Lois Weiss: Sunrise on 57th Street
May 8, 2019
By Lois Weiss
The swooping 9 W. 57th St. has long been regarded as one of the premiere office buildings in the world. Developed by the Solow Organization and targeted to top tier tenants by creating a club-like atmosphere, it was among the first office buildings to have floor-to-ceiling windows designed to showcase its Central Park views.
Its lobby entrance is marked by a six-foot tall and bright red No. 9 and sits in on a prominent site on the wide 57th Street between Fifth and Sixth Avenues in the heart of Billionaire’s Row. As one of around a dozen so-called Country Club buildings in the Plaza District, it is known for its high-net worth banking and financial tenants – Chanel is also here -- and regularly obtains the highest rents in the City, with numerous deals transacted at asking rents over $200 per foot.
But there was a new kid in town in the form of Hudson Yards. At the time, this still undeveloped area was regularly making headlines as it was signing tenants, one after the other, to anchor its new towers. Worse, some of those tenants were leaving 9 W. 57th St. for the pioneering wild west neighborhood.
Among them were Kohlberg Kravis & Roberts (KKR) which is leaving almost 200,000 square feet, and Silver Lake, a massive global private equity firm that bought Dell, and leaving around 30,000 feet.
While these firms both needed elbow room to nearly double in size, the worry was that 9 West’s other large tenants would also flee. Additionally, there were other empty floors as both JP Morgan Chase and Bank of America had moved away.
By the time Steve Siegel and Michael Geoghegan of CBRE were hired by Apollo Global Management in 2015, the company was situated on four, non-contiguous floors at 9 W. 57 St. -- the 34th, 37th, 43rd and 48th. It also had significant back offices at the Crown Building. “It was a tumultuous situation,” said Geoghegan, but one they used to their advantage.
Apollo is a major investment firm. It was founded as a private company but as it grew, it became a public company. This meant its spending on items like rent and office installations would be subject to a different level of scrutiny than when it was private.
As they were in negotiations for a newly recast lease in 2017, Institutional Investor published an article in with the headline “Sunset on 57th Street” implied that 9 W. 57th St. would no longer be the must-have offices for the Masters of the Universe.
The brokers realized that a deal, or no deal with Apollo would be the key to the market thinking whether or not the building was an old has been or reinforcing its stature as one of the City’s great buildings that would maintain its position and high rents well into the future.
They recognized to come out on the good side of the real estate community, Solow needed to keep Apollo as its tenant.
As they conducted their due diligence on the market the brokers began looking at other buildings where they could consolidate at a lower rent.
As Apollo’s growth had ramped up, it had spread to the Crown Building at 730 Fifth Ave. But that building had been recently purchased by investors with the intent of turning it into a hotel and condominiums -- and the new owners were buying out the office tenants.
Ultimately, Siegel and Geoghegan negotiated a buyout from the Crown Building for Apollo that public records show was $20,302,500, which they intended to use towards building out a new space for the displaced group.
With good timing and sleuthing, however, they were able to identify a nearly move-in ready and fully furnished below market sublease from MetLife at 3 Bryant Park, which after getting a new CEO, had moved back to Queens.
This reskinned and redeveloped 3 Bryant Park is the former Verizon Building at 1095 Ave. of the Americas and sits on the southwest corner of W. 42nd St. -- and like 9 West, has incredible views.
“It limited their Cap X expenditure to almost nothing,” said Siegel of the expenses that Apollo would have otherwise spent to build out similar facilities.
This 71,291 square foot lease for the 39th and 40th floors included extension rights. But there were other floors available at 3 Bryant Park and so news of the lease created urgency within the Solow Organization to cut a deal and retain Apollo’s headquarters.
The brokers were then able to negotiate a two-tier solution for Apollo at 9 West. This included a move to the 41st and 42nd floors at the top of the building and the eight through tenth floors at the bottom for a total of 175,000 square feet.
The $20 million-plus payment from the Crown Building that was not needed at 3 Bryant Park was then used towards the tenant allowance build out at 9 West.
Once Apollo agreed to stay, other investment tenants followed with more on the way.
“It was all about the foresight and that the right tenancy could change the perspective on the building,” said Geoghegan. “We are convinced it was the deal with Apollo that changed the perspective.”