The United Nations is negotiating a roughly 600,000 square foot lease at 380 Madison Avenue a source involved in the deal has confirmed.  The person would not speak on the record citing the confidential nature of the discussions and because the deal was not yet signed.

The space will be used to relocate as many as 1,700 employees from the organization’s Secretariat Building while the iconic tower and other buildings on the UN’s East Side campus undergo a renovation beginning next year.

The deal, which is huge even by Manhattan leasing standards and will be the biggest transaction to be completed in the city so far this year, constitutes far more space than what the United Nations initially planned to lease in order to house staff that will be displaced by the work.

Over the summer, the United Nations reached an agreement to occupy the Albano Building, a 187,000 square foot fully vacant office property near its East Side campus in which it plans to move 700 employees. 

In an effort to minimize its exposure to the Manhattan leasing market, where rents have risen precipitously in recent years, the organization originally said it would take no more than that, even though the Albano Building’s space can accommodate less than a third of the Secretariat’s employees.

Instead, the United Nations planned to complete the renovation of the Secretariat ten floors at a time, shuffling personnel within the building to make way for the work.  Although the strategy was tedious, it was seen as a way to avoid having to potentially pay even more exorbitant rates than usual to lease space for the limited timeframe it was seeking.

But the organization has found its breaks in the Manhattan office market and it is swelling construction costs instead that have proven to be far more difficult to pare.  According to United Nations’ estimates, the rising expense of building in the city has driven the renovation $219 million over its $1.9 billion budget. 

In what represents a dramatic departure from the organization’s initial strategy, the UN's commitment to a far larger block of temporary office space isn’t seen as a money pit anymore but actually now as a way to trim costs.  The offices at 380 Madison Avenue will allow the United Nations to fully empty the Secretariat Building and conduct the work on all its floors at once, which will slice the building’s construction schedule in half from six to three years. 

Werner Schmidt, a spokesman for the United Nations’ capital plan, said in a conversation with rew-online.com in October 2007 that the expedited construction schedule - and also value engineering techniques - will bring the project under budget even after factoring in the extra cost of the additional office space. 

It isn’t clear what rents the United Nations had anticipated having to pay in that estimate, but it agreed to rates in the $50s per square foot at the Albano Building, a homerun deal compared to the $80s per square that higher end offices average in midtown.  Space in 380 Madison Avenue, while of far better quality building than the antiquated space in the Albano Building to be sure, may come at commensurate rates in what would be another market-defying deal for the United Nations.

The mercurial midtown landlord Sheldon Solow owns a leasehold interest in the building that expires in 2014, a timeframe that would suggest he is willing to do the kind of short term lease that the United Nations is seeking.  And with hundreds of thousands of square feet of vacant space in the building, he may also be ready to settle on lower rents just to finally begin to generate some income.

The United Nations campus began construction in 1949 and little has been done since it was finished to upgrade and modernize its facilities.  Chief among the work being done are improvements to the compound’s security, which were said to be especially lacking given that the organization is considered a potential terrorist target.