Centerline Holding Company, a real estate lender whose troubles were identified in a Wall Street Journal report earlier this week, is in negotiations with the Blackstone Group to get out of a 100,000 square foot lease that it took at the base of 1095 Avenue of the Americas sources say.
The company, controlled by the real estate magnate Stephen Ross, has seen its share price steadily plummet over the past year. The article in the Journal indicated that the firm has been battered by the credit crunch.
Its short term lending facilities, including a line with Morgan Stanley, have eroded in recent months and it has had difficulty doing business because the real estate sales market has ground to a near standstill amid the debt problems.
During better times in late 2007, the company signed a deal to take about 100,000 square feet on the base floors of 1095 Avenue of the Americas for rents that started at $125 per square foot. Many brokers now look back and identify the lease as one of the most overheated transactions to get done in the city before the credit crunch and ensuing economic upheaval began cooling the market for space.
Centerline took floors 3, 4 and 5 in the building, which is nearly done being gut renovated and skinned with a brand new emerald glass façade by the private equity giant, the Blackstone Group. Blackstone received the building in early 2007 when it completed its record $36 billion purchase of the REIT Equity Office Properties.
Executives in charge of the renovation at Equity Office Properties, who envisioned and embarked on the project before Blackstone eventually took over, extolled that the building would be nearly indistinguishable from a newly constructed office tower and that it would cost far less than building from the ground up.
Even the lower floors, Equity Office’s director of leasing Don Huffner, told Real Estate Weekly at the time, would lease for premium rates because they provided up close views of Bryant Park across Sixth Avenue.
Huffner, along with many others in the brokerage community, couldn’t have known just how right he would be. Centerline agreed to rents that started at $125 per square foot but climbed to around $140 per square foot over the life of the deal, nearly unprecedented numbers for space so low in a building. Even during Manhattan’s dramatic run up in rental rates from 2005 to 2007, triple figure numbers were usually confined to spaces located high in office towers that offered soaring views and top amenities.
But as the economy boomed and real estate prices and commercial rental rates shot upward, landlords also became increasingly bold about slapping huge prices on even those spaces that had never before been thought of as premium.
Stephen Siegel, an executive at the real estate services firm CB Richards Ellis said at a recent market meeting held by the company for the press that rents for the lower floors of Worldwide Plaza, an office tower on Eighth Avenue, had been in the triple figures but would drop to about $75 per square foot due to the recent slowdown.
But so far, nowhere have the excesses of the recent rental boom appeared to shake out more dramatically in such a short period than at 1095 Avenue of the Americas.
About six months before Centerline signed its deal at the end of 2007, the real estate financing REIT iStar Financial took a little over 100,000 square feet, the entire 35th, 36th, and 37th floors for rents that begin at $132 per square foot and climb incrementally to $148 per square foot over the life of the 15-year deal.
Late last year iStar too had buyer’s remorse after a rough earnings period in the fourth quarter and decided to sublease the entire block of space. Almost a year later, the company is said to be increasingly eager to find a taker for the space and brokers say that it is offering to sweeten the deal by building out offices for a user.
MetLife, the building’s largest tenant with 12 floors that it took in 2006 for rents reported to be in the $90s per square, has since also decided to sublease a handful of floors.