October 27, 2020

Square Feet: Demand for Office Condos Grows in Manhattan

The credit union’s treasurer and chief executive, Robert Familant, rejected the offer.

“It was 2009,” Mr. Familant said, “and in spite of what was supposed to be a very weak economy, we were offered what I thought was an average new lease at best.”

The landlord then offered a substantially lower rent — but remeasured the office and common space, contending Progressive would have to pay for almost 12,000 square feet, effectively making the rent $38 a square foot.

“I am told it is a common New York City commercial landlord strategy,” Mr. Familant said. “I’m thinking, ‘If this is how a quality tenant is treated in a bad economy, we would be a lamb being led to slaughter in a good one.’ ”

So Progressive decided to buy its own office space. The company paid $450 per square foot for a 15,000-square-foot office at 131 West 33rd Street, one of the few commercial buildings in Manhattan offering office condominiums.

“I became determined not to allow the company to be at a landlord’s mercy in the future,” Mr. Familant said. “It’s only been 18 months since we bought, and less than a year since we moved in, but so far we are very happy with the decision we made.”

Office co-ops and condominiums began appearing in New York in the late 1970s. Since then, it has remained a niche market, representing only about 2 percent of the 500 million square feet of office space in Manhattan, said Michael Rudder, a principal of the commercial real estate brokerage Rudder Property Group, which specializes in office condominiums.

Before the real estate slump of 2008, office condominiums accounted for almost $400 million in Manhattan sales annually, Mr. Rudder said. Those sales were cut in half by the economic crisis.

Recently, however, several office condominiums have been built, converted from other uses or proposed in Manhattan in response to an increase in demand from various market sectors, Mr. Rudder said.

“Much like all aspects of the commercial real estate market, I’d say the values of office condos went down about 40 percent” after the market crash of 2008, he said. “With that lower value, I think a greater variety of prospective purchasers have emerged.”

Office condominiums, which tend to be more popular in other American cities than in New York, are also the norm in most European and Asian markets, Mr. Rudder said. Thus, businesses from those countries opening branches in New York, and businesses with principals native to Asian countries, typically leap at the opportunity to buy, he said.

“Whether you’re in Bombay or Beijing, if you’re a business owner, and you have office space, you most likely own your space,” he said. “So when those businesses come to New York, when the opportunity to buy at a good price comes, it’s a cultural desire to want to own.”

Youngwoo Associates, a property developer in New York whose principal, Young S. Woo, is Korean, nodded to that cultural preference by creating commercial condominiums at 139 Centre Street, a nine-story building in Chinatown. The units have been on the market for a little more than two years, and only seven of 144 office condos and two of 10 retail condos remain unsold, said Margarette Lee, a principal with Youngwoo.

Almost all the buyers are Chinese, Ms. Lee said. “We kind of understand the Chinese culture,” she said. “Asians, especially Chinese people, love to own real estate, to give it to their sons and grandsons. It’s important within the family.”

Most buyers were willing to pay $900 to $950 a square foot for the office condos, a relatively high price, Ms. Lee said.

“The Chinese buyers are willing to spend more money to own than to lease,” she said. “The whole concept is, if you lease it and pay rent, you’re throwing money out, whereas if you make mortgage payments, at the end of the day, it’s yours.”

Youngwoo Associates, which also built the Chelsea Arts Tower at 545 West 25th Street, a commercial condominium building for the arts and fashion industries, would like to build another office condominium in Manhattan, or convert a building to one, Ms. Lee said.

Article source: http://feeds.nytimes.com/click.phdo?i=075e4b217a6150c977abfa084c700015

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