The new market for makeovers

Abstract

When Newmark & Co. took over management of 100 E. 42nd St. two years ago, one of its first moves was to put up scaffolding around the building, which stands across the street from Grand Central Terminal.

When Newmark & Co. took over management of 100 E. 42nd St. two years ago, one of its first moves was to put up scaffolding around the building, which stands across the street from Grand Central Terminal.

A sign that hung on the side announced the new leasing agent and blared the building's address. Its new address, that is. Overnight, the 74-year-old property had become 125 Park Ave.

"People thought the scaffolding was for cleaning and construction," says William Cohen, executive vice president at Newmark & Co. Real Estate Inc. "But most of that was already done. It was advertising. Just by virtue of that billboard, people began to refer to the building as 125 Park."

As rents rise for prime office space in Manhattan, landlords are searching for quick new ways to turn ho-hum buildings into marquee properties. Whether it entails a lobby facelift, a complete regutting or the addition of a fancy address, repositioning has become the favored means of hiking up rents and improving visibility in the real estate community.

At 125 Park Ave., which is getting a $30 million overhaul to go with its marketable new address, rents have risen to $40 per square foot from $22 per square foot in the past 24 months, Mr. Cohen says.

Good-neighbor policy

Meanwhile, at 1500 Broadway, which was a plain black box with dowdy retail space when Intertech Corp. bought it in 1995, rents have risen 30% in the last year.

"Our building will be as animated as the rest of Times Square," says Orna Shulman, a principal in Intertech, which is installing electronic signage and building studios for ABC's Good Morning America. The show is set to move into ground-floor space next year.

Around Wall Street, repositioning has been spurred by the Lower Manhattan Revitalization Plan, which since 1994 has encouraged developers to turn empty office space into residential properties.

"That makes the neighborhood a more lively place, and helps create demand as well," says Frederick Contini, executive vice president of ZAR Realty Management Corp. The firm is spending "in excess of $100 million" to turn the former Olympia & York property at 2 Broadway into a glass-skinned office building.

Some developers have been stripping the inner workings of vacant office buildings and rewiring them to attract tenants from the new media industry. The most prominent example is Rudin Management Co.'s 55 Broad St., a.k.a. the New York Information Technology Center.

OnSite Access, a year-and-a-half-old Manhattan company that works on high-tech conversions, is currently rewiring 10 office buildings. "We anticipate wiring millions and millions of square feet a year," says Daren Hornig, the company's executive vice president.

Not all repositionings are quite so visible. Last October, Tower Realty Trust Inc. paid $58.5 million for 100 Wall St., a building that needed a massive asbestos cleanup.

The new owners budgeted $5 million for the procedure and began a marketing campaign that stressed stable management to tenants and "cash on the barrelhead" commissions to brokers. The 29-story building has since gone to 100% occupancy from 88%.

"Based on contractual rent in place, we are in excess of a 120% return on our original investment," maintains Larry Feldman, Tower's chairman.

Tenants benefit from changes

For existing tenants in a building, especially those with long-term leases, repositioning can bring unexpected benefits.

Simmons-Boardman Publishing Inc., which for 15 years was a subtenant at 345 Hudson St., decided to sign its own lease in the building, which is getting a $40 million upgrade from Trinity Real Estate. "It gave us an opportunity to upgrade and improve our space," says Arthur McGinnis, president of Simmons-Boardman.

Not that bells and whistles always matter to tenants.

Mark Rehm, director of facilities for Meredith Corp., says he wasn't impressed when his plain old 42nd Street building suddenly became 125 Park Ave. What the Des Moines-based firm likes, he says, are the improvements and the midtown location. "Short of being in Hawaii," he says, "it's the best you can do in Manhattan."