Jones Lang LaSalle
Empire State falls short as midtown gains
Vacancies high, rents low due to managerial rifts, upkeep issues; no Chrysler Building
By Julie Satow
Published on March 13, 2006
Tourists can't get enough of the iconic Empire State Building. Nearly 4 million gawkers filed up to the 86th floor last year for a glimpse of the New York skyline from its famous observatory.
Prospective tenants, however, aren't exactly flocking to the landmark property.
At a time when the midtown Manhattan real estate market is booming, the city's most famous skyscraper is struggling. The vacancy rate has soared to 18.2% this quarter from a low of 1.7% in the second quarter of 2000. The Fifth Avenue building, which has an asking rent of only $37 per square foot, lags far behind the average midtown rent of $48, CoStar Group Inc. says
By comparison, the Chrysler Building on East 42nd Street--an Empire State contemporary and also a landmark--has asking rents as high as $80 a square foot.
"The Empire State Building is not viewed as a Class A commercial office building," says Kenneth Krasnow, director of brokerage services at Trammell Crow Co. "For the larger, more sophisticated tenants, the building is not even on the radar screen."
The 102-story landmark, which opened 75 years ago, labors under a host of handicaps when wooing tenants. Many of its building systems are antiquated, and most of its floors are divided into small offices, rather than the large blocks of open space that Manhattan tenants increasingly demand. In addition, brokers complain that negotiating leases can be a protracted ordeal.
"The process for getting things approved there is cumbersome, and many brokers just don't want to deal," says one broker who has negotiated leases at the building.
At the root of the problems is the relationship between the two warring organizations that run the property: Wien & Malkin, which leads the building's ownership group, and Helmsley-Spear Inc., which handles the marketing and leasing of its 2.2 million square feet of office space.
Real estate magnate Harry Helmsley and his business partner, Lawrence Wien, bought the building in 1961. When Mr. Helmsley died in 1997--following the death of Mr. Wien nine years earlier--control of the tower and the other properties in the portfolio passed to Helmsley-Spear and Peter Malkin, the son-in-law of Mr. Wien. Mr. Helmsley's widow, Leona, who inherited Helmsley-Spear, sold the firm after her husband's death, but retained an ownership stake in the buildings.
The feuding that has dragged down the building portfolio began almost immediately. Mr. Malkin went to court in an effort to oust Helmsley-Spear, citing mismanagement. The managing agent fought back. The case has bounced up and down the court system ever since.
Court case nearing an end
The latest ruling, and possibly the final one, came last month. New York's highest court affirmed a lower-court decision that will allow Helmsley-Spear to remain as managing agent. Wien & Malkin plans to appeal to the Supreme Court, but legal experts say that a reversal is unlikely.
"There is nothing that occurs at these buildings for which Wien & Malkin is not responsible," Helmsley-Spear said in a statement last week. "Any criticism of the occupancy rate, the income, the leasing activity or the capital maintenance of these buildings must be directed at Wien & Malkin itself."
For his part, Anthony Malkin, who is the son of Peter Malkin and plays a lead role in managing the properties, says that the arrangement with Helmsley-Spear has held the Empire State Building back because its brokers are difficult to work with.
"Brokers don't go someplace where they have a chance to be embarrassed in front of their clients," says Anthony Malkin.
Despite losing in court, Wien & Malkin says that it is trying to upgrade the building to make it more competitive with towers in the Penn Plaza district a few blocks west.
"The bottom line is, this is the situation right now, and we are going to move ahead with our plans," says Anthony Malkin.
Wien & Malkin is computerizing many of the building's old-fashioned systems--such as an 840-name roster of tenants that has to be updated by hand. It's removing a dropped ceiling in the lobby that covers the original hand-painted murals. It will move the leasing office from the 32nd floor to the ground floor.
In an effort to modernize floor plans, the owners will tear down walls and assemble large blocks of space as tenants' leases expire. They will also ready a series of smaller prebuilt offices, ranging from 2,500 to 5,000 square feet apiece, to appeal to businesses that want turnkey spaces.
The building's ownership has hired a new general manager, James Connors, who was most recently the director of redevelopment at the World Trade Center for the Port Authority of New York & New Jersey.
Change won't come easily, Anthony Malkin concedes. "We foresee marketing the building as Class A office space," he says. "This will take time, and you will begin to see an impact in 2007."
Comments? JSatow@crain.com
Empire State falls short as midtown gains
Vacancies high, rents low due to managerial rifts, upkeep issues; no Chrysler Building
By Julie Satow
Published on March 13, 2006
Tourists can't get enough of the iconic Empire State Building. Nearly 4 million gawkers filed up to the 86th floor last year for a glimpse of the New York skyline from its famous observatory.
Prospective tenants, however, aren't exactly flocking to the landmark property.
At a time when the midtown Manhattan real estate market is booming, the city's most famous skyscraper is struggling. The vacancy rate has soared to 18.2% this quarter from a low of 1.7% in the second quarter of 2000. The Fifth Avenue building, which has an asking rent of only $37 per square foot, lags far behind the average midtown rent of $48, CoStar Group Inc. says
By comparison, the Chrysler Building on East 42nd Street--an Empire State contemporary and also a landmark--has asking rents as high as $80 a square foot.
"The Empire State Building is not viewed as a Class A commercial office building," says Kenneth Krasnow, director of brokerage services at Trammell Crow Co. "For the larger, more sophisticated tenants, the building is not even on the radar screen."
The 102-story landmark, which opened 75 years ago, labors under a host of handicaps when wooing tenants. Many of its building systems are antiquated, and most of its floors are divided into small offices, rather than the large blocks of open space that Manhattan tenants increasingly demand. In addition, brokers complain that negotiating leases can be a protracted ordeal.
"The process for getting things approved there is cumbersome, and many brokers just don't want to deal," says one broker who has negotiated leases at the building.
At the root of the problems is the relationship between the two warring organizations that run the property: Wien & Malkin, which leads the building's ownership group, and Helmsley-Spear Inc., which handles the marketing and leasing of its 2.2 million square feet of office space.
Real estate magnate Harry Helmsley and his business partner, Lawrence Wien, bought the building in 1961. When Mr. Helmsley died in 1997--following the death of Mr. Wien nine years earlier--control of the tower and the other properties in the portfolio passed to Helmsley-Spear and Peter Malkin, the son-in-law of Mr. Wien. Mr. Helmsley's widow, Leona, who inherited Helmsley-Spear, sold the firm after her husband's death, but retained an ownership stake in the buildings.
The feuding that has dragged down the building portfolio began almost immediately. Mr. Malkin went to court in an effort to oust Helmsley-Spear, citing mismanagement. The managing agent fought back. The case has bounced up and down the court system ever since.
Court case nearing an end
The latest ruling, and possibly the final one, came last month. New York's highest court affirmed a lower-court decision that will allow Helmsley-Spear to remain as managing agent. Wien & Malkin plans to appeal to the Supreme Court, but legal experts say that a reversal is unlikely.
"There is nothing that occurs at these buildings for which Wien & Malkin is not responsible," Helmsley-Spear said in a statement last week. "Any criticism of the occupancy rate, the income, the leasing activity or the capital maintenance of these buildings must be directed at Wien & Malkin itself."
For his part, Anthony Malkin, who is the son of Peter Malkin and plays a lead role in managing the properties, says that the arrangement with Helmsley-Spear has held the Empire State Building back because its brokers are difficult to work with.
"Brokers don't go someplace where they have a chance to be embarrassed in front of their clients," says Anthony Malkin.
Despite losing in court, Wien & Malkin says that it is trying to upgrade the building to make it more competitive with towers in the Penn Plaza district a few blocks west.
"The bottom line is, this is the situation right now, and we are going to move ahead with our plans," says Anthony Malkin.
Wien & Malkin is computerizing many of the building's old-fashioned systems--such as an 840-name roster of tenants that has to be updated by hand. It's removing a dropped ceiling in the lobby that covers the original hand-painted murals. It will move the leasing office from the 32nd floor to the ground floor.
In an effort to modernize floor plans, the owners will tear down walls and assemble large blocks of space as tenants' leases expire. They will also ready a series of smaller prebuilt offices, ranging from 2,500 to 5,000 square feet apiece, to appeal to businesses that want turnkey spaces.
The building's ownership has hired a new general manager, James Connors, who was most recently the director of redevelopment at the World Trade Center for the Port Authority of New York & New Jersey.
Change won't come easily, Anthony Malkin concedes. "We foresee marketing the building as Class A office space," he says. "This will take time, and you will begin to see an impact in 2007."
Comments? JSatow@crain.com
posted by Jones Lang LaSalle NJ News Blog at 2:53 PM
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