In 2006, the hulking office building at 135 West 50th Street in midtown Manhattan sold for US$332 million. Tenants occupied nearly every floor; offices were in demand; real estate was booming.
On Wednesday (Jul 31), it changed hands again, in an unusual online auction – for US$8.5 million.
The staggeringly low sale price of the 23-story glass behemoth that was once the headquarters of Sports Illustrated is the latest and perhaps most surprising sign of how the pandemic has upended the state of office buildings in New York City, home to the largest central business district in the US.
Several large Manhattan office buildings have sold in recent years at steep discounts, some going for less than half of what the previous owners paid, in a market that has yet to hit rock bottom.
But office developers and sales brokers in New York City said they could not recall another large Manhattan building like 135 West 50th that had been sold for so little.
David Sturner, a developer whose father’s firm owned the building before selling it in 2006, was stunned by the final price.
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The building, he said, “certainly wasn’t the greatest asset we owned” but was a “solid” property. “What’s shocking is how fast the valuations dropped now that we’ve seemingly reached bottom, or close to it,” he added.
He said that the latest sale price reflected the new reality for Manhattan’s office sector. With companies embracing hybrid and remote work, employees do not visit the office as much and most buildings are no longer considered safe investments, he said.
Bob Knakal, a leading commercial sales broker in the city and founder of BK Real Estate Advisors, said, “Nobody ever anticipated that what has happened in the office market was going to happen.”
In many ways, 135 West 50th represents the myriad nondescript office towers that line Manhattan ’s streets. Built in 1963, the building stretches about half a block, and has been occupied by major companies including the New York Telephone Co (which later became Verizon) and Zales, the jewellery retailer.
For decades, buildings like it have made up the backbone of Manhattan’s booming office sector. But today, they have lost their appeal and value.
The building’s long-time owner, an investment fund managed by UBS Realty Investors, had previously tried to sell it for less than US$50 million, but that deal fell through. So UBS Realty turned to a two-day, public online auction on Ten-X, a real estate auction site. The property was listed alongside suburban strip malls, motels and apartment buildings.
On Wednesday morning, at the Ten-X offices in Irvine, California, 135 West 50th was just one among dozens of properties being auctioned and monitored in real time by auction agents. Floor-to-ceiling video screens ringed the space, splashed with images of the properties that were up for bidding.
Rows of agents at computers were on phone or video calls with buyers and sellers. In the last few seconds of an auction, the bids usually come in a flurry.
The auction for 135 West 50th opened earlier this week with a starting bid of US$7.5 million. On Wednesday, with seconds left and only a single bid of US$8.5 million, a grey box that read “reserve not met” – referring to the seller’s minimum price – suddenly turned green and changed to “reserve met” after that price was lowered. According to Ten-X, the reserve price is generally set at around three times the starting price.
As the clock ticked down to zero, the auction was extended – three times – for a total of 10 minutes and 30 seconds. The auction finally ended with a sale price that was about 2.5 per cent of what the sellers had paid for it.
UBS Realty Investors declined to comment for this article. The identity of the new owner will be announced after the sale officially closes, which could take about 45 days.
The buyer faces an immediate financial challenge: The auction was for the building itself, not the land. That is owned by a publicly traded real estate firm, which collects a monthly lease. But the rent from the building’s current tenants is not enough to cover those monthly payments, which are set to increase every five years and do not expire until 2123.
135 West 50th has more than 920,000 square feet but is just 35 per cent occupied with office tenants, down from about 40 per cent a year ago. It is one of the least occupied large buildings in Manhattan.
“It’s a huge risk,” Knakal said, adding that the new owner might have to renovate and upgrade swaths of the building, at a cost of about US$200 to US$300 per sq ft, to attract new tenants.
The new owner could also opt to convert 135 West 50th into residences or bulldoze it altogether to build something new. But each choice is challenging or expensive.
Razing the building and constructing an entirely new one would cost, at least, hundreds of millions of dollars.
While elected officials have encouraged developers to transform many older Manhattan office buildings into apartments or condominiums, very few transformations have moved forward, largely because of the high cost.
Likewise, a large-scale change at 135 West 50th might be unlikely.
Sturner pointed to multiple issues that limits the building’s potential for conversion into residences: 3-metre-tall ceilings, which are short by today’s standards; large, inconsistently placed columns; inadequate light from its midblock location; and existing office tenants scattered throughout the building who would need to be relocated to free up contiguous space.
135 West 50th rose in the early 1960s during an office construction boom that reshaped Manhattan’s skyline and economy. Designed by one of the architects of the original World Trade Center, the building opened in the heart of midtown between Sixth and Seventh avenues, replacing the palatial Roxy Theater, once the largest cinema in the world.
It stretches 23 storeys tall with an aluminum-and-glass facade. Over the years, it has housed accounting groups, law firms and many employees of Time, which leased several floors there because of its proximity to the former Time & Life Building on Sixth Avenue.
But in recent years, companies have an excess of available offices to choose from, and 135 West 50th has many downsides, including its dated interiors, despite some recent lobby and lift upgrades.
It is also relatively far from major commuter hubs such as Penn Station and Grand Central Terminal, and faces the middle of a block on West 50th Street rather than a more convenient avenue.
About 15 years ago, Sheryl Hilliard Tucker, a former editor at Time, toured the building when she was overseeing Money magazine and looking for new offices. Almost immediately, she said, she felt that the space lacked the right vibe for editors and writers.
“My first impression was: Oh, my goodness, we have moved back to the 1950s in an insurance building in the Midwest,” Tucker said. NYTIMES
