Brokers circle 1095 6th Avenue for cast-off space

Real Estate Weekly, August 6, 2008 by Daniel Geiger

Of the Blackstone Group's Manhattan real estate holdings, 1095 Avenue of the Americas has been the building that most brokers have looked at for space cast off by tenants.

The 1.3 million square foot tower, which Blackstone is almost done completely overhauling into what essentially will look and feel like a brand new office building, was leased for some of the priciest rents at the height of the real estate boom--before the credit crunch and economic downturn prompted tenants to watch their wallets.

Now the problems hitting the economy are being felt in the building, iStar Financial, a lending REIT, took three floors in 1095 Avenue of the Americas in March 2007 totaling 107,000 s/f for rents that average $140 per square over the 15 year term of its deal.

But the company reversed course amid the financial turmoil earlier this year and decided to sublease that space instead. Brokers say that the firm has suggested recently that it would be willing to build out the space for any takers, a sign that has become more eager to get a deal done.

MetLife meanwhile, the building's biggest tenant with about 400,000 square feet, plans to give up about a fourth of that--three floors--and keep a larger portion of the offices it was planning to leave behind in Long Island City.

But it's at 717 Fifth Avenue, which along with 1095 Avenue of the Americas were the only buildings it didn't sell from the large Manhattan portfolio it bought from Equity Office Properties in early 2007, where Blackstone itself is actually going to have to deal with space that is being given up by a tenant.

Arx Global High Yield Master Securities Fund is shuttering as a result of the economic downturn. According to reports, the fund had invested in bank loans that were tricky to sell because of the credit fears stemming from the tumult in the debt markets.

The fund, started by Dwight Sipprelle, a former high yield trader at Morgan Stanley, has produced 150% returns since starting in 2002.

But Sipprelle appeared to become discouraged amid the current problems and decided to shut down.

The termination will open up the 21st floor, an 8,000 s/f space that Blackstone wants to rent out for north of $140 per square foot. Sources say that while the big spaces at 1095 Avenue of the Americas are a tough sell right now, the type of small, built out space that Arx is leaving behind is highly coveted.

The firm is said to have had luxurious offices fully outfitted with infrastructure such as cables, fiber optic lines and HVAC to conduct trading operations.

EDITOR'S NOTE: In the July 23 issue of Real Estate Weekly, Nat Rockett's full name was not included in his profile within the publication's All Stars feature. Nat Rockett is a managing director with Jones Lang LaSalle's capital markets team in New York.