The good news for the owner of the tower at 866 Third Ave. is that the Wells Fargo branch taking space there recently renewed its lease at the corner of East 52nd Street. The bad news is the bank negotiated a 27% drop in rent.
That detail, disclosed in a report last week from bond-rating firm KBRA, underscores the difficulties plaguing Midtown East, a district that continues to languish even as streets close to Grand Central Terminal and Bryant Park recover strongly.
As of this morning, 20% of corner storefronts remain empty along Third Avenue between East 42nd and East 57th streets, according to a review by Crain’s, and there are several midblock vacancies. Some office buildings are all but abandoned, such as 750 Third Ave., which is 81% empty; owner SL Green has proposed to convert it into apartments. The tower at 805 Third Ave., owned by Cohen Bros., has a 40% vacancy rate.
Although Third Avenue is close to the Grand Central commuter hub and several subway lines, its mostly older buildings dating back as far as the 1960s hold little appeal when newer space is available elsewhere. In addition, Third Avenue buildings tend to hold accounting firms or media outfits whose workers haven’t returned to the office in the same numbers as bankers or lawyers. Fewer office workers, in turn, have forced landlords to cut rents for restaurants and other retailers that serve the diminished crowds.
But real estate executives say the street and the district are finally starting to turn around.
“Midtown East has been slower to recover, but it’s gotten better in the last six months,” said Patrick Smith, a vice chairman at JLL. “There’s always a lag between what happens inside buildings and what you see on the street.”
In the meantime, the balance of power still belongs to tenants, as Wells Fargo’s deal demonstrates.
Under the new five-year lease with landlord JEMB Realty, the branch will remain in its 4,000-square-foot corner space for five years at the lower base rent. An earlier KBRA report indicated the bank paid about $250 per square foot under its current lease, which expires in July.
JEMB Realty needs every tenant it can get at 866 Third. The $40 million mortgage for the retail part of the building comes due in August and was transferred to special servicing last month, said KBRA, which estimates loan investors could suffer a $12 million loss. The Courtyard by Marriott and Memorial Sloan Kettering Cancer Center, which occupy the upper floors of the 30-story building, are not affected by the retail’s portion difficulties.
JEMB didn’t return a request for comment. Wells Fargo said it doesn’t comment on negotiations with retail landlords.
Aaron Elstein , 2024-06-12 19:39:49
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