Vacancy is Opportunity at 4 Times Square - WSJ

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ncy Is Opportunity at 4 Times Square - WSJ

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Vacancy Is Opportunity at 4

Times SquareCond Nasts Departure, and the Possible Exit of Another

Tenant, Leave a Lot of Space to Be Filled

Bradley's Journal c

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The building that helped transform Times Square from a brew of urban maladies to

a showcase of big-city rebirth has enjoyed a successful 15-year run thanks to a pair

of marquee tenants who kept it fully occupied since the day it opened.

Now, 817,000 square feet of space in 4 Times Square has hit the market as media

company Cond Nast completes its move to One World Trade Center. And another

826,000 square feet could come on line if law firm Skadden Arps Slate Meagher &

Flom LLP completes tentative plans to decamp to a new tower in Manhattan West.

The possible near-emptying of the building underscores the challenge for landlords

as the citys latest crop of new office buildings takes shape downtown and atHudson Yards. Big tenants are starting to opt for them over older spaces, leaving

behind owners with leasing headaches and the need to invest millions of dollars

into such things as upgrades, rent inducements and brokerage commissions.

For the Durst Organization, the owner of the 1.6-million-square-foot 4 Times

Square, the challenge is further complicated because the company is a part owner

of One World Trade Center and scored a leasing coup in 2010 when it convinced

The tower at 4 Times Square stands at the intersection of Broadway and West 43rdStreet. PETER J. SMITH FOR THE WALL STREET JOURNAL

Nov. 16, 2014 8:36 p.m. ET

ByDOUGLAS FEIDEN 1

COMMENTS


3/9



Cond to pull up stakes and relocate.

Douglas Durst, the companys

head, says he is operating in

two very different markets and

isnt competing against himself:

The difference in rents shows

that the bulk of tenants still

prefer a Midtown location, he

said. The Midtown tenants

might sightsee downtown, but

they always end up making

deals in Midtown.

One trend working in favor of Mr. Durst, and other landlords losing tenants: the

Manhattan office market is improving thanks to a more robust economy and New

Yorks strong technology sector. Manhattans vacancy rate at the end of the third

quarter was 10.2%, compared with 11.5% in the second quarter of 2010, according

to Cushman & Wakefield Inc.

But vacancy is still well above the precrisis low of 5.3% in the second quarter of

2007, partly because businesses are determining ways to use space more efficientlyand the citys financial services industry has been contracting. Renting space in

Times Square also could be problematic because some tenants dont like the hordes

of tourists the entertainment district attracts.

It will take some time to rent, predicted Joe Harbert, president of the eastern

region for Colliers International. Theyll need to find a creative tenant for whom

the lights, glitz and excitement of Broadway are appealing and offset any

disadvantage from the crowds, street traffic and touristy feel.

Mr. Durst, 69 years old, said one possible deal could be unveiled by years end, and

if it comes to fruition it would be over 200,000 feet. The market is not as strong as

wed like, he added, but conditions are far better now than when he first

committed to 4 Times Square in the depths of the real-estate recession in the early

1990s.

Douglas Durst, chairman of the Durst

Organization. BLOOMBERG NEWS


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The buildings saga began a decade earlier in a grandiose city-state plan for Times

Square Center, conceived in 1981 and advanced by then-Mayor Ed Koch and

then-Gov. Mario Cuomo in 1984, a quartet of Philip Johnson-designed, mirror-

image towers at the Four Corners, the fabled intersections of Broadway, Seventh

Avenue and 42nd Street.

Times Square was a sewer, recalled William J. Stern, then-chairman of the states

Urban Development Corp. Dodge City was safer. Women and children vanished

after darkJohns and people who mugged Johns were everywhere.

Controversial for its overwhelming scale, the government plan was hobbled by the

1987 stock market crash, the brutal 1991-92 recession, and not least, 15 years of

fierce legal battles mounted by civic groups and two developers with Sixth Avenue

properties who decried taxpayer subsidies.

Those developers were the late Seymour Durst and his son, Douglas.

The project was finally halted in 1992. Meanwhile, tougher policing and

crackdowns on sex businesses encouraged private-sector developers to step in

The former Nathans Famous restaurant, at the southeast corner of Broadway and

43rd Street, was demolished before the 1996 groundbreaking for 4 Times Square.

BOBBY BOUCHER/THE DURST ORGANIZATION
http://topics.wsj.com/person/K/Ed-Koch/6749http://topics.wsj.com/person/K/Ed-Koch/6749


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where planners failed, Mr. Stern said. For instance, Viacom arrived at 1515

Broadway in 1990, Bertelsmann bought 1540 Broadway in 1992, Morgan Stanley

came in 1993 and Walt Disney Co. completed its New Amsterdam Theater deal in

1995.

The next year, the younger Mr. Durst bought the development rights for a full

Broadway block between 42nd Street and the Nathans Famous restaurant on 43rd

Street. He also availed himself of the same subsidies he had opposed and used

them to build the 48-story tower that became the Cond Nast Building after its first

tenant.

It proved that Times Square was not a terrifying place, said Tim Tompkins,

president of the Times Square Alliance. That building literally has one of the best

and most accessible locations in the world.

The building turned out to be a financial success for Mr. Durst. It also spurred

development of the rest of the Four Corners, now home to the Thomson Reuters

Building at 3 Times Square, Ernst & Young headquarters at 5 Times Square and

Boston Properties Inc.s 7 Times Square, said Mr. Tompkins.

Mr. Dursts tower could continue to produce big profits. The two anchor tenants

now pay below-market rates, less than $60 a foot. By contrast, Conds lower

floors will be offered in the $80 to $85 range, while Skaddens upper floors could

top $90 by the time its lease expires in 2020.

By one measure, Mr. Durst cant lose: Under a lease-takeover agreement, the Port

Authority of New York and New Jersey, his partner at the Trade Center, is

responsible for Conds rent payments until its 4 Times Square lease expires in

April 2019.

Traces of Cond are vanishing from 4 Times Square. The Durst Organization next

year will begin a two-year, $80 million upgrade of the building to modernize the

lobby, spruce up the 42nd Street entrance, replace bathrooms, install mechanical

and generating plants and add destination-dispatch elevators.

The plan calls for removing the test kitchens Cond used for its Bon Apptit

magazine, Mr. Durst said. Also out is the lobby newsstand that sold its
http://quotes.wsj.com/MShttp://quotes.wsj.com/MShttp://quotes.wsj.com/MShttp://quotes.wsj.com/MS


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A-HED

publications.

One thing that wont change is the fourth-floor corporate cafeteria whose titanium

walls, swirling glass panels and romantic banquettes defined the Cond brand.

We will not touch a Frank Gehry masterpiece, Mr. Durst said.

Skaddens lease continues until a year later. Mr. Durst said he is operating under

the belief that Skadden is leaving. We are very happy to be getting more than

Skadden is paying or wants to pay.

Skadden confirmed only that it had signed a letter of intent to move to Manhattan

West, a planned Brookfield Property Partners LP development. Cond didnt

discuss the move out.

Meanwhile, area merchants mourning the loss of Conds expense-account patrons

fret that replacement tenants wont fill the gap. Were losing big firms, not

attracting them, and its already hurting our business, said Laura Maioglio, owner

of Barbetta Restaurant on West 46th Street, which hosted private parties for the

publisher and its clients.

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Vacancy is Opportunity at 4 Times Square - WSJ

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