By Peter Grant, The Wall Street Journal
The corporate-office canyon on Manhattan’s Sixth Avenue got a boost Friday as developer Scott Rechler announced he has purchased one of its most prominent towers for $1.65 billion and renewed the building’s biggest tenant, UBS Group AG.
The Swiss banking giant took more than 900,000 square feet in 1285 Sixth Ave. through 2032 in one of the city’s biggest office leases of 2016. The deal comes as Sixth Avenue landlords have been competing more intensely with other parts of the city, including Midtown South and the new Hudson Yards development.
The leasing deal was timed to close simultaneously with Mr. Rechler’s purchase of the 1.8 million-square-foot tower from J.P. Morgan Asset Management and AXA Financial Inc. A group led by Mr. Rechler’s RXR Realty LLC signed a contract to buy the building in December and since then has been negotiating with UBS to make sure it stayed in the building.
In recent years, a number of tenants on Sixth Avenue and nearby Rockefeller Center have decamped for other neighborhoods with newer buildings or trendier vibes than the button-down corporate corridor. The neighborhood’s “availability” rate—which includes vacant space and space soon becoming vacated—rose to 14.5% in the fourth quarter of 2012 compared with 8.1% in the third quarter of 2008, according to Newmark Grubb Knight Frank, a commercial real estate services firm.
But lately the area has chalked up several victories. Earlier this year, for example, media companies 21st Century Fox and News Corp dropped plans to relocate to the World Trade Center and opted to stay at 1211 Sixth Ave. instead. News Corp owns Dow Jones, publisher of The Wall Street Journal.
The area’s availability declined to 11.7% in the first quarter. Average asking rents are $88.87 a square foot, compared with $84.35 one year earlier, according to Newmark.
Mr. Rechler said in an interview that he can offer lower rents than developers of new towers because it is costing them about $1,300 to $1,400 a square foot to build while he is paying about $950 a square foot to buy. “I’ve got good public transportation, I’m in the middle of Manhattan and tenants are paying a discount to what they have to pay for new construction,” he said.
Banks and securities firms used to be a major economic engine in New York City. But in recent years, firms like UBS aren’t taking more space when leases expire and they sign new deals. UBS occupies about half of the 39 floors at 1285 Sixth Ave.
Mr. Rechler pointed out that UBS has expansion options during the course of its long-term lease. He also noted that UBS, like other tenants, have learned how to be more efficient. “They can fit more people into the same amount of space,” he said.
In the sale of 1285 Sixth, the seller was represented by Doug Harmon and Adam Spies of Eastdil Secured. UBS was represented in the lease by Bob Alexander of CBRE Group Inc. and Wall Street Realty Corp., a subsidiary of UBS.
The RXR platform manages 71 commercial real estate properties and investments with an aggregate gross asset value of approximately $20.5 billion, comprising approximately 31.4 million square feet of commercial properties, inclusive of approximately 6.0 million square feet of buildings securing debt and preferred equity investments, a multi-family residential portfolio of approximately 2,500 units under operation or development, and control of development rights for an additional approximately 3,700 multi-family and for sale units in the New York Metropolitan area as of June 30, 2019. Gross asset value compiled by RXR Realty in accordance with company fair value measurement policy and is comprised of capital invested by RXR and its partners, as well as leverage.