Posted Jul 6, 2023, 2:08 AM
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Join Date: Jul 2001
Location: Borough of Jersey
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https://www.ft.com/content/96b069a9-...c-6409574809ef
Jeff Blau rejects ‘office is dead’ claims by betting billions on new towers
Joshua Chaffin
JULY 2 2023
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The view from the observatory atop Manhattan’s Hudson Yards was clouded on a recent afternoon by smoke from distant wildfires in Canada. But that has not dimmed Jeff Blau’s outlook for the sprawling development or the high-end offices that are its speciality.
At a time when offices are dragging the commercial real estate sector into crisis, Blau, the chief executive of Related, one of the largest US developers, is planning to build 10 new towers in cities across the US and in London, an investment that will total an estimated $6.5bn.
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Blau believes there is a shortage of the most modern and lavishly equipped offices — buildings he now refers to as “double-A” or “lifestyle offices”. That conviction has arisen from the performance of Hudson Yards on the west side of Manhattan.
“We’ve had some of our best leasing over the last 12 months in the middle of all this period of time when everyone says the ‘office is dead’ — except it’s not,” Blau said, noting that Related was securing rents on the upper floors of its newest tower, 50 Hudson Yards, in excess of $200 per sq ft. That is more than double the $95.53 average asking rent for a class A building in Midtown, according to Savills.
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Its confidence in offices is such that Related is also planning to eventually build a 2mn sq ft office tower on the as-yet-undeveloped west side of Hudson Yards. That site will also host a casino if a joint-bid with Wynn Resorts is selected for one of three forthcoming New York licences.
“Every landlord thinks they have an A building, right? But some of these A buildings are 50 years old. And even if they have been well taken care of over the term, they are not the same as the new buildings,” Blau said. “These buildings truly are differentiated in every which way.”
Those at Hudson Yards boast advanced air filtration and energy efficiency, and vast floor plates that can accommodate an entire firm on a single floor. Their ever-increasing amenities range from private cafeterias overseen by celebrity chefs to concierge medical clinics and, most recently, helicopter shuttle service to local airports.
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Related received further validation recently when Brad Lander, the New York City comptroller and a one-time Hudson Yards sceptic, noted the development was now delivering $200mn more in annual tax revenue than forecast — and growing. “So this is one place I gotta say I got it wrong,” Lander told Errol Louis on the Inside City Hall programme. (As for its architecture — slammed by many critics as soulless — there were still “some questions,” Lander noted).
Other developers are also betting on super offices. SL Green has reaped similar success at One Vanderbilt, near Grand Central Station, with some rents topping $300 per sq ft. Hines, its partner on that venture, is also convinced there is a shortage of top-quality office space. RXR, meanwhile, is soon to join the fray with 175 Park Avenue.
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The original plan was for Hudson Yards’ office towers to play a supporting role by attracting the affluent to its retail space and condominium towers. In the event, they have been its star performers. Three towers — 10, 30 and 55 Hudson Yards — are now 100 per cent leased. Some early tenants, such as Tapestry and BlackRock, were lured from Midtown with favourable deals, according to leasing experts. A fourth tower, 50 Hudson Yards, is nearly 90 per cent leased.
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As for conversions, office towers were simply not designed for residential use, he noted, making it expensive to repurpose them. Adding to the cost is the need to first empty them.
“They often don’t go to zero per cent occupancy. They go like 70, 60, 30 — and then the 30 never want to leave. And then you have to spend so much money to convert that it’s basically the cost of essentially building a new building,” Blau said. “And if that’s true, you should tear the building down and build a proper building.”
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