I previously wrote about the 600 Lexington transaction as an important market indicator. Boston Properties’ (BXP) purchase of 510 Madison is another important bell-weather for the state of the Manhattan market. Since BXP is publicly traded many of the details of the purchase are publicly available and help paint an interesting picture of the state of the market.
Completed this year, 510 Madison is one of the newest buildings in New York. The building is very well located but esentially empty.
According to BXP filings, the all-in cost totals $375 MM of which $64.3 MM is leasing, TI and interest during the stabilization period. This works out to $1080 PSF, the first major Manhattan office deal in the one thousand per square foot range since... well according to real capital analytics, when BXP bought 540 Madison for $980 PSF in Aug of 2008.
On the rental revenue side BXP “expects pricing will start in the very high 80s to low 90s at the base of the building and rise from there into the triple digits.”
Using a blended rent of $95 and $30 in expenses gets the Mid-6% yield reported on the earnings call. The market for space in the base of the building along with overall leasing velocity will be the key driver for this asset. The market for tower floors in premium buildings remains strong, one way or the other I expect the demand for the lower floors to be decisive.
Some additional thoughts:
1) Core real estate remainds strong
2) One of the largets owners of office in the country is willing to take leasing risk - worth noting
3) With well leased trophy assets trading around 5% to 5.8% the lease-up risk preimum was around 70 to 150 bp.