By Adam Pincus
The southwest corner of Bowery and East Fourth Street in Noho has been occupied for more than two decades by a single-story rambling bar and grill, and before that by a gas station. It’s nestled in a stretch of bars and restaurants between Houston Street and Astor Place. The buildings along Bowery are mostly residential on the upper floors, but there is some office space in rehabilitated loft buildings concentrated toward the north, and it’s all capped with the enormous office tower, 51 Astor Place.
Developer Charles Blaichman, who leads CB Developers, recently inked a ground lease for the corner parcel, at 358 Bowery, but has not revealed publicly what he plans to do there, or if he will partner with anyone. To get an idea of what might replace the restaurant, PincusCo asked brokers and owners for their insights, and the consensus was office space, as the site is zoned commercial.
David Emden, a broker with Newmark Knight Frank, represented several tenants that took space at 51 Astor Place, the 400,000-square-foot office building Edward J. Minskoff Equities built at the intersection of Third Avenue and Astor Place. That building opened in 2013 and brought new tenants to the neighborhood and with them an interest in newly built space.
He said there is demand from hedge funds, private equity, technology, venture capital, and possibly start ups, if they were well-financed or in later rounds of funding. For new space, tenants often pay more than $100 per square foot.
“New construction is widely accepted in the triple digits, if that’s $100 (per foot) or $160,” or more, Emden said. He added that typically the higher the price per foot, the higher the concession package.
Meanwhile, office space remains popular as an asset class, even as retail and multifamily have lost value.
“I’m kind of surprised, office buildings have sex appeal,” Jeffrey Fastov, an executive at Square Mile Capital, said on a panel today, although not in relation to this project. He was noting that younger workers often want highly amenitized buildings, and companies want to attract those workers. He was speaking at an industry event hosted by Bisnow in Hudson Yards.
Blaichman in an email confirmed that a lease had been signed at 358 Bowery, but said the $59.5 million dollar figure reported in city transfer records was inaccurate, although he did not provide an alternate figure. The transfer was an unusual filing, and the dollar figure could represent the value of the lease or some other figure, insiders said.
Eric Goode, who owns the property, did not return calls seeking comment, nor did Blaichman’s frequent partners SK Development and Ironstate Development. They often team up as CBSK Ironstate, focusing mostly on residential rentals and for-sale condominiums, but also doing some office in recent years.
There was always office space toward the northern end of Bowery between Houston and Astor Place, but 51 Astor became a new kind of draw for the area.
It is leading to new development. For example across Third Avenue, developer Real Estate Equities Corporation is building an approximately 54,000 square foot office and retail building at 3 St. Marks Place. At the same time, older space along Broadway is in demand, as well as new boutique office projects such as CBSK Ironstate’s 363 Lafayette Street, completed about a year ago farther south.
“With larger buildings like the Puck Building, 51 Astor and 770 Broadway, there is more capacity, but not enough for the demand and those buildings are all full,” Dirk Hrobsky, a broker at Cushman & Wakefield, said.
CBRE puts the average rent in the Soho/Noho submarket at $92.07 per square foot, but redevelopment and new construction have asking rents much higher, from $100 to $130 per square foot, the brokerage reported.
Real estate data company Compstak provided comparables in that range, for example a pharmaceutical company signed a lease at 51 Astor in the first half of 2018 in the mid-$100s per square foot (although the net effective was lower), and a family office signed a lease at about the same time at 363 Lafayette Street at about $110 per foot, but with a net effective about $20 per foot lower.
358 Bowery is zoned commercial, said Brian Strout, a broker with City Center Real Estate, so barring an unusual change in zoning, the most likely uses are office, hotel or community facility. The site has a 5 floor area ratio for office and hotel, meaning a building five times the lot area can be built. The lot is 8,705 square feet, resulting that a 43,525-square-foot building can be built.
The property also allows for a higher 6.5 multiple for a community facility, but several brokers said they believed despite that higher figure, the most valuable use would still be for an office building. They also ruled out hotels for now, as hotels are underperforming generally in Manhattan, with revenue per room falling in the second quarter, a continuation of a longer trend, a report from PwC found.
In addition to that base figure of 43,525 square feet, in 2017 Goode merged the zoning lot with four neighboring lots along East 4th Street (and sought to buy air rights from an adjacent property at 356 Bowery, but ultimately did not). He closed two deals to buy a total of 8,682 square feet in air rights from three of those properties. In addition, Goode owns 38 East 4th Street, the building next door to the B Bar & Grill lot, so can transfer air rights. That parcel has just over 5,000 square feet of air rights, a review of property records found. That would bring a potential office building total to about 57,000 square feet, nearly the same size as the Real Estate Equities project.
“Tenants are looking for new construction and Noho has been lagging in that department. Just look at the recent success of new developments in Meatpacking and you can see the demand is there for brand new, state of the art office space,” Adam Henick, a broker with the firm Current Real Estate Advisors, said.