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Boston Properties Suspends $980 Million Skyscraper
By David M. Levitt
Feb. 6 (Bloomberg) -- Boston Properties Inc., the biggest U.S. office landlord, plans to suspend construction on a $980 million midtown Manhattan skyscraper after a law firm abandoned plans to lease space there.
“Recently the law firm informed the company that it could not proceed on those terms, thereby rendering the project economically infeasible in today’s environment,” the Boston- based company said today in a statement. The 1 million square- foot tower at 250 West 55th St. and Eighth Avenue was scheduled for completion in 2011.
Office building owners are being battered by the U.S. recession, with the 14-member Bloomberg Office REIT Index losing 51 percent in the past year. Manhattan office vacancies rose to 7.6 percent in the fourth quarter, the highest since 2004, broker CB Richard Ellis Group Inc. said last month. Lending has also dried up as financial companies have taken more than $1 trillion of writedowns and credit-market losses.
“It has more to do with the state of financial markets than the merits of individual projects,” said Dan Fasulo, market analysis director at Real Capital Analytics Inc. in New York. “Lenders don’t want additional exposure to commercial real estate at this point. There’s nothing we can do about it but wait this out.”
Valuable Tower
A completed building on that site would have fetched $1,500 a square foot during the peak of the real estate market in 2007, Fasulo said. That would value the tower at $1.5 billion and made it one of the most expensive in the city, he said.
Boston Properties acquired some of the development rights for the West 55th Street site in May 2008 for about $34.2 million, according to company filings. It said it had invested $401.7 million in the project as of Sept. 30, 2008. It estimated its total investment would be $980 million, according to regulatory filings.
Boston Properties said today it expects to suspend its capital commitments by about $450 million through 2011 and is evaluating how the tower decision will affect earnings.
Last week the company said it had been negotiating with a top law firm and reached agreement. It didn’t name the firm.
Proskauer
The firm was identified as Proskauer Rose LLP in a Jan. 21 story in Real Estate Weekly newspaper. The report said the firm was reconsidering a deal at 250 West 55th St. and was looking at 11 Times Square across from the Port Authority Bus Terminal.
Boston Properties already had a lease with Gibson Dunn & Crutcher LLP for 22 percent of the 55th Street tower.
Calls seeking comment from New York offices of law firms Gibson Dunn and Proskauer Rose were not immediately returned.
Boston Properties Chief Executive Officer Edward Linde told analysts on a Jan. 29 conference call that he had “every reason to believe” the lease would be completed.
“We don’t put anything in the win column until the fat lady sings, to mix metaphors,” he said. “So there could be something that occurs between now and the time the documents get executed that would cause the transaction to come undone. I don’t expect it, but it’s a possibility.”
‘Serious Downdraft’
In an interview on Jan. 27, Boston Properties Chairman Mortimer Zuckerman said the U.S. commercial real estate decline is likely to get worse this year as the credit crisis continues.
“We are still in a downdraft of a very, very serious credit crunch,” Zuckerman said in the interview on Bloomberg Television. “I don’t think that the credit crunch will be over for quite a while. We may see a much tougher 2009 than many people are expecting.”
The design of the tower, by the architectural firm Skidmore Owings & Merrill, was to include a glass tower sitting atop a wider podium, according to the Web site Greenbuildingsnyc.com.
Robert Selsam, Boston Properties’ New York regional manager, described the building as “a Lever House redux” after the Park Avenue landmark also conceived by Skidmore, the Web site said.
Boston Properties rose $4.09, or 10 percent, to $46.93 in New York Stock Exchange composite trading. The stock has declined 48 percent in the past 12 months.