Here's an article from Real estate Weekly this past June, that suggests that building above their existing basement and sub-basement may not be too far off:
250 West 55th Street could begin sooner rather than later sources say
Daniel Geiger
6/7/2010
Even though office market is still far from peak, a rationle for new speculative is beginning to emerge
Three years ago, Boston Properties was busily planning to construct a brand new office tower at 250 West 55th Street.
The company ended up pumping over $400 million into the project, money it paid to acquire the development parcel, excavate and pour the building’s foundation and cover other costs such as the fabrication of steel beams and girders it will use to lay the tower’s structural frame.
Early last year however, as the economy sunk into the depths of a serious recession, the company’s plans were dealt a significant setback. Proskauer Rose, a large law firm that Boston Properties had been negotiating with to take about 400,000 square feet in the roughly 1 million square foot tower, dropped out of the leasing talks.
Facing an office market that looked bleak, Boston Properties subsequently announced in February 2009 that it would put 250 West 55th Street on hold even though it meant paying a hefty $12.8 million termination fee to Gibson Dunn, a law firm that had, prior to the Proskauer negotiations, signed a deal for 200,000 square feet of the tower’s space.
The development has been on hiatus ever since, ostensibly in wait of a turnaround in the economy so that Boston Properties can secure prearranged leasing commitments at high enough rents and for enough of the building’s space to make the project financially feasible.
But experts say that the company is engaged in more than just a simple waiting game.
Sources involved in the project and real estate experts familiar with the development say
Boston Properties is actively piecing together a forecast of the office market and weighing other factors to draw a roadmap how and when to begin erecting steel.
According to sources, the firm is consulting with one of its outside advisors, John Powers, a top New York executive at the real estate services firm CB Richard Ellis with a reputation for having a sophisticated grasp of commercial office development and the dynamics of the leasing market.
At least a portion of the debate about when to build appears to be focused on what size anchor tenant Boston Properties would be willing to accept before embarking on the project. Coupled to the calculus of that decision, according to sources, is a projection of the demand for the remaining space.
One of the trickiest aspects in this type of analysis and often, in commercial development in general, is to predict what the office market will hold in the future. To get the timing of a development right, developers usually have to gamble to some degree and begin building before it is clear that leasing is heading towards a high point so that they can be ready to catch the peak when it happens and capitalize on it.
Already there are signs that the office market is turning around, particularly in midtown, which fell fast from the boom times before the downturn but has appeared increasingly to have stabilized over the past year.
In recent weeks for instance, 11 Times Square finished a roughly 400,000 square foot deal with Proskauer Rose, the big fish that slipped away from 250 West 55th Street. The deal is encouraging nonetheless according to real estate experts because it shows vacant
space is beginning to get sopped up and that tenants will pay for quality space. 11 Times Square is a recently completed office tower on 42nd Stret across from the Port Authority bus terminal that, as 250 West 55th Street will undoubtedly do when it is built, has attracted attention from tenants mesmerized by its gleaming new space.
Boston Properties has seen the market’s resiliency within its own portfolio as well. A large block of vacancy opened in 399 Park Avenue, a trophy tower the company owns along one of the city’s most prestigious avenues, when one of the building’s biggest tenants, Lehman Brothers, collapsed and emptied hundreds of thousands of square feet there in 2008. Boston Properties scrambled to fill the space by dropping rents and quickly arranged a succession of takers for nearly the entire block.
Few real estate experts feel that Boston Properties would build 250 West 55th Street without a sizeable tenant in place to anchor the development. But those with knowledge of the project say that the company could build without commitments for much of the space in order to wait for the higher rental rates many expect will return in a few years if the market tightens further.
A prevailing sense fell over the real estate industry during the downturn that speculative development was too risky to be viable and that projects would need to be virtually fully leased to come out of the ground. 250 West 55th could prove to be another sign that that perspective is shifting. Already Edward Minskoff, a real estate owner and developer in Manhattan, told Real Estate Weekly in recent weeks that he is planning to begin building a roughly 400,000 square foot speculative office building in Cooper Square next year because he believes there will be demand for the space by the time he is finished constructing the project.
Most real estate experts feel that the market has bottomed and will approach, or even eclipse, the lofty rental and occupancy peaks of the last boom as the economy regains its health over the next few years. There are also suggestions that because so few new buildings have been added to Manhattan’s stock of square footage and the majority of office towers in the city are decades old, new tower development will be necessary when the leasing market rebounds.
To construct a strategy within this rationale, Boston Properties could bow to the current anemic market conditions and accept a moderately priced lease in order to get the development started and then hopefully cash in when leasing improves and better deals can be arranged.
While a developer strictly in the planning phase of an office tower might postpone such decision making until market factors became clearer, Boston Properties already has poured significant funds into the roughly billion-dollar project. Its investment comes with carrying costs, such as taxes on the land where the tower will rise and debt service on the mortgage it took to finance the parcel’s purchase. These charges have provided further motivation for the company to move ahead with the development sooner rather than later, sources say.
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