http://rew-online.com/news/story.aspx?id=681
Zuckerman reveals that Proskauer backed out of Eighth Avenue development deal
Daniel Geiger
6/4/2009
Mort Zuckerman, chief executive of Boston Properties, said that Proskauer Rose got cold feet in its decision to pull away from anchoring a new office tower that Zuckerman’s firm was gearing up to develop along Eighth Avenue.
“We thought we had a tenant,” Zuckerman told rew-online.com yesterday at a ribbon cutting for the new lobby at 601 Lexington Avenue, what Boston Properties is now calling the Citigroup Center.
“The tenant walked on the deal, wanted to renegotiate the deal, so we said okay, shut it down.”
Boston Properties began talks with Proskauer in late 2007 to have the firm relocate from its current Manhattan headquarters at 1585 Broadway to a brand new, roughly one million square foot skyscraper the company was planning to build at 250 West 55th Street, which is at the corner of 55th and Eighth Avenue.
When the deal fell apart, there had been speculation whether Proskauer backed away, or if it was Boston Properties who had thought better of building an office tower – even one that was significantly pre-leased – given the state of the credit markets and the sensitivity the public markets suddenly have for risk.
Boston Properties, a real estate investment trust, has seen its share price get pummeled, like most of its peers, amid the tumult in the economy and the effects those problems are expected to have on the health of commercial real estate.
250 West 55th Street was to be custom made for law firms, offering smaller floorplates that would allow more partners to have corner and window offices – a handy amenity for retaining and attracting talent. In October of that year, Boston Properties closed on a 200,000 square foot deal with another law firm, Gibson Dunn, for the 38-story tower’s upper floors.
A deal with Proskauer, said to be on the order of 500,000 square feet, would have virtually filled the tower and overwhelmingly confirmed its financial feasibility.
But negotiations dragged on and when the economy slipped into the depths of a serious recession in 2008, the lease appeared to clearly be on the rocks. So too did the building’s development.
Manhattan office vacancies shot steadily higher as its biggest space using industry, the financial sector, became embroiled in upheaval. Those woes quickly trickled over onto law firms, the second biggest space taker in the city, which usually draws a sizeable portion of business from clients in the financial field.
Hurting the deal even more was that Morgan Stanley, which occupies about half of 1585 Broadway, had originally offered to contribute to Proskauer’s rents at 250 West 55th Street to provide it with incentive to leave 1585 Broadway. Morgan Stanley was planning to use the space that would be vacated by Proskauer as expansion room to consolidate its offices around the city. But hurt by the tough times, sources said that the investment-banking firm shied away from the space withdrew its offer.
The Proskauer deal fell apart soon after and with such a glut of cheap sublease space on the market in midtown and the credit markets locked in a persistent contraction, Boston Properties saw little reason to go ahead with 250 West 55th Street.
At this point, building new space on speculation in the current market seems about as unwise as paying the astronomical rents that would be needed to make its construction profitable.
Still, when asked whether he was still hopeful the building would eventually rise, Zuckerman responded curtly, “damn right.”
“But when?” Zuckerman asked, preempting this reporter’s next question. “Sooner or later it (the market) will come back but when? You tell me.”
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