NEW YORK CITY-In the first quarter of 2012, SL Green Realty Corp. signed 70 leases totaling 684,337 square feet to tenants like Random House, Jazz at Lincoln Center and FTI Consulting. But during the Manhattan office REIT’s annual earnings call, all eyes and ears were focused on Viacom’s massive lease renewal at 1515 Broadway in the heart of Times Square.
While the mega-deal does not fall under the REIT’s Q1 earnings, the transaction broke in the Commercial Observer shortly before the company posted its filings for the quarter – a chain of events which company president Andrew Mathias described as all about timing.
“With a firm like Viacom, this was a very deliberate decision on their part,” Mathias said. “They had been evaluating their options for well over a year, if not years. They are the type of firm who has a little bit of cultural similarity to us. When the evaluation is done and the decision is made, there is no reason to belabor expensive, time-consuming negotiations and wasted resources. They knew what they wanted, and we knew what they needed. We’d had a 10-year relationship with this firm at the highest levels, and we were able to quickly and efficiently knock out a deal, which is consistent with our pedigree.”
Viacom, the media giant behind popular cable networks such as MTV, Nickelodeon, BET and Comedy Central, will anchor the iconic 56-story tower through 2031. Under the term of the lease, the company will expand to 1.6 million square feet from 1.4 million square feet, which is expected to cover the balance of the building's office space after 2020.
Media sources have shown that Viacom was considering to take space at the World Trade Center and the Far West Side. During the negotiations, however, Mathias said the only thing he sensed when Viacom was considering space in other areas was price.
“It was never an issue of location or building or anything like that,” he said, noting that the company had a “very strong commitment” to Times Square, where they have resided for over 20 years and have experienced “unprecedented success.”
“That created a certain bond and certain recognition about corporate branding opportunities and corporate visibility and a connection to an area of town that is considered by many entertainment companies, not just Viacom, but Good Morning America across the street, and I think there is a recognition that it is an extraordinary opportunity now more than ever for them with signage, building naming rights, LED-signage, their state-of-the-art studio that was just re-built along with terraces overlooking Times Square, these are all major, major factors in addition to the building itself,” he added.
SL Green acquired the asset in 2002 and completed a $60 million renovation in 2010. In April 2011, the REIT consolidated full ownership at the building, buying out joint venture partner SITQ’s interest in the property, bringing combined interests at $1.21 billion.
In addition to Viacom, the property is also occupied by retailers such as the Best Buy Theater, the Minskoff Theater, Aeropostale, Billabong, Element and Oakley, which helped boost the REIT’s same-store cash NOI on a combined basis by 6.2% to $172 million in Q1.
Terms of the lease renewal were not disclosed, but Mathias said the total annual rent that Viacom will be paying is “roughly similar” to what they are currently paying today, with $5 bumps every five-years during their extension term. And when questioned by shareholders whether the deal was “rushed” to due to competition from big developers in emerging neighborhoods, Mathias stood his ground.
“You have two firms that don’t believe in dragging out once the decision is made to move forward,” he said. “Fear and rush is a little bit of a misnomer. There was time to get it done, and now it’s time for each firm to get on with other things, because we each have big agendas.”
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