Midtown South Office Tower Trades at Close to 50% Discount

Office valuations continue to plunge in Manhattan’s office sector, with the sale of a century-old 20-story office building in Midtown South setting the latest benchmark approaching a 50% discount.

Sovereign Partners are in contract to buy 100-104 Fifth Avenue for $125M from Clarion Partners in an all-cash deal. The sale price is nearly half the $230M that Clarion paid for the property a decade ago, TheRealDeal reported.

Clarion bought the 270K SF building in 2013 for about $800 per SF and is selling it in a deal that translates to roughly $450 per SF, according to the report.

Apple is a tenant at the property, which sits in proximity to Union Square, Flatiron and Washington Square. According to a website for the building, the owner invested $8M in an upgrade that included a complete restoration of the building’s French Gothic façade and the installation of a new common area.

Sovereign has been busy in the market for discounted properties in NYC’s office sector. In April, the company paid $113M to acquire Tower56 at 126 East 56th Street from Pearlmark Real Estate.

Last month, a six-story building that was constructed in 2019 next to Penn Station sold at a foreclosure auction for about 25% of what it cost to build the asset. Marathon Asset Management acquired 263 West 34th Street for $16.5M during an auction held on the steps of the old County Courthouse in Lower Manhattan.

Marathon put down a credit bid, using their existing debt. Marathon initiated a foreclosure on the property two years ago, alleging that a group led by Churchill Real Estate defaulted on $50M in loans backed by the building at 263 West 34th Street.

Churchill said in a court filing that its partnership group had spent more than $90M acquiring the land and developing the building.

The office availability rate in Manhattan set a new record of 17.9% in the third quarter, the fourth consecutive quarterly increase in availability in the borough.

The available supply in Manhattan has increased nearly 80% since March 2020 to a record high of nearly 97M SF, according to a Q3 2023 report from Colliers.

Negative net absorption in Manhattan totaled minus 525K SF in Q3, a significant improvement over the minus 3.8M SF recorded in Q2 2023.

The year-to-date leasing velocity totaled 19M SF, a 21.4% decrease from the 24M square feet recorded during the same period in 2022. If demand continues at the same pace for the remainder of this year, 2023′s total leasing volume will fall nearly 13% below the 29M SF total for 2022.