600,000 s/f Fifth Ave. lease is year's biggest deal.

Needing space to house its growing asset management business, Morgan Stanley signed the city's largest lease of the year last week, taking 600,000 s/f at 522 Fifth Avenue.

According to a source familiar with the deal, Morgan Stanley will pay $80 per s/f for the space, a lofty rental rate for such a large block and one that even exceeds the seemingly rosy predictions some real estate experts attached to the building's leasing prospects after it became clear last year that its current tenant, JP Morgan Chase, would be vacating.

JP Morgan Chase, which has long occupied the building and owned it before selling the property last year, is scheduled to be completely out of the 23-story building, located between 43rd and 44th Streets, by the end of the summer. Morgan Stanley will move in sometime around the start of 2007, a spokesperson for the financial firm indicated. The deal is evidence that big block space is a fast-shrinking commodity in midtown and that many large firms have responded to the shortage by becoming more aggressive in their real estate decisions, even if it means paying what seem like steep rents in order to avoid the risk of being saddled with exorbitant rents later, or worse, having to confront a market where there simply is no available space.

The deal also signifies a turnaround for the building. Although it was well known that a handful of high profile financial firms, such as Bear Stearns and Lehman Brothers, were considering large leases at 522 Fifth Avenue in recent months, at times during the past year the property nonetheless received less than flattering buzz among members of the brokerage community.

A joint venture between Stellar Management and the Rockpoint group purchased the building from JP Morgan Chase in July 2005 only to put it back on the auctioning block a few months later, prompting rumor that the new owners were having difficulty in their search for tenants to fill the space.

Tapped to handle the disposition, Eastdil Secured investment sales broker, Doug Harmon, positioned the building as an asset for which there were a number of redevelopment possibilities, including the installation of a large amount of retail space in its base and even its total conversion into residential condos or a hotel. While Harmon was doing what a good broker would by exploring what use for the property would yield the highest value, the suggestion of a conversion led some to question the building's viability as a topflight office asset.

Then, at the beginning of May, Broadway Partners, in only its second acquisition in Manhattan, paid $420 million for the property, a price that more established Manhattan real estate investors griped was too expensive. The rent the firm has achieved strongly suggests however that its gamble has paid off.

Morgan Stanley will benefit from a number of advantages unique to 522 Fifth Avenue. It will occupy the entire building, giving it a somewhat unique presence on Fifth Avenue, and will likely be able to secure prominent signage and naming rights.

Morgan Stanley's asset management group, an arm of the financial giant's business that focuses primarily on mutual fund management and wealth management for ultra high net worth individuals, currently occupies ten floors at 1221 Avenue of the Americas, according to the online office database, Mr.OfficeSpace.com.

While a spokeswoman for Morgan Stanley did confirm the lease, she could not reveal whether the firm plans to retain, terminate, or sublease its space within that building. Broadway Partners would not comment on the deal.

Peter Riguardi, president of Jones Lang LaSalle's New York office, repped Morgan Stanley in the deal. Riguardi could not be reached for comment.