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1585 sale signals 'confidence.' (office building at 1585 Broadway, New York, New York)

The sealed bid auction purchase of 1585 Broadway last week for $176 million by Morgan Stanley came as the city's real estate market seems to be finding firmer ground in the quick-sand.

The sale, to be closed Sept. 30, marks a high point in a decade that has seen one property after the other returned to Lenders. Coincidentally, the city had valued the building at $176 million for real estate tax purposes.

The former Solomon Equities building has been in the hands of an eight-bank consortium, led by the Bank of Montreal, Toronto Dominion and Swiss Bank, since a bankruptcy in December, 1991, and Hines Interests Limited Partnership has been acting as adviser on its disposition. The building cost around $330 million to build.

An auction begun June 29 attracted interest from top city players for this state of the art luxury office tower.

Peter Hausperg, president of the building brokerage firm, Eastern Consolidated, said the purchase price was a surprise but a very healthy number from a firm that will be a great anchor for the area. But even the runner up, George Sorus, he noted, bid $164 million and didn't have a user. "It shows a confidence in the office market and that Times Square has earned a real legitimization even from the Wall Street crew," he said.

The 41-story grey high-rise has as its only tenant the law firm of Proskauer Rose Goetz & Mendolsohn, which occupies floors 17 through 27 comprising 365,000 square feet. The law firm also has its own elevator bank and concierge. The partners complained bitterly, however, from the time of its move-in in 1990 that services were nearly non-existent and that work had not been completed, eventually filing a lawsuit. Work has since been proceeding.

Morgan Stanley will undoubtedly take over all the remaining square footage as it consolidates three other Manhattan offices. Currently it has 612,266 square feet at 1251 Avenue of the Americas where the lease is up in 1998. The final bits and pieces of that lease with Mitsui Fudosan were only finalized recently and the ink is barely dry on the lease, sources said, something the Morgan Stanley contingent will have to live with.

The prestigious securities firm also rents 347,353 square feet at 1221 Americas and 88,274 square feet at 1633 Broadway. It is also an anchor tenant at One Pierrepont Plaza in Brooklyn where 700 employees work in 340,000 square feet.

In October of last year, after making noises about moving to Connecticut, the company worked out an incentive package with the city and State of New York -- totalling $39.6 million over ten years -- to remain in New York.

That package includes $21.4 million in real estate related tax incentives, $10.2 million in sales tax exemptions on leasehold improvements, machinery and equipment.

This newest acquisition is a northern Times Square property, and contains 1.35 million square feet. It has a number of distinct features including a porte -- cochere -- a mid-block, covered drive-through -- several 19-foot high slabs that are ideal for Morgan Stanley's new 60,000-square-foot trading floor, outdoor billboard space and two Broadway retail sites.

"Somebody said it is as if it was designed for Morgan Stanley," said Richard Donohue, managing director and branch manager of Cushman & Wakefield. "It is a wonderful building that is turning out to be in the right location after all."

When it was planned and constructed in the late 80's, Donohue recalled, "in those not so long ago days it was considered a bad location. Clearly, Morgan Stanley will change the tenor of the neighborhood."

After a bankruptcy deal arranged with the lending consortium of eight banks was confirmed in March, Hines interest began a program of finding either a tenant or a buyer/user, bringing complaints from the law firm which felt they weren't moving fast enough. The search ended last week with the opening of sealed bids.

Herbert T. Weinstein, a partner with Proskauer, Rose Goetz Mendelsohn said of the Morgan Stanley purchase. "They're certainly a very respectable company and it's nice to have a company as prestigious as they are occupying the rest of the building." Weinstein said work was still being conducted on the property, but he expressed confidence that it would be finished.

J.D. Kuhn, chairman of Newmark & Co. said the deal is very similar to the Bertlesmann purchase of 1540 Broadway, on which he acted as advisor to the tender. That price, of $119 million, including $10 million in air rights, came to $129 a square foot. This deal works out to $135 a square foot.
COPYRIGHT 1993 Hagedorn Publication
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Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Aug 18, 1993
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