By: Serach Nissim
Developer Mark Karasick and his partners had purchased the office building at 410 Tenth Ave. for a whopping $952.5 million in November 2020, through his company 601W. As reported by Crain’s NY, it was a risky investment as work-at-home trends were already starting then with the Covid-19 pandemic. Karasick, however, is a true believer in the strength of New York City’s office sector and he was confident the market would rebound. His company, 601W, also owns office towers on Madison and Sixth avenues, as well as in Chicago, Pittsburgh, San Francisco, Winston-Salem and other cities.
Today, post-pandemic and more than three years later, we have a hind-sight view of this transaction and the short-term outcome.
The building, at the corner of 34th street, had seemed appealing at the time because of its close proximity to the up-and-coming Hudson Yards neighborhood. Also, the previous owner, SL Green, had poured $145 million worth of upgrades into the building. The 20-story, 632,000-square-foot property was anchored by Amazon and First Republic Bank. Amazon leased half of the building, and First Republic leased about a third. After its redevelopment by SL Green, and reopening as a Class-A building, it was 99 percent leased in March 2021, with tenants paying annual gross rent of $97 per square foot on average. Per Crain’s, Amazon was to pay $100 per square foot through 2037 and First Republic was signed through 2036, paying $92 per square foot.
Karasick’s company had purchased the building at $1,517 per square foot, which is higher than other deals in 2018 and 2019 even in Midtown Manhattan. The per-square foot sale price in the transaction was 60% higher than at 425 Lexington Ave.(sold in 2018), and 237 Park Ave. (sold in 2019), as per DBRS Morningstar.
In a catch 22 scenario, the building’s strength, which was the strong double anchor, became its problem, when First Republic Bank went bust. The bankruptcy left behind a 190,000 square foot vacancy at the building. Net cash flow has fallen by 16%, to $37 million, Fitch Ratings said in a report on Thursday. The Fitch rating advised that rental prices at 410 Tenth will have to drop about 15% to be able to fill the voids. Fitch estimated rents will need to tumble to $79 per foot. The estimate rental price is “in line with rents at comparable properties and a sustainable long-term occupancy assumption of 85%,” Fitch said.
“No new leases have been executed at the property,” added Fitch. “However, according to servicer updates, there is a pending lease for the 1,193-sf cafe located in the building’s lobby.” The building’s occupancy rate is now at just 65%, per Crain’s. The owner’s $565 million mortgage on the property matures in four years. Time will tell if the building owner can get up to 85% occupancy and if that will be enough to justify the price paid.
Karasick and his partners have amassed an office portfolio of 45 million square feet across the country, per a 2021 article in the Real Deal. 601W’s holdings include 1185 Sixth Ave, Aon Center and Prudential Plaza in Chicago, Bank of America Center in San Francisco, and the U.S. Steel tower in Pittsburgh. The Real Deal said 601W was going “all in” with the late-2020 acquisition of 410 Tenth.
In 1998 Karasick purchased the Starrett Leigh, a landmarked 2 million square-foot building