Next week, Central Park Tower’s 867-foot-tall residential tower will officially close for good.
And with that, about 300 units in the company’s Broadway office building are also closing for good. And with the closings come big losses: $2.2 million, for example, has been drawn out from the cash reserves of commercial brokerage CBRE’s office brokerage team at the tower for a leasing commission shortfall, according to a person familiar with the firm’s spending. The office totals about 280,000 square feet at the tower.
The number does not include a total of roughly $4.4 million in unpaid leasing commissions, said the person familiar with the expenditures, adding that CBRE’s office group has had to secure a $500,000 line of credit to cover the $1.5 million it has been losing since the tower’s lease expires in September. In fact, the brokerage has to draw from its $8.2 million cash reserves to cover even the once-rare “spenddown” it keeps, known in commercial real estate parlance as a project contingency.
“Typically you don’t expend cash for large amount of contingency payouts,” the person familiar with CBRE’s spending said. “But here it has to be done to cover the cost.”
Ultimately, the tower’s commercial office space will be sold off after its residential space will be finally vacated on 1 November. Just where that space will be placed is unclear, and CBRE has been pushing for its agents to make a pitch in earnest. Nevertheless, they want to make sure the office space is contiguous to the tower’s residential space.
CBRE declined to comment on its spending on a leasing base in the tower.
“Our firm continues to trade toward a broader, fully integrated business model with offices and leasing globally,” a spokeswoman said in a statement. “One of the most important asset and revenue streams of the company is our office leasing strategy worldwide. Our expectations for these discussions have changed; however, our commitment to our commercial office clients has not wavered.”
CBRE is also planning to exit two other Manhattan offices, said the person familiar with CBRE’s spending. Those deals, also with CBRE’s commercial brokerage team at the buildings, are expected to close after September, thus avoiding the risk of taking on 10 more months of losses on vacancies.
CBRE acquired Central Park Tower in 2008, and since then it has developed the residential portion of the tower in tandem with developer Harvey Weinstein.
In addition to its strategic dilemma of where to place its commercial space after closing the residential portion, the CBRE team at the tower has also had to navigate the aftermath of a traumatic fire that leveled its lobby and a faucet in September 2011.
Apart from playing havoc with the agency’s spending, the fire has meant the brokerage has had to redouble its efforts in recent years to sell the tower’s residential building, which was formally known as Sutton Place Tower.
It’s a tough market at the moment, as the 117 units that have been sold at the building aren’t sufficient to bring it into its desired “market rent” of $80 to $90 a square foot. With rents in the neighborhood sitting somewhere between $50 and $60 a square foot, CBRE executives see little reason to continue with its current marketing effort for the space. However, that doesn’t mean that CBRE, when it becomes a market-rate building, will shy away from the asking price of $55 a square foot.
“We have to assess the market right now before we can determine our ultimate marketing strategy,” the spokeswoman said.
At least two apartments in the tower remain on the market, and the cheapest has already been sold for $4.4 million.
[Copyright New York Real Estate News]