To office landlords’ joy, C-Note leases – those with starting rents of $100 and up – are making a robust rebound, helping to quell fears about the office market’s long-term health.
CBRE reported that some 105 C-note leases comprising 2.7 million square feet of prime space in Manhattan were signed in 2021. Not only did the total number more than double the meager 49 completed in 2020, it also topped the five-year historical average by 18 percent.
The $100-plus lease has long been the bragging-rights gold standard in a market where most rents average $60 to $80 per square foot. A very few, attention-grabbing deals of up to $300 a foot were usually for very small penthouse floors.
Perhaps the largest new lease in the $100-plus club was Chubb Group, which took 240,000 square feet at Olayan Group’s redesigned 550 Madison Ave. Sources said that the price for a few high floors would rise to $192 a foot toward the end of a 20-year term.
Others starting at $100 and up in 2021 included for private-equity firm Hellman & Friedman at L&L Holding’s new 425 Park Ave. and law firm Venable LLP at the Durst Organization’s One Five One, the former Four Times Square.
There’s a qualifier: CBRE analysts Nicole LaRusso, Michael Slattery and Jared Koeck note that average so-called net-effective rents (NERs) were lower than their $100-plus face values due to generous free-rent periods and tenant-improvement allowances.
The average NER in 2021 in the $100-and-up club was $85 a foot, up 25% from 2020 but 6% below the pre-Covid five-year average, CBRE reported. Sources told The Post that Chubb, for example, is getting 12 months’ free rent.
A broker who didn’t want to be named said, “Look, many big leases at any price at any time are cheaper than they sound. Some landlords are giving away the store – sorry, making concessions — in the top, middle and bottom of the market.”
More important is that the big-bucks leases are concentrated in buildings either brand new or expensively redesigned.
CBRE vice chairman Peter Turchin said, “Look at every single [C-note deal] and you’ll see it’s a new or significantly upgraded building.”
One such lease came too late for the CBRE survey. Music streaming service Tidal, led by Jay-Z and Jack Dorsey, just took two floors at 799 Broadway. Sources said the starting rent is nearly $200 per square foot at Columbia Property Trust’s new “boutique” property at East 11th Street.
JLL’s Mitchell Konsker, leader of the leasing team, would not confirm or deny the rent. But he said, “Flight to quality and the flight to amenities is the primary attraction” for tenants such as Tidal. Glass-wrapped 799 Broadway has private outdoor terraces, 15-foot-high ceilings, and a unique air-purification system.
The trend will likely accelerate the divergence in demand for the top-tier properties at the expense of the rest of the field. JLL dealmaker Peter Riguardi said, “Our business has always been about location, but now it’s about new buildings or handsomely reimagined older ones.”
In the COVID-stressed market, where tenants are casting a cold eye on space needs, “The strong will get stronger and the weak will get weaker,” developer Douglas Durst said.
Durst’s leasing director, Tom Bow, noted that One Bryant Park was meant to fetch $100 and up from the day it opened in 2016. Durst’s Four Times Square, which opened in 2000 as home to Condé Nast, didn’t at first aim so high.
But when it was rebranded as One Five One with $150 million in capital improvements after Condé left, “We meant to put it on par with One Bryant Park,” Bow said. The upgrades drew TikTok for above $100 in 2020 and Venable in 2021.