A strange, slow-motion “chess game” is unfolding at the Durst Organization’s 4 Times Square, where Condé Nast will vacate 800,000 square feet at the end of 2015 to move to 1 World Trade Center.
The Port Authority is in a pickle trying to find a tenant to take the media company’s space for the four years that will still be left on its lease at 4 TS. If it can’t, the PA’s on the hook for about $200 million. The agency three years ago agreed to reimburse Condé for the rent to help persuade it to move downtown.
While the arrangement poses no risk to Durst or to Condé, it’s more than a nuisance for the PA. Of course, Durst is the PA’s partner in 1 WTC — which might seem to make the task of replacing Condé at 4 WTC easier.
What’s a short-term problem for the PA is a long-term opportunity for Durst. He could sign a new 4 TS tenant starting in 2020 who will pay much more than Condé’s below-market deal signed in the 1990s.
But the ponderously bureaucratic PA — rather than simply teaming up with Durst at the outset to solve both their needs — has spun its wheels, industry insiders say. They cite the inherent difficulty in finding a user for 800,000 square feet for just four years. What’s more, they depict a clumsy PA effort further confused by the involvement of Navigant Consulting, which the PA has paid $5 million for various vague roles — among them, to find ways to “mitigate” the agency’s exposure at 4 TS.
A $200 million liability might be small change next to the billions the PA is spending to build 1 WTC and the WTC Transportation Hub. But it’s the last thing the PA needs as recent developments have cast a harsh light on Navigant.
We reported last year that among Navigant’s duties for the PA was to “evaluate strategic alternatives” for the Condé space — an odd assignment for a Chicago-based firm with no hands-on real estate expertise.
Now, Navigant is under fire from state officials for its billing practices with the Long Island Power Authority (LIPA) — and is even under scrutiny within the PA itself. The PA has asked its own inspector general to review Navigant’s role at the agency.
The PA could have tapped a commercial broker to dispose of the Condé floors at 4 TS — such as the Tara Stacom-led Cushman & Wakefield team, which is its leasing agent at 1 WTC. Or it might have worked closely from the outset with Douglas Durst, who knows the 4 TS space better than anyone.
Instead, sources say, the PA on its own first sent a scatter-shot request for proposals to brokers, asking them to solicit tenant offers to sublease the space. Then the PA abruptly dropped the effort, the sources said. Next, after telling dealmakers it would hire a single broker to field offers, it instead tapped Navigant.
“[Navigant boss] Edward Casas thinks he knows real estate better than New York professionals,” one detractor said. Nonetheless, Navigant sent its own RFP to brokers representing major tenants believed to be looking for new digs.
The current rent on Conde’s 4 TS space is a below-market $58.86 per square foot, rising to $61.60 in the lease’s last year.
PA executive director Pat Foye describes the PA/Durst/Condé situation as “a complicated, three-way chess game.” He told us Navigant’s role was “to make us understand our obligation” to Condé and to “come up with an analytical framework of how this ought to be dealt with in discussions between [the PA] and Durst.”
On the basis of Navigant’s work, he said, “with respect to two large, credit-worthy tenants, we made a proposal to Durst.” Douglas Durst declined to comment but did not contradict Foye.
But power players around town — all of whom declined to be named for fear of alienating the PA, Durst, Condé and each other — expressed bafflement over “a waste of time” by the PA.
Several say they were cold-canvassed by Navigant, including calls in which Navigant executives asked if they had tenant clients willing to buy the last four years of Condé’s lease. Others received a written RFP like “a book on the street when you’re trying to sell an asset,” one source said.
The experiences of several companies that kicked the tires show how difficult it will be for the PA to make a deal even without the Navigant monkey wrench. One was Time Warner, which is likely to anchor a new tower at Related Cos.’ Hudson Yards. But the talks didn’t go far. For one thing, Condé’s precise departure date is unknown, due to the complexities of moving and building out its new space at 1 WTC.
Also, 4 Times Square’s other big tenant, Skadden Arps (on floors 24 to 48), has talked to Durst about consolidating in the tower, which may mean taking some of Condé’s floors (4 to 23).
Investment advisory firm Neuberger Berman, now at 605 Third Ave., where its lease expires in 2017, also checked out a possible 300,000 square feet. (It wasn’t approached by clueless Navigant, but reached out to the firm.)But it was deterred because Condé’s “very dense” occupation made it difficult to size up the floors for use by Neuberger.
Jones Lang LaSalle’s Peter Riguardi, the only dealmaker who was willing to be quoted, said, “It’s a great space but given its delivery time frame, it has a lot of competition with the Far West Side and the World Trade Center. It will be very interesting to see how it all plays out.”
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It’s no secret that Google, which owns 111 Eighth Ave., is taking more space in the 3 million square-foot address every time an old tenant’s lease is up. But one lease it’s renewing is for Beth Israel Comprehensive Cancer Center, which has 100,000 square feet of ground-floor space.
Sources said Google is signing a new, 15-year lease with the facility. We didn’t hear back from the building agents, a CBRE team of Ken Rapp, David Hollander, Doug Lehman and Chris Corrinet.