By Daniel Geiger
The fewer tenants a landlord can use to fill a space, the better.
Of the modern operating practices in a city that has become a global hub and a melting pot of sophistication and talent in the business world, few tenets are more ubiquitous among landlords.
At 370 Lexington Avenue however, Sherwood Equities, an investment firm that acquired the property in 2008, has gladly embraced the methods of a different era.
Built in the late 1920s, the roughly 300,000 s/f building basically operates the way it always has, with a large collection of small office users. According to Ryan Nelson, an executive at Sherwood, 112 tenants reside in the property. While Nelson readily admits that other landlords who have either purchased or inherited buildings with similarly large rosters have moved to reposition their property for bigger occupants, Nelson said that Sherwood sees upside in maintaining the status quo.
“A lot of landlords will say that running a building like this is more capital intensive but we make the counter argument your credit is stronger,” Nelson said, noting that 370 Lexington’s operating expenses are normal for a building of its type. “If we go into a double dip recession, we have less exposure. We look at this building and lenders look at it like multifamily, an asset type that has high occupancy rates and great credit.”
Sherwood recently has done deals at the property, but because there are so many tenants, transactions are almost always in process.
The Panamanian bank, Banco Latino Americano De Commercio SA, just took a portion of the fifth floor, a roughly 3,240 s/f space. Ditchik & Ditchik LLP, a real estate tax services firm, leased 2,800 s/f on a portion of the building’s 16th floor. Both tenants are new to the property. Asking rents in the deals were in the $40s per s/f.
Although most of 370 Lexington’s tenants are a few thousand s/f in size, tenants of just a few hundred s/f remain according to Adam Weissleder, an in house broker at Sherwood who handles leasing at 370 Lexington with another company agent at the property, Jill Burrowes.
Nelson said that few buildings in Manhattan, but especially midtown, have continued to operate the way 370 Lexington Avenue does. The Empire State Building for instance was once home to hundreds of tenants, but the building’s landlord Malkin Properties, has successfully moved in recent years to convert much of the landmark property’s space over to larger multi-floor users. Late last year, a deal was arranged there for the Chinese firm Li & Fung, a supply chain manager for retail companies, to take about 500,000 s/f in the nearly three million s/f building.
In decades past, much of Manhattan’s office stock was filled with small tenants. But as the city increasingly became a headquarters for corporate America, even landlords of older buildings made efforts to reconfigure their spaces to attract tenants who could fill hundreds of thousands or even millions of s/f in one deal while giving their buildings over to a use that wouldn’t carve floors into a labyrinth of small office spaces but bright, clean, unified, and expansive corporate environs.
Nelson said that by catering to smaller users with a building that has better amenities and location than more antiquated properties that compete in the same segment of the market, Sherwood has been able to attract a steady flow of takers and is near 100% occupancy rates, even during the recent market downturn.