Madison Ave. Office Tower Purchased for Condo Conversion by Billionaires' Row Developer

Choosing Between Demolition and Conversion

Deciding whether to demolish old office towers or convert them into multi-family residential buildings requires careful consideration of factors such as real estate values and zoning codes. It's also crucial to remember that not all towers are structurally suitable for conversion. Developers have been employing engineers to inspect older towers throughout Manhattan and other boroughs to identify those that would be the least costly to convert from office spaces to apartments.

Extell's Acquisition of 655 Madison Ave.

A 24-story office tower at 655 Madison Ave. was previously marked for demolition, which would have meant another historic mid-century building disappearing from Manhattan's skyline. However, this plan was put on hold when Extell, a top Manhattan developer known for initiating the "Billionaires' Row" towers near Central Park, purchased the 310-foot-tall, 200,000-square-foot structure for $160 million. This information comes from Bloomberg, which referenced public records documents. Extell's acquisition of the tower was reportedly financed by Tyko Capital, backed by Elliott Investment Management, according to sources familiar with the situation.

Other Developers Eyeing NYC Towers for Conversion

Other developers are also showing interest in NYC towers for conversion purposes. For example, last week, developer Vanbarton Group agreed to purchase the Archdiocese of New York's headquarters building on First Avenue, with plans to transform it into rental housing. This agreement followed a similar deal in September to acquire a financial district tower for an office-to-housing project.

Impact of Hybrid and Remote Work Options

The shift towards hybrid and remote work options has permanently altered the work landscape, leaving some areas of the borough with a surplus of towers, some of which are half empty. The Kastle 'Back to Work Barometer' index for NYC indicates that the office tower vacancy rate has remained at 50% since the end of 2022. This surplus of towers has led to a significant drop in prices, with a one-million-square-foot Manhattan tower, previously owned by UBS, experiencing a 97% decrease in value from the $332.5 million valuation when the bank purchased the building in 2006.

Future of Office Tower Prices

At the beginning of the year, Goldman analyst Jan Hatzius informed clients that office tower prices would need to drop significantly to make financial sense for conversions. A conversation with the head of a prominent property management firm in the Baltimore-DC metro area revealed that some towers are so expensive to convert that they can't even be given away. It's also important to remember that the majority of tower debt is held by regional banks.

Bottom Line

The future of office towers in Manhattan and other boroughs is uncertain as developers weigh the costs and benefits of conversion versus demolition. The shift towards remote and hybrid work has significantly impacted the demand for office space, leading to a surplus of towers and a drop in prices. What are your thoughts on this development? Do you believe the conversion of office towers into residential spaces is a viable solution? Share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, available every day at 6pm.