The 31-year old 693 Fifth Avenue property has been given a new lease on life after losing its anchor retail tenant at the height of the COVID-19 pandemic.
French billionaire businessman Marc Ladreit de Lacharriere recently repaid all outstanding debt on the 20-story Midtown Manhattan office and retail asset, three years after luxury high-fashion boutique Valentino exited the location with nearly eight years left on its lease in June 2020.
The $220 million commercial mortgage-backed securities loan, which was first originated by JPMorgan in 2016 before getting bought by Wells Fargo last year, transferred to special servicing in May 2022 and was paid off in June 2023 without incurring any principal loss, according to CRED iQ.
Colliers (CIGI), led by Zach Nathan and Robert Gallucci, is acting as exclusive leasing agent for the 1992 constructed building, which is now 80 percent occupied. They spoke with Commercial Observer about a new short-term 20 month retail lease with an extension option inked with Burberry in April, a rebuild of the property’s 10th floor and why smaller floor plates are an advantage for attracting certain office tenants.
Their comments have been edited for length and clarity.
Commercial Observer: What was the significance of having all the outstanding debt paid off on 693 Fifth Avenue, given the state of the capital markets?
Zach Nathan: It shows one, the landlord’s financial wherewithal, and two, their confidence in Fifth Avenue. It’s not an insignificant payoff and it shows that they have the financial strength to put the asset in a very favorable financial position so incoming tenants don’t have anything to worry about when it comes to potential situations with lenders.
You landed a lease with Burberry, which is utilizing the space for its flagship store while it undergoes renovations at its 57th Street location. How important was this deal after losing Valentino — even if it is only a short-term deal?
Zach Nathan: I wouldn’t call it important or not important. It was a good short-term deal given the considerable rent that they’re paying, and it allowed us to let the market continue to get better and put ourselves in a position where, when their lease comes due and we’re ready to secure a new long term tenant, the market is even stronger. The space was in great condition and it lended itself very well to someone coming in and operating on a short term basis. Thee terms of the deal made sense for ownership to move forward with the short term deal.
It’s not like the building needed this deal to survive. That wasn’t the case, it’s just it checked off a number of boxes so we made the deal and we expect that the market will be even stronger, when the time comes to go back out to the market with the retail space. We had other interest in the space, so it wasn’t like this was our only option. We just felt like the deal made sense to move forward with. The [lease] term is not that long and we’re going to be back out on the market In the upcoming months.
What kind of interest do you expect to receive for potential long term leases on the retail end?
Zach Nathan: We expect to receive some good interest for a couple of reasons. One, we received good interest when we were out on the market prior to making the Burberry deal. Two, the space has got an unbelievable presence on Fifth Avenue. The glass curtain wall is nearly 40 feet high of exposure and the interior physical spaces in unbelievable condition. It was in great condition before the Burberry deal, and now it’s in an even better condition because they’ve spent money to make the space look even nicer for their use. I think that we’re going to have some good interest when the time comes to bring it into the market.
The 10th floor of the property is in the midst of a rebuild. How is that going and what kinds of tenants may occupy this space when completed?
Robert Gallucci: It’s on target to be completed sometime towards the end of August, probably Labor Day, which is when we’re going to be hosting another broker event. The targeted way we’re building the space out works for a couple of different types of users, whether some type of family office or a gallery. It could also be used for medical use. We made the space very open and flexible with a couple of meeting rooms so it can work for showroom tenants and that’s the interest we’ve been continuing to receive from the tours and the inquiries of people that are interested in the space.
What are the advantages of the building’s smaller floorplates of around 5,000 square feet with higher ceiling heights in today’s office market?
Robert Gallucci: People like the light, the air and column free space kind of design. People are still going with open landscapes for the most part from an identity standpoint. Now that Covid is kind of behind us I don’t think people are as nervous aboutf putting people in bullpen areas.
What kind of companies are inquiring about future office leases?
Robert Gallucci: We’ve had people inquiring about taking up two floors for something like a private club with entertainment use, like a Soho House. Also family offices, financial services companies, showroom tenants and galleries. Those are the kinds of needs that are getting the most attention in the inquiries that we receive.
How is 693 Fifth Avenue shaping up for the future?
Robert Gallucci: I think we’re in a sweet spot since the floor plates are a certain size and you still have people exploring taking as much space as they need and wanting to have a presence on Fifth Avenue. The area around Fifth Avenue has really picked up
Zach Nathan: I think the market continues to get better. I think the retail market is in a healthy place at the moment. I think tourism is a really good place. I think that activity continues to increase on Fifth Avenue. I think that when the time comes for us to bring this retail space back to the market, I feel optimistic about the tenants that are going to express interest and the terms that we’re going to be seeing from the prospective tenants.
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