875 Sixth Avenue, New York, NY

BACKGROUND

875 Sixth Avenue is a 25 story, 248,000 square-foot office building located on the northwest corner of 31st Street in the Penn Station submarket. The property had been managed by Sierra Realty since its acquisition by the then owners in 1977. During the initial period of ownership, little money was invested to upgrade the building.  In 2000, the principals of Sierra Realty jumped at the opportunity to acquire a 70% interest in the building, recognizing the unrealized potential of this building and understanding the value that could be added by an aggressive repositioning of the property.

DEVELOPMENT

Upon Sierra’s controlling interest acquisition in the building, Sierra embarked on a program to upgrade the building, reinvigorate the leasing program and reduce operating expenses.  Capital improvements included replacing over 900 windows, upgrading the entrance lobby, refreshing of all building corridors, elevator lobbies and bathrooms, replacing and modernizing the six passenger elevators, and installing a quality security system. In addition, the building was remeasured and loss factors were increased.  Efficiencies were created to enable a staff reduction and the building’s heating system was converted to a dual gas/oil burner – two prime examples of how significant operating expense reductions were achieved.  Smaller, noncredit tenants were replaced over time with more credit worthy tenants as a result of a successful leasing program.  High-speed, redundant broadband service was also introduced into the building to better serve the tenants’ increased needs.

The final step in the revitalization of this building will be the repositioning of the ground floor retail space. Currently, the retail space is occupied by a number of small retailers. This was consistent with the character of the neighborhood. However, over the past several years, the neighborhood surrounding the building has been transformed with the significant development of a number of residential and hotel properties on adjacent blocks. Sierra has positioned the building so that it will be able to create a significant, high profile retail space on the first and second floors of the building.

VALUE CREATED

The property now generates significant monthly cash flows to its owners. This property will continue to be owned as a legacy investment by current ownership.