875 SIXTH AVENUE, NEW YORK, NEW YORK

SITUATION

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 of Manhattan. Lee & Associates Management (“L&A”) has managed the property since its acquisition by the then-owners in 1977. During the initial period of ownership, ownership invested little money to upgrade the building. In 2000, the principals of L&A jumped at the opportunity to acquire a 70% interest in the building, recognizing the unrealized potential and understanding the value that could be added by an aggressive repositioning of the property.

 

STRATEGY

Upon L&A’s controlling interest acquisition in the building, L&A 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 all of the 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. Lastly, L&A worked closely with environmental consultants to remediate significant environmental conditions that had been caused by a leaking underground oil storage tank.

 

OUTCOME

As a result of the significant value created by L&A, ownership recently refinanced the mortgage and distributed a significant amount of the proceeds to its investors. Current ownership will continue to own this property as a legacy investment.