5.7.24 - Roth and Bloomberg agree to ‘clever’ concession to extend HQ lease
' In return for keeping its global headquarters at 731 Lexington Ave., Bloomberg LP struck an unusual deal that could lower its rent by as much as 10%.
The exact amount won’t be determined until the new lease takes effect in 2029. Depending on market rates, there’s a chance former Mayor Michael Bloomberg’s company could pay higher rent for its 900,000 square feet of space in the tower at the corner of East 59th Street. But at least for now, investors reckon the new rent will come in at the lower end after Vornado Realty Trust reported last night the Midtown office market continues to hobble.
Occupancy in the landlord’s Midtown office towers continued to erode last quarter and rental income fell by a surprising 5% while new tenants remain tough to find. Vornado’s share price fell by 7% in midday trading Tuesday.
Against this tough backdrop, Bloomberg’s decision yesterday to extend its lease until 2040 was a big win for Steven Roth, who is CEO of both Vornado and the real estate investment trust that owns 731 Lexington Ave., Alexander’s Inc. Vornado owns about a third of Alexander’s.
On an earnings call, Roth said that Alexander’s would be collecting $98 per square foot in net rent, after taxes and other expenses, when Bloomberg’s lease expires in five years. Under the terms of the extension, Bloomberg would pay a minimum net rent of $88.72 per square foot and a maximum of $108.44. The amount would depend on market rates in 2029 for Class A office space.
“We have certainty on the bottom as to what the rent would be,” Roth said. “Both tenant and landlord think this is a fair deal and a clever way of handling the future.”
Roth committed to spending up to $124 million, or $135 per square foot, on improving 731 Lexington, which has been occupied by Bloomberg since it opened 20 years ago. Bloomberg also secured a year of free rent, which analysts say is typical for a deal of such magnitude. '
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