All Eyes on 270 Park
JP Morgan’s announcement earlier this year to demolish and redevelop its Midtown East headquarters at 270 Park Ave marks a pivotal moment for commercial real estate in Manhattan.
To put it bluntly, commercial real estate in Midtown is suffering an identity crisis. Landlords have watched helplessly as their outdated properties (70 years old on average) struggle to not only compete with 12.5M SF of new product rising in Hudson Yards, but also attract an evolving base of TAMI tenants who seek more modern space and amenities.
As a lifeline, the New York City Council passed the Midtown East Rezoning plan in August 2017, which acts to incentivize developers to modernize and reinvent Midtown East’s skyline. The rezoning works in 2 major ways:
1) It allows air rights to pass from properties within the 78 block zone. This is a drastic change of pace from the past when air rights could only pass between properties within the immediate area.
2) It increases the Floor to Area Ratio (FAR) of new buildings from a base of 12 to 15 (18 to 27 in some areas). An increase in FAR allows for bigger buildings- an attractive sell for developers looking to profit from one of the most prestigious zip codes in the world.
JP Morgan saw the Midtown East rezoning as an opportunity to not only reinvent their footprint in Midtown, but make it a more permanent one. Their decision to invest in Park Avenue has significant implications for the future of Midtown for the following reasons:
1) They didn’t choose Hudson Yards: This comes as a shock for many people, but the majority of Hudson Yards is tenanted by Finance users (over 30%!). Considering nearly 10 million square feet of office space has left Midtown for Hudson Yards, JP Morgan’s decision to stay sends a message that Park Avenue can maintain its attractiveness even as the culture of Finance shifts within NYC and across the world.
2) They’re using a new form of demolition: Using explosives in one of the most densely packed areas in the world is not exactly a comforting thought. Instead, JP Morgan will be implementing an innovative tactic of dismantling 270 Park piece-by-piece, utilizing netting in place of scaffolding. Developers and landlords are watching this project as its success could usher in an entirely new game plan for redevelopment in Manhattan’s urban core.
3) No one thought it would happen so fast: Even those who drew up the Midtown East Rezoning plan thought that it would be at least a decade before anyone acted on it. JP Morgan flipped this projection on its head and acted just months after rezoning. If this project proves to be successful, it will be a catalyst for future development- and fast.
4) They have created a new financial market: Air rights have always had value. But JP Morgan’s aggressive purchasing of Midtown East air rights has set the market for a new type of air right exchange- which no one really knows how to price. Midtown East air rights will evolve into an entirely new market for investment in Manhattan commercial real estate and it will be interesting to see who emerges as the major players.
5) They will more than double their footprint: The new 270 Park will span 70 stories and contain 2.5M SF of office space. JP Morgan hopes to consolidate all of their offices in one. In doing so, they will test the theory that technology has removed the need for employees to be under one roof. If efficiencies are gained, competitors will see the advantages- making development a more attractive sell to large-block tenants.
The future of Midtown has yet to be written but JP Morgan has certainly made one of the first brushstrokes. All eyes are on 270 Park as Midtown's future begins to take shape.
Written by Anthony D'Amelio, Associate at Cushman & Wakefield, Manhattan