1MM-sf Office Development Built on Speculation Could Rise on Madison Ave
The days of developers constructing office buildings on speculation have become a rarity over the past several years, but the need for new trophy office space makes the risk of building on spec lower than people may perceive. Majority stakeholder real estate investment trust BXP (formerly Boston Properties), along with its joint venture partner, Norges Bank Investment Management — Norway’s $1.7 trillion sovereign wealth fund, currently controls the Metropolitan Transportation Authority’s (MTA) former headquarters site at 343 Madison Avenue under a 99-year ground lease finalized in August 2023 according to press at the time. Decisions to move forward with 46-story, 930,000-square-foot project must be given to the MTA in July, and although a project of this size would normally rise “only after half of the space is pre-leased,” BXP officials indicated that they are poised to go ahead with the estimated $2 billion development that is expected to have rents exceeding $200 per square foot and approach $300 per square foot on the top floors without commitments in hand. According to BXP’s website, the building that would be constructed on the site that spans the entire Madison Avenue blockfront between East 44th and 45th Streets will offer a fully electric, zero carbon workplace with direct access to the Grand Central Madison LIRR Concourse via a new entrance to be constructed as part of the required terms of ground lease. The tower would be rising about one block southwest from the 1.4 million-square-foot Helmsley Building at 230 Park Avenue built in 1929 which is currently in foreclosure proceedings and one block south from One Vanderbilt which is 100% occupied and was valued at $4.7 billion following the 11% stake sale in November 2024 to Japan-based Mori Building Co. for $517 million. If construction moves ahead, BXP’s project would join two other spec projects — a 640,000-square-foot office tower at 570 Fifth Avenue being developed by Extell Development and Rudin Management’s 350,000-square-foot project at 415 Madison Avenue.
Redevelopment of the site has been longtime planned, the MTA initially releasing a request for proposal (RFP) offering the leasehold in 2013 but had failed to secure a deal. In 2014 the MTA re-opened bidding for the 3-parcel assemblage located along the Vanderbilt corridor, releasing an amended RFP in anticipation of the impending rezoning of the 5-blocks along Vanderbilt Avenue that was adopted in May 2015. In early 2016, a potential deal was struck with BXP as the conditionally designated developer under the long-term leasehold that was valued at about $430 million according to reports at the time. However, due to a question of whether or not the MTA can transfer its tax-exempt status to a private company for the duration of the lease, and instead of paying taxes the developer would make those payments to the MTA as a payment in lieu of taxes (PILOTS), the transaction stalled. It wasn’t until 2020 that an agreement between the New York State Agency and New York City was announced, allowing real estate taxes and other revenue from the future ground lease for the redevelopment of the property to be dedicated to the MTA capital program. Expected to generate more than $1 billion over the life of the lease, the agreement also established “a creative way for the city of New York to fulfill its obligation to provide $600 million from alternative non-tax-levy revenue sources as part of its $2.66 billion contribution to the MTA’s 2015-2019 Capital Program.”