Office Lease Opt-Out Clauses on the Rise at Blackstone Buildings

Following in the footsteps of some star baseball players that sign big contracts with opt-out clauses, the Blackstone Group has been extending the same privilege to its office tenants at Park Avenue Tower, 65 East 55th Street — a leasing trend that is becoming more prevalent throughout the Northeast among sophisticated tenants. Boasting a roster of mostly hedge fund tenants including PineBridge Investments, which occupies 75,000 square feet in the tower as the largest tenant. PineBridge has the option to terminate 24% of its space prior to its 2035 lease; and is among ten other tenants with the same opt-out right. A 12-to-18-month notice is required to exercise the opt-out option and a fee ranging from $1.3 million to $4 million. Located steps off Park Avenue, the approximately 621,992-square-foot Class A building “was 87% leased in January according to bond-rater KBRA, and weighted average rent was $112 per square foot, above the area average of $101.” Although there exists the risk of occupancy falling quickly due to the significant concession granted by Blackstone, “if each tenant were to exercise its opt-out, 33% of base rent would ‘roll’ during the life of the building’s five-year mortgage, KBRA said —a risk “sophisticated potential investors must consider when investing in the building’s $308.5 million mortgage.”