Morgan Stanley, the sixth-largest U.S. bank by assets, signed a lease for almost 1.2 million square feet (111,480 square meters) of space at Brookfield Office Properties Inc. (BPO:US)’s 1 New York Plaza in lower Manhattan.
The bank, which currently occupies about 816,000 square feet at the building, will expand by an additional 337,000 square feet under a deal that runs through 2029, Brookfield said in a statement today. The agreement is the largest office lease for a single building in the city since 2008, according to the New York-based landlord.
The deal follows a weak quarter for office leasing as Wall Street firms cut jobs and delayed decisions on space. Studley Inc., a New York-based brokerage, projected last month that agreements would be signed for the rental of about 5.7 million square feet this year through March. That would be the smallest quarterly tally since the 4.5 million square feet leased in the second quarter of 2009, when demand froze in the aftermath of Lehman Brothers Holdings Inc.’s bankruptcy.
“For a major financial institution to make a decision of this scale is a big positive, for the market and for us,” Brookfield Chief Investment Officer Dennis Friedrich said in a telephone interview. “There are a number of large tenants moving toward making large space decisions. A 15-year-plus commitment is a good signal to the market.”
One New York Plaza, at the foot of Manhattan near Battery Park, has 2.6 million square feet of space and is one of New York’s largest office buildings. Morgan Stanley (MS:US), based at 1585 Broadway in midtown Manhattan, will consolidate operations currently in Jersey City, New Jersey; Brooklyn; and Midtown to the tower, Friedrich said.
The additional 337,000 square feet that the bank is taking was vacated by Goldman Sachs Group Inc. (GS:US) when it moved into its new headquarters on West Street, Friedrich said. It doesn’t include two 45,000-square-foot trading floors near the top of the 50-story skyscraper.
Brookfield’s negotiations with Morgan Stanley took more than a year. Friedrich attributed the slow progress to the complexities of the consolidation that the company was contemplating.
“They did not step away from the table and there wasn’t a period of time where they were questioning whether they were going to do this,” he said.
Matt Burkhard, a Morgan Stanley spokesman, declined to comment on the deal or the plans for consolidation. The bank was represented by brokers including Newmark Grubb Knight Frank Chief Executive Officer Barry Gosin and Vice Chairman Brian Waterman. A Newmark spokeswoman, Mira Matic, said the firm wouldn’t comment.
Morgan Stanley currently has offices at 1 Pierrepont Plaza in downtown Brooklyn, and at Harborside Financial Center in Jersey City. Many Manhattan-based financial companies pushed back-office operations into locations across the Hudson and East rivers in the 1980s and 1990s to save money.
The lease signing at 1 New York Plaza “indicates demand for functional space in a transportation-centric, amenity-rich location at a low cost,” John Guinee, an analyst with Stifel Nicolaus & Co. in Baltimore, said in an e-mail. “Morgan Stanley is consolidating into a building where they are already ensconced and taking more high-quality, technology-rich space at a bargain price.”
Brookfield gained (BPO:US) 2 percent to $17.56 in New York trading. The stock has advanced 12 percent this year, compared with a 9.6 percent increase in the Dow Jones U.S. Real Estate Index. (DJUSRE)
Building 85% Occupied
For Brookfield, one of the biggest benefits of the deal is that it “puts to bed” about 950,000 square feet of leases at 1 New York Plaza that would have expired in 2014, said Friedrich, who declined to disclose the rent Morgan Stanley will be paying. The agreement leaves the building about 85 percent occupied, he said.
Brookfield still has two other major challenges in Manhattan, its largest market. One is re-leasing more than 3 million square feet of Bank of America (BAC:US) Corp. leases at downtown’s World Financial Center that expire next year. The other is to find anchor tenants for the 5.4 million-square-foot Manhattan West skyscraper project west of Pennsylvania Station in Midtown.
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