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- Category: Coworking Industry
Broad Street Development closed this week on its $190 million purchase of 370 Lexington Ave. The firm plans to draw smaller tenants to the Midtown office building from major coworking companies like WeWork.
With about 315,000 square feet, the 27-story building has long catered to smaller tenants. In recent years, however, coworking firms have begun to dominate the market for pint-size office users, offering them the flexibility to grow and contract and amenities, such as like dining spaces, conference rooms and a fully equipped office installation.
But Daniel Blanco, chief operating officer of Broad Street Development, thinks some smaller tenants have grown tired of the communal atmosphere of many coworking brands and are returning to traditional office leases.
“You lose your identity in a WeWork space, and we can give a tenant that identity back,” Blanco said. “There are tenants who want to know a space is theirs and they’re not sharing it with a guy next door. They always talk about collaboration in coworking spaces, but oftentimes there really is no synergy.”
To help attract tenants to 370 Lexington Ave. who otherwise might take a coworking space, Blanco said, the firm will offer more flexible terms than most conventional office leases do, but they won’t be as flexible as the month-to-month agreements coworking providers allow. Broad Street Development will offer three-year leases.
“The rise of coworking has definitely forced landlords to build nicer spaces for tenants and give them more flexibility than in the past,” Blanco said.
Broad Street Development bought the building in partnership with Terra Capital Partners and secured a $155 million loan for the purchase from Invesco, consisting of a roughly $120 million senior mortgage and a $35 million mezzanine loan, Blanco said.
Blanco declined to say whether Terra Capital Partners owns the majority of the building’s equity, but he said Broad Street Development will operate the property.
The firm plans to invest as much as $30 million on upgrades, including renovations to the lobby and building systems, such as elevators and heating, ventilating and air conditioning. Some of the money will be spent building out spaces for tenants. About 80,000 square feet at the property is vacant.
Broad Street Development owned the building a decade ago. It sold it to Sherwood Equities for $155 million in 2008. Sherwood sold the property for $247 million in 2015 to the Japanese investment firm Unizo, earning a huge profit. Unizo took a nearly $60 million loss on the sale back to Broad Street Development.