2 Struggling Manhattan Office Buildings Get $100M In Tax Breaks For Renovations
Help is on the way for two ailing New York City properties as Mayor Eric Adams attempts to bolster the city's struggling office market.
The New York City Industrial Development Agency selected two properties to take part in the Manhattan Commercial Revitalization program, known as M-CORE, in a vote held Tuesday morning. Between the two buildings, the tax break afforded to owners amounts to $100M, The City reports.
The program offers a strategic tax abatement designed to encourage renovations at office buildings that otherwise could struggle to attract tenants. Properties that are between 250K SF and 10M SF, built before 2000, and located south of 59th Street were eligible to apply.
The first, 175 Water St., is a 31-story office tower in Manhattan’s Financial District owned by investment firm 99c LLC. The owner purchased the property from Vanbarton Group in October 2022 for $252M.
Its former anchor tenant, insurance giant AIG, left the property in 2021, leaving the building fully vacant at the time of sale. The building is still 95% vacant, per 99c LLC’s application to M-CORE, The City reported. The M-CORE tax break works out to around $41.3M over 20 years, with the developer putting up $150M itself toward 175 Water St.’s transformation.
The second property to receive the tax break is 850 Third Ave., a 21-story Midtown East office tower built in 1960 and owned by HPS Investment Partners. HPS had been the lender on the property, but its previous owner, Jacob Chetrit, turned it over to HPS last year in a transaction valued at $265.9M after Chetrit spent $422M to acquire it four years prior.
The property is just 33% leased, with more than half of its tenants expected to leave as leases expire over the next few years, The City reported. The Midtown East office tower’s tax break from the M-CORE program pencils out to a $58.4M cost to taxpayers over a 20-year period, with HPS committing $62.8M in funding itself.
The IDA projected that revitalizing the properties would generate more than 2,000 jobs in three years and retail an additional 365 jobs. The job count is reportedly based on predictions from a research team at the New York City Economic Development Corp., which administers the IDA’s incentive programs, per The City.
There is no clawback provision for the tax abatement if the renovations fail to result in signed leases or new jobs, a representative for the city's Economic Development Corp. told The City. Owners might lose the abatement if they fail to complete the work on time or invest as much as they have promised.
Older properties in Manhattan’s office market have struggled to retain tenants, as trophy and Class-A office towers receive the majority of new deals in a rapidly bifurcating office market.
The city set a record for the number of office leases signed with rents of $100 per SF or higher last year, making up more than a quarter of all leasing activity, according to JLL. The record was set despite the fact that Manhattan experienced negative net absorption of more than 3M SF last year, according to CBRE.
