Jeffrey Katz, CEO of Sherwood, says that the firm plans to make 370 Lexington "the premier small-tenant building in the Grand Central submarket, and that is primarily the market we will be targeting--more specifically, the 1,000-sf to-10,000-sf user, who we think is woefully under-served today."

Katz tells GlobeSt.com that the building's great location was one of its attractions since it is an "ideal location for small business owners and office workers." Other attractions, Katz explains are that "the building's average in place rents are over 30% below market, and over 60% of the building rolls in the first five years." He also points to the discount to replacement cost. "The break even rent for a newly constructed office building in Midtown is over $100 per sf, thus we're offering a significant discount to that. The supply of relatively inexpensive office space in Midtown is fixed, you can't create anymore of it," he says.

Katz continues that the building has more than 100 tenants, "thus the multiple, smaller tenants, mitigates the rollover substantially," he says. Also, "the transaction offered an in-place mortgage, with attractive terms, that our partnership could assume. Sherwood's financial strength coupled with the immense financial strength of our partner, allowed us to use the building's lower leverage to our advantage."

He continues that "we will be offering premium pre-built office suites for discerning tenants and small business owners. And we are planning a capital improvement program that will greatly enhance the building's operations and its aesthetics. Furthermore, we will provide extremely hands-on management and tenant services." Katz notes that in general, "we have found that smaller tenants find the whole process of leasing difficult--from the lack of attention by management, to the complexity of leases. We intend to change all that."

Ryan Nelson, Sherwood's SVP of development and acquisitions, tells GlobeSt.com that Sherwood is planning to reposition the asset to "improve its interior and exterior aesthetic appeal." In addition, he says, Sherwood plans to "commence implementation of a phased-in sprinkler installation program throughout the building as well as other improvements to the buildings mechanical and electrical systems to make them more energy efficient." Nelson did not disclose the capital improvement cost at this time.

Nelson, seconding Katz' thoughts, says that Sherwood sees 370 Lexington as a high quality asset at a price that is significantly below replacement cost. "With over 60% of the leased area expiring over the next five years and average rents approximately 30% below market, there is significant upside potential. By incorporating our strategy of making 370 Lexington the submarket's premium small tenant building through our capital improvements program, our premium pre-built suites program, as well as our marketing program, we believe we can greatly enhance the building's NOI in a very short time."

Katz tells GlobeSt.com that "the building offers large conference rooms that these smaller tenants can reserve and use for meetings when needed. These pre-built suites are targeted directly to the small business owner or office user who does not want to hassle with the responsibility of designing and constructing their own offices, but can walk in and tour the building, and within a very short time frame, negotiate a deal, sign a short form standardized lease, and move in."

Katz continues that "we feel that the small tenant market is an extremely underserved niche in the marketplace. So many of these tenants are attorneys, accountants, or other service oriented firms and thus have to be in Midtown as they serve the larger corporations in the area. As we all know, Midtown has seen a dramatic increase in rental rates in the last few years. As such, many of these tenants that were in larger buildings and had signed leases five years ago, are seeing their rents more than double…At 370 Lexington, these tenants will be able to have a Midtown address, with rents far below buildings just a few blocks away, and will be able to have services catered to their needs, such as conference rooms, pre-built suites, concierge services, all within two blocks of Grand Central."

Sherwood Equities represented itself in the transaction. The broker for the seller was Cushman & Wakefield. The buyer is assuming the property's outstanding mortgage from CIGNA.

In the past three years, Broad Street has acquired six major real estate assets totaling more than 1.5 million sf. The firm owns and manages properties throughout Manhattan, including the 750,000-sf office tower at 61 Broadway in Lower Manhattan and the 336,000-sf office property at 55 Broadway. In addition, BSD recently completed the marketing of two residential conversions at 1438 Third Ave. on Manhattan's Upper East Side and 184 Thompson St. in the heart of Greenwich Village.

Earlier this year, Sherwood, in a joint venture with Paramount Group Inc., purchased 440 Ninth Ave., an 18-story, 398,000-sf office building that is near two of Sherwood's other parcels in the hot Hudson Yards area, at the north side of 34th Street, between Tenth and Eleventh avenues, and on the east side of Tenth Avenue, between 35th and 36th streets. Sherwood has become a major player in the Hudson Yards area, as well as other parts of Manhattan. In addition to owning or developing properties such as Two Times Square, One Times Square and 1600 Broadway, Sherwood is currently expanding its acquisition and development pipeline throughout the city.

Instant Insights /

Broad Street Sells $155M Midtown Asset

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