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The resurrection of 425 Park
Inside the drama-filled rise of the first new office tower on the swanky avenue in 50 years — from the family friction to the complicated ground leases to the collapse of Lehman Brothers
November 01, 2016
By Katherine Clarke
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t was a Sunday evening in September 2008, and David Levinson was leaning over the balcony at a hotel in Paris. He and his wife, Simone, were on a romantic trip to the City of Lights, and Levinson had stepped out to digest some worrying news: Lehman Brothers, the financial behemoth backing two of his most important projects, might file for bankruptcy.
Surveying the lights of the French capital, Levinson took solace.
“I remember looking out at the Eiffel Tower and saying to my wife, ‘They’ll figure it out, there’s no way,’” he told The Real Deal during an interview at his 18th-floor, West 57th Street office last month. “I had a great night’s sleep thinking that. But then I woke up, and the world was different.”
The very next day, on September 15, Lehman filed for Chapter 11. The filing remains the largest bankruptcy in U.S. history. Chief among the investment bank’s $600 billion in assets were several that belonged to Levinson’s company, L&L Holding, including its most ambitious project: 425 Park Avenue.
Levinson, the company’s chairman and CEO, and his partner Robert Lapidus, the firm’s president and chief investment officer, had already spent four years and millions of dollars securing the Park Avenue site, a dilapidated office building at the corner of East 56th Street. With Lehman as their majority equity partner, the duo had planned to tear it down to make way for the first new office building on Park Avenue in nearly 50 years.
It had been a messy deal even before Lehman collapsed, and Levinson wasn’t about to let it go now. “It was a near-death experience,” he said of the bankruptcy.
Fast forward to 2016, and 425 Park, which is still under construction and scheduled for completion in 2018, now holds the record for the highest price per square foot, at $300, ever paid for a Manhattan office space. The lease with asset management firm and hedge fund Citadel clocks in at more than three times what tenants are paying on average at the World Trade Center and Hudson Yards, and even exceeds prices at the notoriously pricey GM Building.
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The 47-story, 670,000-square-foot building is expected to draw some of the wealthiest firms on the planet — from high-end family investment offices to private equity firms to sovereign wealth funds. Billionaire hedge fund manager Ken Griffin’s personal office will top the tower, while restaurateurs Daniel Humm and Will Guidara, of Eleven Madison Park fame, are planning an eatery on the ground floor.
Video marketing materials for the property play like scenes from modern-day “Batman” films. And Levinson called the tower a “Seagram Building for the 21st Century.”
Others seem to agree. “I’m a huge believer that there is Park Avenue and then there is everything else, but the product on Park Avenue is old,” said commercial broker Bill Montana of Savills Studley, who is not involved in the project. “You can put a lot of money into these old buildings, but they still have old bones. What L&L is doing is taking it to a whole new level. It is going to be an iconic addition to the skyline. It is going to lift up the rest of the avenue.”
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With neighbors such as the Seagram Building and the newly constructed 432 Park Avenue — designed by Ludwig Mies van der Rohe and Rafael Viñoly, respectively — there was undoubtedly pressure to deliver.
Also looming was the fact that when the original building debuted, it was panned by critics who singled out its “deformed ziggurats,” attributing them to flawed zoning regulations, and likened its setbacks to an “unfortunate layer cake.”
Ironically, implementing Foster’s vision ran into more complications — also in the form of zoning codes in Midtown East.
L&L had initially placed its hopes in the proposed rezoning of the area that was being pushed by Mayor Michael Bloomberg in 2012, which would have allowed developers to build 60 percent more space without a lengthy approval process.
But when that proposal died in the City Council in 2013, L&L came up with a more innovative — and risky — solution. It found a loophole in the city’s 1961 zoning rules that allowed it to rebuild the site as it wished, without a special permit, as long as it retained at least 25 percent of the old building’s original structure.
The workaround effectively cut out the city’s Department of Planning — much to the chagrin of the then-Chair Amanda Burden.
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Taking advantage of the loophole means that construction crews are demolishing only 75 percent of the core structure and that they need to refer to the building’s original (but not entirely accurate) plans from the 1950s. That has made it especially difficult for workers who need to preserve the original steel while demolishing around it.
“Even if a column is an inch away from where the drawings say it is, it throws everything off,” Potts said. “Every subcontractor on this job is saying that this is the most complicated job they’ve ever worked on.”
Levinson remains undeterred: “There were times when our construction engineers came to us and said, ‘We can’t do this,”’ he said. “The first time they said it, it was pretty frightening. Now it doesn’t bother me at all. I know they’ll figure it out.”
But Potts said that retaining the original steel has likely added more than $50 million to the project and put pressure on the company’s bottom line.
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According to the Lehman source, initial projections for the project assumed the rezoning would fail.
“That was always our base case,” said the source, who added that the company had enough financing to withstand construction setbacks. “We did all of our pro formas under the assumption that we would have to retain 25 percent of the leasable square footage area. Getting the rezoning would just have been an additional benefit.”
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Brokers say the building will join a small cadre of ultra-luxury office towers, including the GM Building and 9 West 57th Street. But since it’s basically new it could have an edge over its competitors.
Still, not all top-echelon buildings are fully occupied.
According to a Fitch ratings report, 9 West 57th Street was just 63.5 percent full in September. That’s well below the Plaza District’s 90.1 percent occupancy.
But the report noted that the landlord, Sheldon Solow, is “very discerning” in selecting tenants.
“The sponsor prefers to leave space vacant and wait for the preferred type of tenant at the rent level the property has been able to maintain,” the report said.
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NEW YORK is Back!
“Office buildings are our factories – whether for tech, creative or traditional industries we must continue to grow our modern factories to create new jobs,” said United States Senator Chuck Schumer.
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