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WeWork Expands Manhattan Office Space with Plaza District Lease

Shared Office Provider Leases Space on Five Floors at 575 Lexington Avenue
October 8, 2018
575 Lexington Ave.
575 Lexington Ave.
WeWork, the largest shared U.S. workspace provider and biggest private occupier of office space within Manhattan, signed a 117,000-square-foot lease spanning five floors of 575 Lexington Ave., the 35-story Plaza District office tower known for its black glass sheathing.

The transaction makes WeWork the second-largest tenant within the 739,040-square-foot building, which is owned by a joint venture of developers Angelo Gordon & Co, George Comfort & Sons and Normandy Real Estate Partners. Weill Cornell Medical College anchors the property with about 156,600 square feet, according to CoStar data, but the majority of the building’s tenants comprise legal and financial firms.

"575 Lexington Avenue is a great addition to our portfolio and will allow us to better serve our fast-growing community of over 50,000 members in the city," said WeWork Chief Development Officer Granit Gjonbalaj. "We are constantly looking to expand our footprint in New York City."

WeWork’s last major announcement was its assumption of the entirety of 35 E. 21st St., a corner office tower in New York City's Gramercy Park, as part of its push to grab 1 million square feet for midsized businesses in major markets by next summer. At the same time WeWork is pursuing enterprise businesses and smaller companies, it is courting medium-sized companies of 11 to 250 employees, through an initiative termed HQ by WeWork.

WeWork said in September that it had about 5.3 million square feet of office space leased in Manhattan, the country’s largest office market. According to CoStar data, WeWork leases about 12.4 million square feet of office space nationally.

"WeWork’s expansion has helped New York vacancies stay low despite other company’s relocations and consolidations," said Lauren Baker, a market analyst covering Manhattan for CoStar Market Analytics.. "With 3.4 million square feet of net absorption, New York’s vacancy rate dipped to 8.3 percent in the third quarter of 2018, the lowest vacancy level since 2009. Among the largest moves were advertising firm Group M with almost 700,000 square feet at 3 WTC, WeWork’s 216,000 square feet at 21 Penn Plaza and New York Human Resources’ lease for 193,000 square feet at 375 Pearl Street."

Baker added, "Not only did coworking help with absorption, but the sector dominated the list of largest leases signed in the third quarter of 2018. WeWork signed for close to 500,000 square; Spaces leased 307,000 square feet; Knotel signed for 140,000 square feet; and Convene took 116,000 square feet. In fact, these leases alone make up more than 10 percent of all leases signed in the New York Metro for the quarter."

Normandy Real Estate acquired 575 Lexington Ave. in 2012 from the California State Teachers' Retirement System and New York-based developer Silverstein Properties for $360 million, or about $487 per square foot, according to CoStar data.
See CoStar COMPS #2581830.
In 2015, Normandy created a joint venture with George Comfort & Sons and Angelo Comfort & Co., transferring a percentage of ownership interest to the two companies in a recapitalization that valued the building at $510 million, or $690 per square foot, according to CoStar data.
See CoStar COMPS #3390635.
The landlords are in the midst of capital improvements on the property and expect to spend $26.2 million in upgrades by the end of the year. This follows about $25.9 million already invested into a full renovation of the lobby, entrance, elevators and mechanical systems. In June, ownership closed on a $415 million refinance on the property, sourced by German institutional investors.

The new WeWork space at 575 Lexington will be a core location available to all its members in the heart of Manhattan. The company expects to open there in the first half of 2019.

Diana Bell, New York City Market Reporter  CoStar Group   
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