Office condo market taking off in New York City

Real Estate Weekly,  July 16, 2008  by Jonata Dayan

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Office condos are catching fire in Manhattan. Not literally of course, but this once sleepy part of the real estate market is growing in leaps and bounds.

In spite of an economic climate filled with uncertainties of a volatile stock market, the declining dollar and rising oil price, New York Real Estate has retained its value.

Owning rather than leasing office space has been popular in cities like San Diego, Phoenix, Seattle, Miami and Austin, but only recently began taking off in Manhattan, as evidenced by Winoker Realty's commercial office condominium business volume. It has more than doubled from the fourth quarter of 2007 to the first quarter of this year.

Commercial office condominiums ownership represents a cost efficient alternative to leasing, especially with today's low vacancy rates and ever increasing rents.

Demand has far outstripped supply, but some major industry players are beginning to take notice of the opportunity office condos present. Time Equities, for instance, recently, converted 125 Maiden Lane to office condos and had such great success, it converted two other buildings--131 West 33rd Street and 70 West 36th Street.

Inquiries from potential purchasers were rare just a couple of years ago. Today, however, Winoker Realty's database of tenants looking for office space to purchase has grown exponentially. If there were five times the amount of office condo space available, Winoker Realty wouldn't foresee a problem selling it.

Who are the buyers? For many tenants, the purchase of a commercial office condominium makes good financial sense, especially in these times of historically high office leasing rates. Not-for-profit organizations and medical offices have been among the biggest users of office condos, but now, demand is spreading among many other industries, especially for small and mid-sized businesses.

At The Bar Building, 36 West 44th Street, CD 3 West 44 LLC, a real estate development company, purchased the third floor and divided the space into five condominium suites, encompassing 13,339 square feet, at the historic Midtown building.

Buyers included an engineering software firm, marketing and public relations agency, a jewelry design company, the New York office of an apparel accessories manufacturer and a dental office.

Seeing their successes at the Bar Building, CD3 West 44 LLC acquired a 19,000 square foot floor at 800 Second Avenue and divided it into nine office condos ranging from 650 square feet to 5,100 square feet.

Owning has several advantages as opposed to leasing. Non-profit organizations that own their own space can be exempt from real estate taxes and for-profit companies usually can deduct those taxes, as well as mortgage interest payments.

Commercial office condominiums are perfect for smaller companies who would rather invest in the property and add to their company's assets while taking advantage of low interest rates and other financial benefits associated with ownership, than pay rent month after month in a leased space.

Once the space is owned, the company can design and personalize the condo to fit their specific needs. And while nothing is certain, over time the value of a commercial office condominium is likely to increase.

There is also no danger of not getting a lease renewed, so repeated moving costs and investing substantial sums of money in buildouts and upgrades to new space are eliminated.

Commercial office condominium owners can also sublease some of their space if business conditions warrant.

Company after company is realizing these advantages. Titanium Marketing began looking for a new corporate office in a more prestigious, class 'A' office building and found 425 Fifth Avenue, a Michael Graves designed tower located in the heart of Murray Hill and close to the Fashion District where many of its clients are located.

After reviewing all options and finances, Titanium Marketing saw the value in owning their own space instead of paying rent. Winoker Realty represented them to purchase a 9,200-square-foot space. Since they only needed 5,000 square feet, the additional space was made available for lease.

At the Diplomat Center, 820 Second Avenue, the Delegation of Euskadi in the United States recently purchased a 2,578 s/f space on the 13th floor for just under $2 million. They have an existing office in Chicago and this is their second U.S. location.

Philips International, the building's owner, had originally marked the 5,100 square feet of available space on the 13th floor as one unit, but divided it to ensure they could get a prestigious owner in the building.

The Delegation of the Euskadi in the United States was a perfect fit since many other international organizations call the Diplomat Center home.

Commercial office condominiums are becoming another hot commodity in Manhattan and Winoker Realty Company's Corporate Condominium Division is on top of the market and specializes in finding business owners new permanent locations.