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The owners of a burgeoning office tower in the Long Island City neighborhood in Queens are in a difficult situation. Perhaps their best hope is Amazon.
Savanna, a New York real estate investor, is facing an impending one-million-square-foot hole at One Court Square, the 53-story property that many New Yorkers know best as the tower with the Citi sign on East River.
The investment company is in advanced discussion with
Amazon.com
to rent much or all of this vacant space, if the online retail giant decides to locate some of its headquarters business in New York, according to people close to the record.
Amazon is in talks with a shortlist of cities including New York for two new seats, each of which could house 25,000 employees and potentially bring billions of dollars in multi-year investments to host cities, according to people familiar with the situation. Two winners should be named soon, they said.
Prepared for Amazon?
Owners of One Court Square in Long Island City are negotiating with Amazon for a position at Head Office 2.
Citigroup
rent the 42 floors; currently occupies 30 floors covering 1 million square feet; the remaining floors are sublet or vacant
If Long Island City is one of the choices, Amazon would need offices in addition to the 1.4 million square foot Savanna building. The retailer is in talks with other companies for buildings and development sites, said people familiar with the discussions.
For Savanna, an agreement with Amazon would make it a reality for One Court Square.
Citigroup
,
C -2.98%
The company's main tenant since 1989 has indicated its intention to move most of its employees in 2020, freeing up a million square feet. The bank has the opportunity to occupy the remaining 400,000 square feet after 2020 but has not indicated whether it would, according to a person familiar with the discussions.
The real estate company acquired One Court Square, also known as Citigroup Building, for an undisclosed amount in 2014. At the time, Citigroup had not said whether it was considering renewing its lease. The possibility that Citi leaves aside frightened many other real estate investors, who feared that an owner could struggle to occupy so much space.
"It was a calculated risk," said Adelaide Polsinelli, vice president of the board of directors of Compass, a real estate services company.
Savanna thought that even if the bank decided to leave, the building, located a short subway ride from Manhattan, was a good choice. Few homeowners could have offered a business client so much space near the city center, according to those informed of Savanna's thinking at the time.
Commuters passing through the Court Square passage at the morning rush hour.
Photo:
Erin Lefevre for the Wall Street Journal
In 2015, however, Savanna had doubts. The company sought to sell One Court Square and hired
Cushman & Wakefield
sell the property to business owners and developers who would consider converting it for residential use. Savanna was asking for more than $ 800 million, said one person familiar with this process. There was little interest.
"Residential buyers were afraid that Citi will not leave" and block their conversion project into apartments, said Mitchell Arkin, executive director of brokerage services at Cushman & Wakefield. "Commercial real estate buyers were worried that Citi would go away."
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When no sale materialized, Savanna refinanced the property. The firm obtained a $ 315 million loan from Natixis Real Estate Capital LLC, which subsequently entered into several mortgage-backed security agreements, according to financial documents.
Originally, One Court Square was developed for Citigroup Inc. and was completed in 1989. At the time, the district was known for its industrial activities in low-rise buildings. The tower designed by Skidmore, Owings & Merrill was the only office skyscraper in the neighborhood. The surrounding development has been slow to germinate.
"What you see now would happen at that time, but that's just not the case," said Alan Suna, director of Silvercup Properties, owner of the property in Long Island City. The tower "has been alone for a long time."
One Court Square, with a valuation of $ 640 million, has $ 315 million in outstanding debt, according to the real estate data company Trepp. The loans mature in September 2020.
Write to Keiko Morris at [email protected] and Craig Karmin at [email protected]
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