Commercial real estate datapoint of the day

By Felix Salmon
July 7, 2009

Worldwide Plaza is being sold after all (a previous deal fell through), and at what looks like a seriously knock-down price:

Deutsche Bank AG has agreed to sell Worldwide Plaza, a 1.8 million square-foot skyscraper in New York City, for $600 million to developer George Comfort & Sons and partner RCG Longview…

The sale price works out to roughly $330 a square foot.

Worldwide Plaza is a very high-class office building, home to, among other tenants, the swanky offices of Cravath, Swaine & Moore. It also has what until recently would have been something extremely attractive: a huge amount of unleased space (709,000 square feet, to be exact), vacated by the departing Ogilvy & Mather.

A year or two ago, long-term leases were poison for commercial real-estate valuations, since they reduced landlords’ ability to hike rents. Vacant space, by contrast, was like gold dust: prime midtown office space was leasing at well over $100 a square foot.

Today, everything has been turned on its head: those 709,000 square feet aren’t generating any income, and therefore have very little value. As a result, the 1.8 million square feet of Worldwide Plaza are worth just $600 million: by contrast, the $1.5 million square feet of 666 Fifth Avenue sold for $1.8 billion — or $1,200 per square foot — in 2006. On a price-per-square-foot basis, that’s a decline of more than 70% from the peak of the market.


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666 Fifth is a much better location, so 70% may be a little steep. But that’s not to dispute that there’s been a truly massive drop. And good point about the vacancy; not only were in-place leases a big liability during 06/07, many sellers were deliberately not signing NEW leases at those peak rents, because they knew the marginal buyer would underwrite even higher rents if they left the space empty.

Posted by peter | Report as abusive

666 fifth avenue is not a very useful comp. The fifth avenue retail was a significant component of that price.

Posted by na | Report as abusive

That\’s right, I forgot the retail …actually Carlyle bought it last year for an even crazier amount: ase/idUS125811+02-Jul-2008+BW20080702

Posted by peter | Report as abusive