34th Street

LinkedIn's Deal Gives Empire State Building a New Luster

June 13, 2016
Steve Cuozzo, The New York Post

Microsoft’s $26.2 billion acquisition of LinkedIn, announced Monday, confirmed the business-oriented social-media platform as one of the nation’s hottest companies.

And the deal can only add to the burgeoning “cool factor” of the once-antiquated Empire State Building, which has been the California-based company’s Manhattan headquarters since 2013.

Since moving into “The World’s Most Famous Building,” LinkedIn — which first set up shop as a small sub-tenant of a now-departed architectural firm — has expanded several times, and today has 280,000 square feet. Its 126,000-square-foot expansion last year won a CBRE team a REBNY “Most Ingenious Deal of the Year Award” as tenant reps. (JLL is the Empire State’s leasing agent).

Until not long ago, the Empire State Building was a neglected, Class B-minus office location despite its iconic global image.

The landmark skyscraper owned by Empire State Realty Trust now bristles with a commercial profile unimaginable a mere dozen years ago, including glamorous tenants and gorgeously restored public spaces.

The one-time world’s tallest building symbolized the promise of the new age when it was scaled by King Kong in the 1933 screen classic. The doomed beast could not know that the 2.8-million-square-foot tower at Fifth Avenue and 34th Street faced decades of commercial failure and poor management.

Long derided as the “Empty State Building,” it did eventually fill up — but mostly with small, workaday offices for accountants, apparel and shoe wholesalers and even dentists.

The Empire State, which at one time had nearly 800 small tenants paying below-market rents, hit bottom in the 1960s, when previous owners hid original Art Deco lobby friezes with low, fluorescent-lit acrylic ceilings and installed a tacky “Eight Wonders of the World” exhibition in the lobby.

The first big turning point came in 2006. Wien & Malkin, the real estate firm that shared control of the tower with managing/leasing agents Helmsley-Spear, finally ousted their stuck-in-the-past partners after a long court struggle. W&M — led by Anthony Malkin and his father Peter Malkin — launched a $550 million capital improvement program.

The lobby was restored and hundreds of windows replaced. The company, by then led by Anthony E. Malkin, installed high-speed elevators, new corridors and bathrooms, upgraded the HVAC, and introduced energy-efficient retrofits that are reducing the tower’s total energy consumption by 38 percent.

The second breakthrough occurred in 2013 when Malkin — after another court battle — converted the privately held W&M empire into publicly traded Empire State Realty Trust, which owns 20 metropolitan-area buildings comprising 10 million square feet. (ESRT has seen an 11 percent total return to investors so far in 2016, or a 58.3 percent jump since the October 2013 IPO.

By comparison, two other major REITs, Vornado and SL Green, have seen increases since then of 36.5 percent and 18.8 percent, respectively.)

Although the Empire State Building had already begun to turn the corner — including the 2008 signing of Coty to 88,000 square feet, the tower’s largest lease in a half-century — ESRT chairman and CEO Anthony Malkin said this week, “The transfer of the building to ESRT is the reason we have done so much so far.

“The straightforward governance and unified balance sheet of the REIT allows difficult decisions to be made and capital deployed faster. While we still have a few more years of consolidating floors and leasing to fewer, better-credit tenants, without ESRT we would be years behind in our conversion from more than 752 individual suites to just over 100.”

Among recent advances, the tower’s retail mix has been upgraded, including the classy State Grill & Bar and “Urban Campus” amenities for tenants only, including a 15,000-square-foot fitness center, a conference center and an on-site Starbucks Kitchen” which delivers java to the tower’s 12,000 daily office workers.

In addition to LinkedIn, the changes have drawn “cool factor” tenants Shutterstock, Coty and Bulova. Office-floor leasing has just crossed the 90 percent threshold, according to ESRT’s first-quarter 2016 SEC filings.

A stroll through some of the cutting-edge workspaces can be a culture shock to anyone who remembers musty old offices — for example, Shutterstock’s “secret library,” café and ping-pong tables seem to have wafted in from hipper nabes than Fifth and 34th.

Asking rents range from the mid-$60s per square foot to $82 — compared to “asks” in the $40s per square foot as recently as 2009.