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Don't Expect A JPMorgan-Fueled Midtown East Building Boom Anytime Soon

JPMorgan Chase’s plans for a massive new headquarters in Midtown East have been heralded as the start of a new era for the district. But, despite the slew of air rights deals, it might still be a long time away.

Midtown in New York City

Since the bank announced it will tear down its office building at 270 Park Ave. and replace it with a 2.5M SF skyscraper for a brand-new global headquarters, it has wasted no time in snapping up air rights in the newly rezoned neighborhood.

JPMorgan is reportedly paying around $240M for Grand Central Terminal’s air rights, which are owned by a combination of MSD Capital, TF Cornerstone and Argent Ventures. It is also said to be in talks to buy 100K SF of air rights from St. Bartholomew’s Church and another religious institution, the New York Times reported earlier this month.

The development is the first to use the rezoning plan, which was approved in August. The new rules apply to 78 blocks of Midtown, and allow buildings to sell air rights to developers in the district, though at least $61.49 per SF has to be given to the city.

Since the announcement, MRP Realty and Deutsche Bank Asset Management have been reported as buying 30K SF of air rights from St. Patrick’s Cathedral to add four floors to 405 Park Ave.

But while there are several buildings in the region that developers are said to be eyeing as prime candidates for demolition — the Pfizer headquarters and the Roosevelt Hotel on 45th Street, the Grand Hyatt New York hotel on 42nd Street and the Metropolitan Transportation Authority's headquarters on Madison Avenue reportedly among them — sources said it will be at least a decade before there is meaningful construction change in the area.

Pfizer's Midtown Manhattan HQ

“There are a slew of buildings on the East Side where landlords have begun incorporating demolition clauses,” said Colliers International Tri-State President Michael T. Cohen, who believes it will be 10 to 15 years before the next wave of new development in the area.

“Those clauses will ripen at various points in time and will allow the landlords to vacate some of the properties, he said. "[But] in order to accomplish that, you’d need to start well in advance.”

Buildings like 415 Madison Ave., 485 Madison Ave., 505 Park Ave. and 3 East 54th St. all have demolition clauses, Cohen said, though he noted that vacating a building is a costly and lengthy undertaking.

The rental market, he said, will also affect the new wave of new construction.

The area will have significant amounts of office space to absorb in the coming years. Time Warner is decamping from its namesake building to head to 30 Hudson Yards. In 2015, Wells Fargo signed a deal to move its New York office from 150 East 42nd St. to 30 Hudson Yards, too. L’Oreal USA already started moving its staff to a new headquarters at Hudson Yards in 2016. Law firm Skadden Arps will head to One Manhattan West in 2020 when its lease at 4 Times Square runs out.

“I would say that we have already got a robust pipeline of new construction, so many developers will probably be looking to catch the next cycle,” Cohen said.

The razing of 270 Park is no small undertaking. It will be the largest voluntary demolition of a building in the world. The tallest building ever taken down by choice by the city was the Singer Building, which was replaced by One Liberty Plaza in the late 1960s.

“This could be a wave of demolition that we’ve not seen before,” said Perry Brokerage Director of Intelligence Brendan Carroll, who estimates there are more than 1,000 buildings in Manhattan that could be demolished, including 280 Park Ave. and 1285 Sixth Ave.

“The chopping block could get a lot larger if people see things the way JPMorgan has,” he said.

JLL Chairman of New York Investment Sales Bob Knakal

Cushman & Wakefield Chairman of New York Investment Sales Bob Knakal suggested the W Hotel at 541 Lexington Ave. could be a likely contender. The InterContinental New York Barclay hotel is another obvious candidate, he said, though it has just gone through a $180M renovation.

“I think this process is very positive for the city, [but] it will play out slowly,” Knakal said. “You won’t see 10 new buildings in the next 10 years.”

He said there are 31 landmarks in the region with around 4.5M SF of development rights with them. But the rezoning is not the only reason that JPMorgan Chase has decided to stay in Midtown East, Knakal said.

"Clearly, the Midtown East rezoning it makes sense for them,” he said. "[But] there’s no reason to think that, in the absence of rezoning, it couldn't have happened.”

CORRECTION, March 16, 6:06 p.m. ET: The Grand Hyatt is on 42nd Street and the Roosevelt Hotel is on 45th Street. An earlier version of this story misstated their locations. The story has been updated.

CORRECTION, FEB. 22, 5:15 P.M. ET: Ronald Leibman is a partner at law firm Riker Danzig. A previous version of this story misspelled his last name. This story has been updated.

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CORRECTION, FEB. 22, 5:15 P.M. ET: Ronald Leibman is a partner at law firm Riker Danzig. A previous version of this story misspelled his last name. This story has been updated.

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