Tishman Speyer Properties and a partner will collect nearly $1 billion in cash from The Spiral when the Hudson Yards tower’s mortgage is refinanced later this month.
It’s an extraordinary return considering The Spiral opened only three years ago, four years after Tishman and Chicago-based Henry Crown began developing the 2.7 million square-foot building on land acquired in 2014. Their success highlights why rival Manhattan developers are eager to build new office towers at a time when many Manhattan buildings struggle to retain tenants and are exploring ways to convert into apartments.
“The Spiral exemplifies what a premier trophy asset office property in the ‘Flight to Quality’ trend in the office sector looks like,” analysts at Morningstar said in a report yesterday about the refinancing.
Success has many would-be imitators. RXR Realty hopes to develop a new tower at 175 Park Ave. near Grand Central Terminal, and BXP would like to build around the block at 343 Madison, but both projects are on hold until anchor tenants can be found. Vornado Realty Trust and Rudin Management have plans to build a new tower at 350 Park Ave. for Citadel, Ken Griffin’s investment firm. Related Cos., the primary developer of Hudson Yards, is seeking permission to develop a casino and additional towers at the 17 million square-foot site.
Since rising up about a decade ago, Hudson Yards has lured large financial institutions and law firms from the rest of Midtown who like the tall floor-to-ceiling windows, column-free spaces, on-site parking, and elevators that can rise about 90 floors in 90 seconds. Average asking rents of $137 per square foot are double the average in Manhattan, according to Morningstar.
Tishman Speyer entered the arena in 2014 when it acquired the land underneath The Spiral and began developing the 66-story tower four years later. The total cost was $3.6 billion. In 2022 tenants began moving in, including Pfizer, Debevoise & Plimpton, and HSBC. Last year private equity giant TPG agreed to take eight top floors. The building is 94% leased and Fitch Ratings said it produces $200 million in annual net operating income.
The highly profitable tower benefits from a generous property tax discount granted by the city many years ago to incentivize developers to build on what had been a rail yard. The discount, known as a payment in lieu of taxes or PILOT, is estimated to shave about $15 million off The Spiral’s property tax bill this year, to $43 million. In 2030 the abatement will grow to $33 million as the expected value of the tower rises, Morningstar said. The benefit expires in 2041.
Under the terms of The Spiral’s refinancing, which is expected to close Jan. 24, the building will take out a $2.85 billion five-year loan at a fixed interest rate of 5.85%. Funds will be used to pay off a $1.4 billion construction loan and retire $200 million in EB-5 financing that came from overseas investors who backed the project in exchange for a green card. Another $967 million in proceeds will go to Tishman and Crown. Morningstar said the partners would still have $740 million of cash invested in the building.
Tishman Speyer owns 83 million square feet of space globally, including Rockefeller Center and 300 Park Ave. The firm is headed by Rob Speyer, co-chairman of the Partnership for New York City.
A Tishman Speyer spokesman didn’t reply to a request for comment.
