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Real estate brokers love to gab about who’s paying the most for Midtown office or retail space. But who’s paying the least? The U.S. Postal Service can lay a strong claim to that honor.
For 500,000 square feet of space at 909 Third Ave., the post office pays $2.23 per square foot in base rent, according to a report from bond-rating firm KBRA. That’s three times the price of a first-class stamp and 96% below the market rate of $55 per square foot for the space, according to a 2021 appraisal.
Knowing a good deal when it has one, last October the financially strapped Postal Service exercised a five-year extension for its space at the corner of East 54th Street, KBRA said. It has two more extensions.
The postal branch, named for Franklin D. Roosevelt, is part of a larger processing center housed in the first four floors of the 1.4 million square-foot tower. A post office has occupied the space since the tower was developed in 1968, and spokesman Xavier Hernandez says it houses 500 employees who process and deliver packages to nine other post offices on the east side of Manhattan.
“They work three different eight-hour shifts covering a 24-hour workday,” Hernandez said.
909 Third is owned by Vornado Realty Trust, which declined to comment. The building is 95% occupied, KBRA said, a high figure for an older Midtown building. Tenants include the marketing firm Weber Shandwick, pharmaceuticals maker AbbVie, wealth manager Geller & Co., and law firm Morrison Cohen, who collectively pay a weighted average rent of $67 per square foot, Vornado said in a filing. The building’s annual property tax bill is $14.5 billion and the city Department of Finance estimates its market value is $308 million. The ground underneath 909 Third was acquired in 2021 by Colonnade Management from Vornado for $192 million.
In 2021 a different bond-rating firm, DBRS Morningstar, said the post office paid $14 a square foot. It wasn’t clear whether the rent rate has changed over time.
Government agencies often use their clout as long-term tenants that absorb a lot of space to negotiate below-market rents.
The New York City Department of Education pays $40.73 a square foot for nearly 300,000 square feet at 26 Broadway, according to a 2022 KBRA report, and the state Court of Claims pays $44 a square foot in the same building, which is owned by the Chetrit family. The market rate is $47.50 a square foot, KBRA said.
Some agencies negotiate even better deals. The Board of Education Retirement System, a pension plan for school crossing guards and janitors, says it leases 51,000 square feet at 55 Water St. in the Financial District at just $3.25 a square foot. Altogether the city leases 22 million square feet of privately-owned space, according to the Department of Citywide Administrative Services, more than triple the 7 million square feet leased by New York’s largest commercial tenant, JPMorgan.
The Postal Service’s ultra-low rent in Midtown should please Congress, which has ordered the agency stabilize finances after 20 years of declines in first-class mail volume. The post office posted operating revenue of $78 billion last year, a 0.4% decrease resulting in a $2.3 billion “controllable loss” that excluded pension expenses. When raising the cost of stamps in January for the third time in 12 months, the post office cited inflationary pressures and “the effects of a previously defective pricing model.”
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Aaron Elstein , 2024-04-10 19:24:12
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