Vornado Bucks the Office Space Slump, Unveils Plans for New 62-story UES Tower

The Upper East Side could see a massive new addition if Vornado Realty Trust follows through on its ambitious plan to build a 62-story, 1.8 million square foot office tower on 350 Park Avenue. The real estate investment company already filed an application with the New York City Department of City Planning earlier this year, with public review process slated to begin early next year. But the completion date, if it comes to pass, will not be until 2032.

Much may hinge on how well the slumping office market in NYC rebounds. Vornado said it has purchased the air rights from St. Patrick’s Cathedral and St. Bartholomew’s to allow it to boost the proposed height of the new office tower. Several existing buildings will have to be demolished to make way for the tower.

Designed by architecture firm Foster + Partners, plans call for the tower will be encased in floor-to-ceiling glass, house a public concourse and landscaped terraces, and prioritize sustainable design through the the use of a “high performance building envelope and resilient materials,” according to a press release. The concourse is meant to be a significant structure in and of itself, featuring green space, social seating, prominent art displays, and a prominent view of other nearby landmarks.

If the tower plan comes to pass, it would mark a dramatic reversal for Vornado which last year said it was postponing indefinitely plans to ring Penn Station with ten office towers. It said it would finish the two towers already underway but delayed indefinitely plans for eight others. And it has dropped out of the running to try to land a casino license to be built on the site of the historic Pennsylvania Hotel which was demolished even though the plans to build have stalled.

The office market in Manhattan has been in the doldrums since the pandemic in March 2020 and has yet to recover with high interest rates combined with a workforce that has yet to return to the office fall time to deal a double whammy to the struggling industry.

In his talk with wall street analysts on Feb. 23, Vornado chairman Steven Roth acknowledged: “The office leasing market is on the foothills of recovery but the capital markets still remain challenged and are even tightening slightly as we speak. Foreclosures and givebacks are still in front of us and therefore, so is the opportunity.”

Of New York’s total 422 million square feet in commercial office space, Roth said in a recent letter to shareholders that 245 million sq. ft. of that space is “old, tired, obsolete.”

But some developments such as Related’s Hudson Yards with new modern office space report over a 90 percent occupancy rate with media giants and high end law firms among the tenants.

Roth is banking that new upscale buildings will attract elite tenants who desire modern hi-tech buildings. He says Vornado, which is the second largest real estate developer in the city, is really competing in a “much smaller market of 177 million square feet.”

The proposed project already has some big tenants lined up. Global investment firm Citadel and its subsidiary Citadel Securities will occupy around half of the office space as anchor tenants. Developers plan to purchase $150 million in excess development rights bought from St. Patrick’s Cathedral and Saint Bartholomew’s Church, which they anticipate will contribute to those landmarks’ preservation. An additional $35.8 million will go to the East Midtown Public Realm Improvement Fund.

“Frozen capital markets and sky-high interest rates have and will continue to shut down new builds and tenants’ normal growth will lead to a very tight New York City office market,” Roth wrote in a letter to shareholders. “The single most important financial imperative in our company is to successfully complete the leasing of PENN 2.”

Furthermore, with many workers now logging in from home for part of all of the workweek, New York City’s office occupancy rate still hovers at around 55 percent, raising questions over the need for more office space amid a persistent housing crisis. “The last four years of disruption in the office market have been the worst on record,” said Green Street, a real-estate analysis firm. ”The cumulative amount of office space vacated since ’19 surpasses the amount seen during the dot-com bubble and dwarfs that of the Global Financial Crisis.”

Vornado’s stock price reflects the overall market slump. It is down 61 percent over the past five years. As of April 26, it was trading at $26.27 a share down from a price of $67.29 five years earlier.

The project requires the demolition of a Vornado-owned building at 51st and 52nd Street and a Rudin building at 40 East 52nd Street, according to a recent story in New York Post.

The project will begin the city’s public review process in early 2025; completion is not expected until 2032.

But city officials are already cheering the plans as a sign that New York’s real estate market has bottomed out and is on the road to recovery.

“This project will build on our continued efforts to energize Midtown Manhattan as the world’s most important business address and an economic engine for working-class New Yorkers,” Eric Adams said at the Association for a Better New York’s (ABNY) Power Breakfast earlier this month. “New York City has come back stronger than ever thanks to our focus on protecting public safety, rebuilding our economy, and making our city more livable.”