European Union Nears Deal for $40.5 Million Midtown Manhattan Office Lease

The European Union is negotiating a $40.5 million lease in midtown Manhattan to replace office space it must vacate by late July.

The Brussels-based alliance is near an agreement for its United Nations delegation to take about 45,000 square feet (4,200 square meters) at 666 Third Ave., known as the Chrysler East tower, said Christopher Matthews, an EU spokesman. The 32- story property and its neighbor, the iconic Chrysler Building, are controlled by Tishman Speyer Properties LP.

The EU seeks to complete the deal so it can move from its current home, two blocks away at 222 E. 41st St., before it has to pay holdover fees, according to two people with knowledge of the plans. Those costs could be substantial, said the people, who asked not to be named because the talks are private.

The fees are “certainly a consideration” in the lease negotiations, said Matthews, who is based in New York. “We need to be out of here by the end of July, and that depends on the readiness of the new space. It’s all part of the deal.”

The EU would avoid the charges if it or Tishman absorbed the cost of paying overtime to construction workers to expedite the needed renovations, one of the people said.

Bud Perrone, a spokesman for New York-based Tishman, declined to comment.

Under lease terms, which are still being negotiated, the EU would pay about $60 a square foot annually for 15 years, with an option for an additional five years, Matthews said. That would be a commitment of at least $40.5 million, or 31 million euros, the currency the organization seeks to stabilize as it grapples with its sovereign-debt crisis.

Rent About Same

The rent would be about the same on a per-square-foot basis as the rate for the EU’s current 41,000-square-foot office at 222 E. 41st St., a 25-story tower between Second and Third avenues, according to Matthews.

Both buildings are within walking distance of the UN headquarters, at the East River end of 42nd Street. The EU has permanent observer status at the international body.

The offices need to accommodate about 60 people, and ample conference space is a priority, especially during the UN’s “ministerial week in September, when we get a huge flood of visitors and VIPs from Brussels,” Matthews said.

“We have 27, soon to be 28, member states that come and meet at this location,” he said. “This is, if you will, the rallying point where EU coordination takes place, so it has to be somewhere central.”

The New York Observer reported earlier this week that the EU is in talks for space at 666 Third Ave.

Expiring Lease

The EU was notified in the first quarter that its current landlord, Wells Real Estate Investment Trust II Inc. of Atlanta, wasn’t going to renew its lease, which expires in July. The building’s largest tenant, the international law firm Jones Day, is expanding into that space, according to one of the people with knowledge of the EU’s lease negotiations.

Terrell McCollum, a Wells spokesman, declined to comment. David Petrou, a Jones Day spokesman, didn’t immediately return phone and e-mail messages seeking comment. Beth Atkinson, a spokeswoman for New York-based Studley, said she would have to check with executives there before commenting.

The EU also looked at offices at 757 Third Ave., a 27-story property near East 47th Street, and 885 Second Ave., a 50-story tower a block west of the UN that’s also known as 1 Dag Hammarskjold Plaza, among other locations, Matthews said.

The EU’s rent would be lower at 757 Third Ave., according to Mitchell Konsker, a broker with Jones Lang LaSalle Inc. (JLL) who represents the building’s owner, RFR Holding LLC. The asking rate at the tower is $55 to $59 a square foot and “a couple hundred thousand” square feet are available, Konsker said.

Cost isn’t the EU’s only consideration, Matthews said, citing security as another priority. The organization is concerned that any move may complicate its mission, he said.

“There could be some disruption if things don’t go well,” he said. “It’s a busy time, and we’re doing all we can to avoid that.”

To contact the reporter on this story: David M. Levitt in New York at dlevitt@bloomberg.net

To contact the editor responsible for this story: Daniel Taub at dtaub@bloomberg.net

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