Brookfield Office Properties Inc. plans to switch one of the two proposed office towers at its Manhattan West development to apartments as it seeks to tap into strong demand for New York housing.
“With a sub-one percent vacancy level, residential is pretty compelling,” Chief Executive Officer Dennis Friedrich said today on the New York-based landlord’s third-quarter earnings conference call.
Brookfield is putting the finishing touches on a plan for the project on Manhattan’s far west side that includes an 850-unit apartment building, Friedrich said. The proposal requires the construction of a platform over railroad tracks that serve Pennsylvania Station to the east of the site.
Manhattan West is one of two major developments planned for the borough’s far west side, where the city wants to extend the Midtown central business district. The other, which also requires a deck over rails, is Related Co.’s 12 million-square-foot (1.1 million-square-meter) Hudson Yards project, a half-block west of Brookfield’s trench.
Brookfield’s re-imagined plan would still have offices, Friedrich told analysts. The company would market the office part while the deck is under construction, though the tower wouldn’t be built until it has a committed anchor tenant, he said.
The original plan called for 5.4 million square feet of primarily office space, with some retail and open space included. The tallest building would be 62 stories, according to the project website.
“With the changes we are now able to build two buildings on that project really in the same time frame as opposed to sequentially building office buildings further out in time,” Friedrich said. “The market for residential is robust, you don’t have the same pre-leasing profile. You build more to spec, based upon how confident you feel.”
The median monthly rent of a Manhattan apartment jumped 10 percent in September from a year earlier to $3,195, just 2.1 percent below its 2006 peak, according to data from appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate. The market should continue show strength over the next year to two years, Miller Samuel President Jonathan Miller said in an interview last month.
Friedrich didn’t specify a start date for the Manhattan West project. Agreements with railroad operators on the plan to deck over the rails, which move about 100,000 people each weekday into and out of Penn Station, are virtually complete, he said. The tracks serve Amtrak, New Jersey Transit and the Long Island Rail Road.
“We’re just getting our last ducks in order,” he said.
Third-quarter funds from operations, a gauge of a property company’s ability to generate cash, fell 2.4 percent from a year earlier to $164 million, Brookfield reported today. FFO per share was 29 cents, exceeding the 28-cent average estimate of 13 analysts surveyed by Bloomberg.
Brookfield rose 3.9 percent to $16.20 at 3:29 p.m. in New York trading. The company said on its conference call that it estimates its portfolio to be worth about $19.50 a share.