Institute of Culinary Education Signs 20-Year 70,000 SF Lease at New Brookfield Place
Savills was engaged by the Institute of Culinary Education (ICE) to fulfill its complex real estate needs. Principally, ICE was a large tenant (50,000sf) in an old jewelry building (50 West 23rd Street, formerly the Jewelcor Building) with presence akin to a smaller tenant. Due to organic growth, ICE’s footprint within 50 West 23rd Street was distributed over six floors. A lease renewal, at least in portions of ICE’s space where a lot of capital was deployed (in the kitchens), was not feasible as the new owners of 50 West 23rd Street made a strategic decision to reposition the building to attract the same tenancies other Midtown South developers were courting. Given the circumstances and faced with an upcoming 2014 lease expiration, it became clear to the Savills team that relocating ICE to a new facility might be the only option.
Savills apprised ICE of the realities of relocating, which would be a complicated task. If ICE was going to move, the move would have to be a legacy deal that would ensure ICE’s place among the great culinary institutes in America. The transaction would have to increase the enterprise value of ICE as an ongoing concern in a building that would provide ICE the presence it needed, in a location where its students (i.e. customers/clients), would attend.
ICE was not an ordinary tenant, however. Buildings were not as fungible as they might be for an ordinary space user since many developers were reticent to consider a school use, particularly a cooking school use. Complicating matters, marketplace rents were rising exceeding budget constrains (especially within Midtown South) and if a building did meet the minimum requirements, delving into the physical and engineering capabilities of the location often eliminated them. As such, defining the competitive set of alternatives and creating the marketplace for ICE’s tenancy proved challenging.
With the task in-hand, Savills blanketed New York City. Every developer, building owner and landlord agent was contacted with over 100 buildings assessed throughout a two-year period. Shadow space was tracked with an acute eye toward tenant activity. Initially, the space search focused on the top floors of buildings, as it is often easier to vent kitchens “up” rather than “out.” However, the top floors of buildings represent the most expensive real estate in an asset and the leasing costs over a term for such space outweigh the venting costs. Also, by solely concentrating on the top floors of buildings, the space search ignored a significant portion of the available building stock. Following months of evaluation, the Savills team began to feel that a Midtown space option might not be the answer and thereafter presented an unconventional but interesting idea.
With an impressive list of blue-chip Fortune 500 companies among its tenant-roster, Brookfield Properties historically would likely not have considered ICE’s tenancy (and ICE likely not considered Brookfield as Landlord, either). However, Brookfield was at a crossroads as Bank of America had recently announced its intentions to vacate almost 3 million square feet within the 8 million square foot World Financial Center which it had inherited with its takeover of Merrill Lynch. In an effort to reinvent itself and attract tenancies it would otherwise not draw, Brookfield made the strategic decision to reposition the World Financial Center to reflect the changing demographics of lower Manhattan and the companies/industries relocating to the area. Accordingly, they announced an investment of $250 million to reposition the World Financial Center at Brookfield Place and transform the Center’s public space into a world-class shopping and dining experience. Brookfield Place would boast a curated fashion collection, a European-style marketplace, water-front dining and chef-driven restaurants. With much of Brookfield’s capital investment anchored around cuisine, Savills determined that the one thing missing from Brookfield’s epicurean theme was a world class culinary school.
ICE allowed Savills the opportunity to present Brookfield Place and a meeting at the complex with Brookfield executives quickly ensued. Savills inspected the large corporate cafeteria of a vacating Brookfield tenant and noted the existing infrastructure to illustrate the feasibility of venting on a lower floor through louvers (as opposed to venting up and out through the top floor of the building).
In their meeting with Brookfield Place executives, ICE surveyed the new transportation hub into Brookfield Place and saw, first-hand, the progress Brookfield was making to redefine the building’s entrance on West Street. With the feasibility study validated, Brookfield then presented the city’s plans to widen West Street to transform it into a pedestrian-friendly boulevard akin to Park Avenue. ICE quickly saw its future at 225 Liberty Street, Brookfield Place. What was unthinkable only six months prior would soon become a reality as Brookfield executives also shared Savills vision of ICE within Brookfield Place. With both parties on-board and committed to making a deal, and with the financial modeling validated, negotiations were expedited with attorneys on both sides given clear direction to ensure the deal’s successful completion. Ultimately, ICE executed a 20-year lease covering a little over 70,000 square feet within 225 Liberty Street and the downtown community gained a tenant whose impact will reach far beyond the confines of Brookfield Place.