731 LEXINGTON AVENUE/ ONE BEACON COURT New York, New York The completion of this project was the crowning event in the transition of Alexander’s from a failed dis- Development Team count retailer to a profitable REIT. In the late 1970s, Interstate Properties, a regional REIT managed by Owner Steven Roth, who is also chairman and CEO of Vornado Realty Trust, started buying up shares in the pub- Alexander’s, Inc. licly traded Alexander’s, with the declared intention of unlocking the value in the retailer’s properties. Paramus, New Jersey By the time Alexander’s went bankrupt in 1992, Interstate and Vornado together owned more than 60 www.alx-inc.com percent of its common stock. In 1993, Alexander’s emerged from bankruptcy repurposed to focus on its Developer biggest asset: the land under its 11 stores. Of most interest was the entire block it owned just south of Bloomingdale’s flagship store on Lexington Avenue. Vornado Realty Trust New York, New York Vornado churned through a succession of development plans, architectural plans, and architects be- www.vno.com fore finally proceeding, six years later, with a mixed-use development plan prepared by Cesar Pelli & As- sociates that called for a residential, hotel, office, and retail tower. At the time, Bloomberg, LP, the finan- Architects cial news publisher, expressed interest in leasing 450,000 square feet (41,806 m2) of headquarters space, Cesar Pelli & Associates which would make it the anchor tenant. As a lease was about to be signed in late 2000—and after exca- New Haven, Connecticut vation had begun and a foundation had been poured in an effort to beat an impending zoning change www.cesar-pelli.com that would have imposed a lower height limitation—Bloomberg raised its requirement to 700,000 square SLCE Architects feet (65,032 m2). This necessitated a complete redesign of the project, including the elimination of the New York, New York hotel component and the reorienting of the office component to the more commercial Lexington Avenue. September 11, 2001, threw a new question into the arena: Would the market for luxury condomini- ums starting at 475 feet (145 m) in the air be weakened? The development team decided to proceed with the program as planned, which proved to be the correct decision. Manhattan’s residential real estate mar- ket started on one of its largest upswings ever just as the 105 condominium units of One Beacon Court (the residential component) came on line. Their pricing and absorption exceeded expectations. The av- erage sale price exceeded $2,000 per square foot ($21,529 per m2), and some units—those with views of Central Park—sold in excess of $3,000 per square foot ($32,293 per m2). Retail leasing has also exceeded the pro forma, and 731 Lexington Avenue (the retail component) has reached 98 percent occupancy. Big-box retailing—which, the developer recognized, lacks suitable space in Manhattan—can be accommodated in two 18-foot-high (5.5 m) subterranean levels, each to- taling 75,000 square feet (6,968 m2). Home Depot leases one level (reportedly for $80 per square foot 42 MIXED USE · WINNER WINNER · MIXED USE 43 Project Data ($861 per m2) and Bloomberg leases the other for conference, training, and data-center space. Since Web Site floor/area ratios in Manhattan are calculated only on above-grade space, the below-grade spaces at 731 Lexington Avenue create enormous value for “free.” www.onebeaconcourt.com Vornado benefited from a zoning bonus under New York City’s inclusionary housing program by de- Site Area veloping 41 affordable housing units (amounting to 41,000 square feet/3,809 m2) off site. This increased 1.94 acres (0.78 ha) One Beacon Court’s FAR from 10 to 12, netting the developer an additional 169,000 square feet (15,701 m2). And the developer received a partial real estate tax exemption under the city’s 421(a) program for Facilities providing multifamily housing units and supporting off-site affordable housing. 2 1.4 million square feet (130,000 m ) The story of 731 Lexington Avenue/One Beacon Court’s development is one of perseverance—the total area developer’s dogged quest to unlock the full value of undervalued real estate and its determination to ride 2 885,000 square feet (82,219 m ) out the vagaries of high-stakes development in New York. Exhibiting the highest level of entrepreneur- leasable office space ship throughout the two-decades-long process, Vornado resurrected Alexander’s as a hugely profitable 2 174,000 square feet (16,165 m ) company, even without its namesake department stores. leasable retail space 248,000 square feet (20,040 m2) residential condominiums; 105 units Land Uses office, retail, residential Completion Date mid-2005 Jury Statement On the site of the former flagship Alexander’s department store, this 1.4 million-square-foot (130,000 m2) development—occupying an entire block—now contains offices, luxury condominiums, retail spaces, and Manhattan’s first below-grade big-box store. The project’s instant success was a deserved reward for the owner’s patience and foresight in waiting more than a decade to attract the right developer with the right concept and the right tenants. 44 MIXED USE · WINNER.