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February 14, 2018  

Building Listed on Fifth Ave. Retail Corridor

An investment manager is marketing the leasehold interest in a retail/office building on Fifth Avenue in Manhattan that could be worth up to $400 million.

The 184,000-square-foot property’s valuation is driven by the fully leased 68,000-sf retail component, which sits along one of the world’s highest-priced retail corridors.

The longtime owner, an entity controlled by London-based Mactaggart Family & Partners, wants to sell the leasehold interest in the Class-A building and lease the underlying ground to the buyer for 99 years. At the estimated value, the initial annual yield would be roughly 4.5%. Cushman & Wakefield has the listing.

The 17-story building is at 589 Fifth Avenue, at the southeast corner of East 48th Street. Mactaggart — also known as Western Heritable — has owned it since 1998.

The retail space, on the lower five floors, is fully occupied by clothier H&M’s largest store under a lease that runs until 2033. The 116,000 sf of office space, on floors 6-17, is roughly 60% leased.

By some estimates, the retail space could be worth more than $4,000/sf, and the office space could be valued at about $900/sf.

Retail rents have been falling along the stretch of Fifth Avenue between 42nd and 49th Streets. The average ground-floor asking rent was $1,158/sf in the fall, roughly even with the spring but down 8% from $1,259/sf a year earlier, according to the Real Estate Board of New York. But marketing materials note that the average was still up 55% since the third quarter of 2010.

A buyer could seek to lease the vacant office space and raise below-market rents when existing leases roll over. The floorplates of 5,000 sf to 15,000 sf are suitable for relatively small tenants. The amenities include six terraces.

The average Class-A office rent in the surrounding Fifth Avenue/Madison Avenue submarket is $105.33/sf, according to Cushman. While that’s among the highest levels in the city, marketing materials describe it as a “relative value proposition” compared to rents in the adjacent Plaza District submarket. The average Class-A occupancy rate in the Fifth Avenue/Madison Avenue submarket is 87.7%.