Chrysler Building Sale Prompts Question: What’s a Trophy Worth?

(Bloomberg) -- One Thursday in the spring of 1978, an advertisement in The New York Times caught the attention of Manhattan’s real estate industry.

“THE CHRYSLER BUILDING” it said in bold letters above a sketch of the skyscraper. “So celebrated, that no other address is necessary.”

The ad signaled a rebirth for the iconic Art Deco tower with its shining spire and signature eagle gargoyles. The building had fallen on hard times in the 1970s -- grappling with mounting vacancies, competition from more modern towers downtown, and foreclosure proceedings against an owner.

Now, four decades later, the Chrysler building is in search of another rebirth as its owners seek a buyer and its midtown neighborhood undergoes its own transformation. There’s little doubt that the landmark property will lure investors with big pocketbooks. But with its aging interior, and the city’s financial and tech firms demanding state-of-the-art infrastructure in new buildings at Hudson Yards to the west or the World Trade Center towers in the south, the question is at what cost?

“For someone, that is an absolute trophy -- it’s right up there with Rockefeller Center and the Empire State Building,” said Thomas Birnbaum, president of NYC Realty Advisors. “It will always be a successful building, although it doesn’t compete head-on with the new product today.”

Midtown Rezoning

Abu Dhabi, the Persian Gulf Emirate that’s the Chrysler Building’s majority owner, is considering a sale of the 77-story tower after about a decade of ownership, people with knowledge of the matter said Wednesday. Abu Dhabi Investment Council, the government’s sovereign wealth fund, paid $800 million for a 90 percent stake in 2008. The owners have hired CBRE Group Inc. to market the property.

A 2017 rezoning of the Midtown East area that would allow for taller buildings and finance improvements of public spaces and transit, including Grand Central, increases the attractiveness of the area, said Darcy Stacom, head of CBRE’s New York City capital markets group. The Chrysler building sale “will show the strength of Midtown and how smart it was of the administration and real estate groups to get together and do the Midtown East rezoning,” she said.

With new high-end properties to move into, Midtown East could recapture some of its old glory, and the Chrysler building would get a boost from the improving neighborhood, said Jeffrey Langbaum, a senior analyst at Bloomberg Intelligence. The owners would have to improve the property to keep up with new construction, he said.

The skyscraper, completed in 1930, was for a short time the tallest building in the world, only to be surpassed when the Empire State Building opened in 1931. It’s one of the most recognizable symbols of the Manhattan skyline, with its sunburst-patterned stainless steel spire. The wood, glass and marble lobby is among the most ornate in the city. Edward Trumbull’s massive ceiling mural, “Transport and Human Endeavor,” nods at the tower’s carmaker connections.

Chrysler Corp. founder Walter Chrysler bankrolled construction of the skyscraper, which was in a race to become the world’s tallest building. Designed by architect William Van Alen, the tower features a number of automotive touches including radiator caps, and at one point served as the headquarters for the car company.

Full Price

“There are buyers out there that would pay absolutely full market price,” Birnbaum said. “There’s a wide spectrum of international buyers that would love to own that property.”

While the skyscraper’s acclaim may attract some potential buyers willing to pay a trophy premium, the cost of maintaining it could be substantial. Empire State Realty Trust Inc. has spent millions on improvements for the Empire State Building to compete with newer offices catering to tech-reliant financial firms.

New York’s supply of offices is increasing, including SL Green Realty Corp.’s One Vanderbilt, under construction on the west side of Grand Central. Between now and the end of the year, 6 million square feet of new developments are set to be delivered, with another 5.8 million square feet by 2022, according to a report from BTIG.

Tricky Valuation

“The stock of office buildings in midtown is very old, and new state-of-the-art buildings are in very high demand because they offer things that older properties don’t offer,” said Bob Knakal, chairman of New York investment sales at Jones Lang LaSalle Inc. “Those are things like ceiling heights, fewer columns or column-free spaces, and the ability to integrate new technologies in an extremely efficient way.”

Arriving at a valuation for the skyscraper involves several moving parts, including complex air rights and ground-lease terms. Recent sales of other large office buildings nearby have gone for around $1,000 per square foot to $1,500 per square foot, according to Jim Costello, senior vice president of Real Capital Analytics. Applying that math to the 1.2 million-square-foot Chrysler Building would lead to a valuation of $1.2 billion to $1.8 billion, though it could be worth less since a deal probably wouldn’t include the land, Costello said.

The tower faces increasing expenses tied to its ground lease. The land under the Chrysler Building is owned by the Cooper Union school, which raised the annual fee to $32.5 million last year from $7.75 million in 2017, Stacom confirmed. More increases are scheduled in coming years.

“The question here is the degree to which the leasehold interest can support the increased ground rent, which will be the determinant factor in establishing its value,” said Woody Heller, vice chairman and co-head of the capital markets group at Savills Studley. Heller represented a consortium of banks that in 1997 sold the Chrysler Building to Tishman Speyer, which spent $100 million on renovations when it bought the building and still owns a small stake.

“Buildings that enjoy this extraordinary level of notoriety will always enjoy a substantial emotional premium and therefore the arithmetic is only a portion of the valuation equation," Heller said.

--With assistance from Mahmoud Habboush, Dinesh Nair and Patrick Clark.

To contact the reporter on this story: Lily Katz in New York at lkatz31@bloomberg.net

To contact the editors responsible for this story: Debarati Roy at droy5@bloomberg.net, Rob Urban

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