The new owner of the Manhattan office tower with the Chippendale-inspired top hopes a $300 million overhaul will place it in a class of upscale buildings charging some of the highest rents in the city.
Owner Olayan America and its development partner Chelsfield America say the revamp is focused on making the lower portion of the 1984 granite-and-steel building into a transparent, light-filled and amenity-packed space. It is designed to place the 41-story building on the same level as such trophy properties as the General Motors Building, aiming for rents from $115 to $210 a square foot, company representatives said.
That is an aspiration that will face challenges in today’s office market, real-estate brokers and executives said. New office buildings rising in the far West Side and south of Midtown’s traditional office district have intensified the competition for a limited pool of high-paying tenants, real-estate executives said.
The renovation of 550 Madison Ave. has to be better than well done, said Michael Shenot, a managing director at real estate services firm JLL. “It has to be somewhat awe-inspiring to get those rents throughout the building, because there is enough office product around and close to it at better prices,” he said.
Olayan America, the U.S. investment arm of private Saudi Arabian conglomerate Olayan Group, acquired the 850,000-square-foot building for $1.4 billion from the Chetrit Group in 2016.
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Designed by architects Philip Johnson and John Burgee, the tower’s office space always has been occupied by single users, first as the headquarters of AT&T Inc. in 1984 and then the offices of Sony , which acquired the property in 1991. The Chetrit Group, which bought it in 2013, had hoped to convert it to luxury residences and a hotel.
Though more than 30 years old, the now-empty building has a number of features tenants prefer today, such as high ceilings, office space without columns and large glass windows, company officials said. Mr. Johnson also included two, 20,000-square-foot floors of amenity space that could be used for features like a variety of meeting areas or restaurants, which help attract tenants.
Once home to Sony and AT&T, the building at 550 Madison Avenue in Manhattan, is undergoing a makeover. Photo: Alexander Cohn/The Wall Street Journal
“Johnson knew a 21st-century workforce before we knew who we were,” said Mary Ann Tighe, head of the New York Tri-state region for CBRE Inc., which is marketing and leasing the tower. “The DNA of this building is about no expense spared.”
And that is the approach Olayan said it is taking with the renovation, which is expected to be completed in 2020.
“We’re not going to scrimp and save,” said Tony Fusco, managing director and head of Olayan America’s real-estate division. “We’re building this to be leased and held for generations.”
The revamp, designed by Snøhetta, will replace the building’s systems with more efficient, modern equipment and dramatically change the lower part of the structure. The plans include a 21,000 square-foot, public garden in the back of the building, almost doubling the privately owned public space that exists within a closed atrium. The glass atrium enclosure will be removed and a small annex building demolished to create an open, expanded garden.
The building’s front granite facade will be partially replaced by scalloped glass exposing steel cross beams and revealing the lobby and two levels of tenant amenity space. Portions of the tower’s rear facade will be replaced by glass providing views from the interior and from Madison Avenue of the garden in the back.
The elevators at 550 Madison Ave. will be moved from the center to the sides.Photo: Alexander Cohn/The Wall Street Journal
“What all this does is bring it down to human scale,” said David Laurie, managing director of Chelsfield America.
The redevelopment’s amenities will be key, real-estate brokers said. Office landlords of new and older towers are investing heavily to provide fitness centers, more dining options, common tenant conference rooms and lounge settings, real-estate brokers said.
The project will have to contend with upscale office developments in neighborhoods outside of the Plaza District. The district, where the Sony Building is located, is loosely defined as the area between 53rd and 61st streets from Sixth to Park avenues.
Years ago, high-paying tenants such as hedge funds and family offices determined their office location based on the proximity to the chief executive’s home, which often meant the Upper East Side, said Jeffrey Peck, executive managing director at real-estate services firm Savills Studley.
Now, companies’ human-resources departments, focused on recruiting and retaining workers, are more involved in the search, he said. Buildings in Hudson Yards, downtown Manhattan, the Meatpacking District and other neighborhoods promising a cool environment attractive to young employees are desirable options for these tenants.
In 2014 and 2015, more than 80% of all leases signed with rents topping $100 a square foot took place in the Plaza District, Mr. Peck said. In 2016, the percentage fell to 67%. So far this year, 63% of these top-dollar leases took place in the Plaza District.
The office floors at 550 Madison Ave. in Manhattan are column-free, which is preferred by most tenants these days.Photo: Alexander Cohn/The Wall Street Journal
Well aware of the competition, Olayan said it is pulling out all the stops when it comes to amenities. Among some of the highlights are dressing rooms with tailor service, keeping in mind employees who might have online orders sent to work, Mr. Laurie said. Other features will include an employee fitness center, spaces for town-hall gatherings or other events, conference rooms, lounge and meeting areas with a fireplace, and a range of dining options from casual coffee bar to sit-down dining.
“We’re actually able to provide office space that meets the perception of what they [tenants] need and think they can’t find in Midtown,” Mr. Laurie said, “when it’s actually at their doorstep.”
Write to Keiko Morris at Keiko.Morris@wsj.com