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Google angles for more of Chelsea Market

Crain’s New York
December 5, 2012
By Daniel Geiger

Unable to stretch out as quickly as it may have initially hoped at its own building on 111 8th Ave., space-hungry Internet giant Google is taking another bit out of its neighbor’s building.
The California-based company is in talks to take about 75,000 square feet at Chelsea Market, adding to the roughly 95,000 square feet the company leased at the building less than two months ago.

There are currently no sizeable vacancies at Chelsea Market, which is just one block west of 111 8th Ave. at 95 9th Ave., but a source familiar with the negotiations said opportunities may exist to create space for Google.

“There are a few tenants in Chelsea Market that can be moved around to open up the space,” said the source, who commented anonymously because the transaction was still being arranged and none of the parties involved had authorization to speak.

David Falk, New York area president of Newmark Grubb Knight Frank who represents Chelsea Market, and Ken Rapp and David Hollander, brokers who represent Google, all declined to comment.

The rent in the deal, which has not yet been signed, is around $70 per square foot, a rate that would make Chelsea Market one of the highest-priced office buildings in the hot midtown south office district where rents have been rising steadily driven by strong demand.

Google headquarters its New York operations at 111 8th Ave., where it currently occupies about 650,000 square feet. It purchased the property early last year for nearly $2 billion. The company wanted control so that it could grow into the property’s nearly three million square feet of space over time. Executing that strategy, however, has been more difficult that it may have initially expected, however.

Several tenants at the property, including Nike, have refused buyout offers to leave their space early. Other tenants, such as the advertising firm Deutsch Inc., have opted to exercise renewal rights in their leases that will allow them to tack on several years to their occupancy. Deutsch, for instance, has the option to extend its lease by five years and asked Google to pay it $20 million, according to sources not to use it and relocate elsewhere. Google refused the offer and has instead expanded at Chelsea Market.

The situation with demand exceeding supply demonstrates why Jamestown, the owner of the roughly 1.1 million Chelsea Market, labored through a difficult public review process to gain city approval to build an additional 300,000 square feet of office space atop the property.

To receive clearance for the controversial expansion, which was approved by the City Council in October, Jamestown pledged to give about $13 million to the nearby High Line, $5 million to an affordable housing fund and $1 million to an internship program that would take place at the property, among other concessions.

If the Google deal gets done, the tenant would have about 300,000 square feet at the building. Before taking 95,000 square feet in October, the company had about 125,000 square feet at the property.

 

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