Sherwood and the SBC Master Pension Trust managed by JP Morgan bought 370 Lexington from Broad Street Development for $155 million and refinanced seven different loans dating back to 1996, with an $80 million mortgage from the Connecticut General Life Insurance Corp.
A joint venture between Broad Street Development and the Dallas-based private-equity fund Crow Holdings Realty bought the building from Jones LaSalle in April 2006 for $97.2 million, in what was its fifth acquisition in less than two years.
Though Sherwood Equities was not impervious to the slump, CEO Jeffrey Katz believes that 370 Lexington is more resistant to economic fluctuations because it caters to an underserved market of tenants.
“Whether you were renting 5,000 square feet or 500 square feet, even if people needed to move, they were waiting for the market to hit bottom,” he told The Commercial Observer. “But we found that the demand for high-quality small space in the Grand Central district is stronger than what you’re hearing about for the rest of the market … When you are looking for a [220- to 300-square-foot] space, you’re really relegated to what’s left over.
“One reason we’ve bought it,” Mr. Katz added, “is because it is impossible to make more buildings like this. The break-even number [to build a new office building in midtown] is $100 per square foot. We are dealing with a commodity, the supply of which cannot be increased at that price.”
Under Broad Street’s management, occupancy rose from 75 percent to 92 percent. In 2007, rental income was $10,760,648, according to PropertyShark. Despite the stagnant leasing market, Sherwood invested $24 million in capital improvements to woo new tenants in the underserved 3,000- to 1,000-square-foot market. Sherwood upgraded the building’s retail signage; polished the limestone facade; installed a new ventilation system on the ground floor to eradicate the smell of baking bread that wafted from Zaro’s Breadbasket and Subway into the lobby; and successfully campaigned to have an unsightly pay phone outside the main entrance moved around the block.