Former New York Icon: Why This World-Famous Skyscraper Is Nearly Worthless Today

Today the iconic steel-domed tower is owned by Signa RFR US Selection AG, in which Signa Holding, owned by fallen real estate investor René Benko (46), owns a half-share. Bankrupt Signa must sell its silverware to pay creditors’ claims, which currently amount to 7.8 billion euros (equivalent to 7.5 billion francs). The Globus owner must leave the Chrysler Building, among other things.

Big price drop

But sales efforts have apparently been unsuccessful so far. In general, it is doubtful how much the building is worth. Austrian Signa and German-American RFR Group purchased the Chrysler Building from the Abu Dhabi sovereign wealth fund in 2019 for $150 million. In 2008, he paid $800 million for a 90 percent share of the skyscraper.

How did this extreme price drop come about? The high construction rights interest, a type of land lease that the Chrysler Building owners had to pay annually to the land owner Cooper Union (a tuition-free university also financed by that revenue), was likely particularly difficult. This rose to $32.5 million in 2019, after $7.5 million the previous year, says Jaroslav Machalicky (48), a real estate expert at Zurich private bank EFG. In addition, there was a relatively low usage of only 80 percent, and a deal with Amazon fell through.

The same problems continue to plague the building five years later: Building rental rates are expected to continue rising to $41 million annually through 2028, Machalicky said. “Given the building’s 20 percent vacancy rate and Midtown Manhattan’s current average rent as of the fourth quarter of 2023, the lease payment will represent more than half of the building’s annual net operating income.”

Machalicky says this will require considering the capital expenditures required to bring the building up to the latest ESG standards. US office inventory is aging, poorly ESG aligned, and requires major capital expenditures to bring it into contemporary form.

Hundreds of millions of investments will be required

“The Chrysler Building is primarily a redevelopment building,” confirms Jan Eckert (59), Swiss CEO of real estate consultant Jones Lang Lasalle (JLL). Signa and RFR deliberately entered into this redevelopment with the intention of investing several hundred million dollars to reposition it. “Since they never got this far, the building will probably have to be handed over as a redevelopment.”

“In New York City, buildings are valued directly based on their cash flow situation,” says Eckert. Buildings can lose a lot of value if tenants move out of areas that can only be reactivated with significant investment.

Commercial real estate is in crisis

The timing of the sale of an office tower in New York is also extremely bad. Dark clouds are currently gathering in the US commercial real estate market. The trend towards hybrid working and higher interest rates are making commercial real estate investments less attractive.

Banks in the US, Japan and Europe have been forced to admit in recent weeks that the loans they made for office buildings may not be fully repaid. For example, Deutsche Pfandbriefbank (PBB), which is heavily involved in the US commercial real estate market, had to increase its provisions for bad loans.

A share of the office building was sold for $1

Canada’s largest pension fund sold a 29 percent stake in a Manhattan office building for $1 at the end of 2023 to a partner that also assumed its share of debt, Bloomberg business agency reported. Investors bought the twenty-storey building only to transform it into a modern office building in 2021 together with Singapore sovereign fund GIC.

So all signs point to Signa receiving a price lower than the Chrysler Building’s 2019 purchase price. Given the current decline in American commercial real estate, it may even be nearly worthless.