Weil Gotshal Collapse Exposes Trophy Office Lease Value Gap
Weil, Gotshal & Manges occupies nearly 450,000 square feet across 10 floors of the General Motors Building in Midtown Manhattan, paying roughly $121 per square foot under a lease renewal signed in 2014 that extends through 2034. Brokers estimate current market rates for the firm’s space, which includes some of the building’s best Central Park views, would exceed $200 per square foot. The law firm’s collapse has created uncertainty over whether Weil or the building’s owner, a venture led by BXP, will capture the value of the below-market lease.
If Weil seeks bankruptcy protection, it could attempt to sell the lease to another tenant with court approval, though BXP may challenge whether a replacement tenant can satisfy the lease terms. BXP could instead pay Weil to surrender the lease as the firm dissolves, allowing the landlord to relet the space at current rates. BXP faces a refinancing deadline next year for its 3.43% mortgage on the property, which may give Weil negotiating power and incentivize BXP to resolve the lease question before approaching lenders.
BXP President Doug Linde acknowledged on an earnings call this week that a “vast gap” exists between existing rents at the GM Building and current market rates. Manhattan’s office availability rate dropped to 13.4% in the third quarter, with availability approaching single digits for top-tier space, according to Avison Young. Trophy assets in Midtown have commanded premium rents as major law firms and financial companies compete for prime locations, creating what one broker called a “complete vacuum” of available high-quality space.
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