BLK BlackRock Inc

By Sarah Krouse 

BlackRock Inc. is presenting New York real-estate developers with something they haven't seen in a while -- a financial firm that is looking to grow.

While big banks and hedge funds are in retreat and emptying out space, the asset management giant is deciding whether to move into a new global headquarters and is narrowing its review of sites being developed in Manhattan down to three.

The 850,000-square-foot deal will be among the biggest leases of the year for the city and a contrast to the direction of the banking industry. That sector's total footprint in New York City is roughly 13 million square feet smaller now than it was in 2008, according to real-estate brokerage firm JLL -- down about 28% since the financial crisis and a loss equal to more than six buildings the size of Goldman Sachs Group Inc.'s headquarters in lower Manhattan.

"You're seeing a paradigm shift," said Scott Panzer, vice chairman of JLL. "Where all the big financial-services firms ramped up in the early part of the century, we've seen a huge pullback."

BlackRock's search has become the focal point for brokers looking to lock in one of the highest profile tenants now examining space. The firm is considering sites at the Hudson Yards development on the far West Side, neighboring Manhattan West and the World Trade Center development in lower Manhattan, according to people familiar with the matter, in addition to remaining in its current space. The deal could be worth more than $60 million in annual rent.

Its selection process is still under way, though a decision could come as soon as later this year, the people said.

BlackRock, the $4.9 trillion money manager, needs more than the 700,000 square feet it currently occupies. The firm has seen its ranks grow to about 13,000 employees globally from 5,341 employees at the end of 2008, helped by well-timed acquisitions, regulatory and economic shifts and evolving investor taste. Its exchange-traded-fund business, for example, which sells low-cost funds that track the performance of indexes, is the world's largest.

The company, which sells mutual funds, ETFs and investment-advisory services, is currently based on 52nd Street between Madison Avenue and Park Avenue in New York, occupying multiple floors in two buildings across the street from each other.

There are few sites in the city large enough to accommodate BlackRock, which was started from a single Midtown Manhattan office in the late 1980s. Throughout its life, the company has filled office space within four square blocks of the Park Avenue office in which it was founded.

"In anticipation of our current campus lease expiring in 2023, we are prudently planning for our long-term real-estate needs in New York City, " a BlackRock spokesman said.

BlackRock's search comes as banks, once main drivers of real-estate leasing activity in New York, thin out their ranks. In addition, hedge-fund leasing activity has also slowed this year to a fraction of last year's record activity, according to JLL. These funds had helped fill some of the city's highest profile space in the immediate aftermath of the financial crisis, but more recently have shrunk as the industry grapples with uneven performance and investor withdrawals.

In their place, traditional asset managers, foreign financial firms, financial technology and market data companies have become more sought after. Still, BlackRock and other asset management firms have far smaller footprints than the million or more -- often several million -- square feet banks fill in Manhattan.

Overall Manhattan leasing activity this year has been slow, with the city set for its lowest year of leasing activity since 2009, according to JLL.

Among the only banks that have agreed to fill new space in the last 12 months is San Francisco-based Wells Fargo Securities, which will occupy 500,000 square feet at Hudson Yards.

BlackRock and others possibly looking to move headquarters consider more than just pricing. Companies examine what kinds of meeting space and amenities they will require long-term and how much of their workforce needs office space each day. Firms also often look beyond their current locations to secure better leasing terms at their existing space.

On price, the average asking rent for top office space at the World Trade Center was about $75 a square foot at the end of June, according to JLL, while the average asking rent for high-end office space in midtown, home to Hudson Yards and Manhattan West, was about $81 a square foot.

By those figures, BlackRock would spend between $64 million and $69 million annually, though rents are subject to market conditions and negotiations that take into account scale and firm-specific requirements. BlackRock's 2015 net profit was $3.3 billion.

As part of its search, BlackRock took a preliminary look at SL Green Realty Corp.'s One Vanderbilt, a planned skyscraper set to rise above Grand Central Terminal, according to people familiar with the matter, but is no longer pursuing that option.

One of the contenders the firm is considering offers office space as well as a potential investment opportunity. Hudson Yards, developed by Related Cos. and Oxford Properties Group, has allowed some tenants to take a stake in the buildings they occupy.

KKR & Co. and Time Warner Inc. are among the companies that have purchased their office space at 30 Hudson Yards. Coach Inc., the first tenant to move into 10 Hudson Yards, is paying $530 million for its 738,000-square-foot portion of the tower and an additional $220 million to build out the space.

The first commercial building at the sprawling site along the Hudson River opened earlier this year.

Brookfield Property Partners' Manhattan West project will include office, residential and hotel space. The developer sold part of its stake in the project to Qatar's state investment fund late last year.

--Keiko Morris and Peter Grant contributed to this article.

Write to Sarah Krouse at sarah.krouse@wsj.com

(END) Dow Jones Newswires

July 28, 2016 02:47 ET (06:47 GMT)

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