Hedge funds pull Manhattan rents to $200/sq ft

By Ilaina Jonas

NEW YORK, July 9 (Reuters) - In New York, hedge funds are the office landlord's best friend.

While hedge funds are not numerous compared with the overall Manhattan tenancy, their influence on rental rates has been breathtaking, several brokers said.

"They are the drivers of where market rents are going," Alex Chudnoff, Cushman & Wakefield executive director, said.

What they lack in population, they make up for in buying power. Many hedge funds are not only able to pay top dollar for their offices, but they need to do so to impress and retain both clients and staff. Like a magnet, hedge fund rents have pulled up other rents across the market.

"They've brought everything up because they've raised the top level, and now the B space is priced as A space, and the C space is now priced at B space," said Ben Friedland, CB Richard Ellis Group senior vice president.

Despite Greenwich, Connecticut's fame as a hedge fund haven, many firms, such as The Tudor Group, have offices in both locations. Hedge fund industry research firm HedgeFund.net estimates there are about 1,250 hedge funds in Manhattan.

"Greenwich will never top New York City unless the principal lives there," Chudnoff said.

In the first quarter of 2007, the average asking rent for top quality Midtown office space rose 27 percent to $62.89 per square foot from a year earlier. Rents surpassing $100 per square foot -- shocking just a year ago -- were too numerous to count.

Cushman & Wakefield is scheduled to release its second-quarter Manhattan market statistics on Tuesday. Sheldon Solow, owner of one of the most prestigious buildings in Manhattan, is already asking $200 per square foot for the top floor of 9 West 57th St.

"It's truly special space," said Christopher Kraus, principal at Staubach, describing the view of Central Park above the 26th floor.

Cushman & Wakefield's Chudnoff refers to Solow's building and five others located near Central Park -- 590 Madison Ave., the General Motors Building at 767 Fifth Ave., Park Avenue Tower at 65 East 55th St., Lever House at 390 Park Ave., and Vornado Realty Trust's (VNO.N) 888 7th Avenue -- as the "hedge fund hotels." Each counts at least six funds as tenants.

"The hedge funds in those buildings are the guys who have at least $2 billion under management," Chudnoff said.

ART AND SPACE

Over the past five or six years, not only have their numbers increased, but some hedge fund firms have grown and their space needs have increased, with some surpassing 100,000 square feet.

The search is taking them to areas once unheard of: Third Avenue, lower Madison Avenue, Park Avenue South, the Financial District and Avenue of the Americas, where asking rents for 1 Bryant Park reach $185 per square foot.