Is this the end of expensive office space in New York??

[David Goldsmith]

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The Daily Dirt: A tale of two office buildings


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The Daily Dirt: A tale of two office buildings

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  The Real Deal
  ToDavid Goldsmith
  Nov 30 at 10:00 PM
  therealdeal.com
  

  ​ FOR SUBSCRIBERS | ANALYSIS OF NEW YORK'S TOP REAL ESTATE NEWS ​ Bill Rudin and 845 Third Avenue By Kathryn Brenzel Two blocks can make a big difference. The auditing firm KPMG plans to move its headquarters from Rudin Management’s 345 Park Avenue to 2 Manhattan West, freeing up half a million square feet of space. Bill Rudin said prospective tenants are “lining up outside the door” for that space. Meanwhile, at 845 Third Avenue, another Rudin building two blocks east, no one’s biting. “We’ve got space galore, and nobody’s looking at it,” he said. Rudin pointed to the fact that the building was constructed in the 1960s and has low ceilings, lots of columns and no amenities. The company’s Park Avenue property is around the same age and was designed by the same architect — Emery Roth & Sons — but has bigger floor plates and, obviously, is on Park Avenue. (It’s also Rudin’s headquarters.) At NYU’s Conference on Capital Markets in Real Estate on Thursday, Rudin said the company is waiting to see if the city and state will pass legislation necessary to convert the Third Avenue building, as well as others in the area. His company had also played the waiting game at 55 Broad Street, holding onto the vacant property for five years after its tenant, investment banking firm Drexel Burnham Lambert, went bankrupt. In 1995, the state approved tax breaks to incentivize businesses to move to Lower Manhattan. Changes during that time also made possible the planned conversion of that building to residential use. Even if Rudin’s firm has the capacity to wait, it’s not clear New York City does. RXR’s Scott Rechler warned that the government must act soon to allow more conversions of old, vacant office space. “If we don’t intervene now, this reinvention of our urban ecosystem could be a 20-year problem,” he said. “It is almost political malpractice that some of these policies are not being instituted.”

 

[David Goldsmith]

Manhattan office leasing underwhelms in November

Office leasing in Manhattan’s Downtown, Midtown and Midtown South fell in November, but found pockets of resilience, per Colliers.

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Manhattan office leasing underwhelms in November​

On pace to finish 2023 well below last year’s total: Colliers

The latest Manhattan office leasing report is no stocking stuffer for landlords. More like a lump of coal.
Leasing activity for November totaled 2.1 million square feet, down from about 2.6 million the previous month, according to Colliers. Its report covers the city’s biggest office markets: Lower Manhattan, Midtown and Midtown South.

Total leasing this year has already surpassed that of the first year of the pandemic — 2020 — and is on pace to outdo the second. But barring an unlikely jump in December, it will finish the year slower than 2022.
“There’s some confusion,” said Frank Wallach, the report’s author. “People think demand is lacking. But we’ve had nearly 24 million square feet of leasing activity this year; 24 million square feet in the first 11 months of the year is still something.”

Leasing numbers were up in October thanks in large part to two deals of more than 250,000 square feet, but November had no major signings. The largest leases of the month included several renewals: Dentons re-signed for almost 160,000 square feet at Rockefeller Group’s 1221 Sixth Avenue, and Palantir Technologies Inc. renewed for 140,000 square feet at RXR’s 620 Sixth Avenue.
As demand moves sideways, it is being outpaced by supply. The Manhattan markets experienced negative absorption in November, meaning the amount of available office space increased.
Some tenants are choosing not to renew their leases while others are subleasing, which does not add to building owners’ bottom lines. Of the 97 million square feet of office availability in Manhattan, 21 million is sublet space.
Wallach pointed to 1633 Broadway, where almost half a million square feet of space hit the market in the last month, much of it in sublease offerings. The 48-story, 2.5 million-square-foot tower is the largest and longest-owned asset in Paramount Group’s office portfolio.

​

There were nuggets of positivity in the report, especially in Midtown South, where RXR’s 620 Sixth Avenue retained two major tenants, including Palantir. Mobile banking app Current signed a direct deal with RXR after having subleased through recently bankrupt WeWork.

The Manhattan office market defies simple description, but a prevailing sentiment is that the newest, nicest buildings are faring best.
“Flight to quality is still very much a part of the narrative here,” Wallach said. “Whenever someone asks how the Manhattan office market is going, I say, Where are you standing? How old is the building you’re in?”
In Midtown, post-2000 buildings’ average availability rate is just 10.2 percent. For its pre-war buildings, it is 16 percent. In the Financial District, availability is 27 percent, which is one reason owners there are eyeing conversions to residential.
The flight to quality is also reflected in top-end rents.
From Jan. 1 to Sep. 30, Manhattan had 23 deals close with starting rents north of $150 per square foot. In all of 2022, the borough had 24 deals above that threshold, the most since 2008.

Still, average asking rents decreased in November to $75.02, down from $75.40 last month. Wallach attributed the drop to several properties with above-average rent going off the market and new availability at less expensive properties.

​

 

[David Goldsmith]

Manhattan office leasing had some unexpected bright spots

Colliers Report shows Manhattan office leasing trends of 2023, with possibly some lessons for 2024.

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Manhattan office leasing had some unexpected bright spots​

It’s not all doom and gloom, with 27% jump

It’s been a slow year for Manhattan office leasing, but Colliers’ latest office leasing report shows there have still been a few bright spots.

Leasing activity jumped by 27 percent from the third quarter to 8.23 million square feet, marking the strongest quarter since Q3 of 2022 and finishing well above the borough’s five year rolling average.
But the office market still has a long way to go before it’s truly recovered. Total leasing activity for the year finished 6 percent below 2022, with 27.25 million square feet. The office availability rate is still at a record high and up 5 percent over the last year, with 96.5 million square feet of available space.

“It’s certainly moving in an encouraging direction,” said Colliers’ Frank Wallach, the author of the report. “But we have not yet achieved the key paradigm shift where demand is continually outpacing supply.”
Still, the office leasing market is no monolith, Wallach emphasized. The health of the market depends on two key factors: the location and age of the building.
“There have been signs of supply stabilization and, in certain areas, even tightening supply.”
The strong quarter was due in part to a single record-setting lease, which made up more than 10 percent of the borough’s total for the period.
Law firm Paul, Weiss, Rifkind, Wharton & Garrison signed a 20-year lease for 765,000 square feet at Fisher Brothers’ 1345 Sixth Avenue in mid-December. That deal was the largest office lease in the country for 2023 and the largest in New York in four years.

The law firm will be moving just down the street, as it currently leases 550,000 square feet at 1285 Sixth Avenue, Scott Rechler’s RXR’s Midtown property.
The Paul, Weiss lease was a great way for Midtown to finish up 2023, as the neighborhood saw its strongest quarterly leasing volume in two years. In fact, Midtown’s 2023 leasing total of 15.25 million square feet was its best full-year number since 2019.
Downtown put in a similarly strong performance, with its highest leasing total since 2019. The City of New York’s 538,000-square-foot extension at 150 William Street comprised about 40 percent of the neighborhood’s activity in the fourth quarter.
While both neighborhoods had good years, they are still at two distinct positions in their recovery. Midtown finished the year with 15.9 percent availability, a full five percentage points better than Downtown’s 20.9 percent.

Midtown South was the only one of Manhattan’s three major office markets to underperform in 2023 compared to 2022. But the neighborhood still had a strong fourth quarter with 2.21 million square feet, its most active quarter since Q3 2022.
Manhattan’s asking rent ticked downward by 0.6 percent for the quarter to $74.81 per square foot, as a handful of large, below-average priced spaces became available and some above-average price blocks were taken off the market.
Two notable instances of the latter came in Midtown South. First, Wells Fargo purchased 377,000 square feet at 20 Hudson Yards from Related Companies and Oxford Properties Group in late September, though that block of space was counted in the fourth quarter report. At the Flatiron Building, 204,000 square feet officially came off the market, as The Brodsky Organization announced it would convert the historic office building to residences.
The sectors behind most Manhattan leases have remained unchanged. The FIRE industries (financial services, insurance and real estate) led the way with one-third of the activity. Professional services came in a close second at 26 percent, while the public sector and consumer goods/retail industries tied for third, with 12 percent.
“This strong activity in Q4 does bring us into 2024 with an encouraging start,” Wallach said. “But it’s still a challenging market.”

​

 

[David Goldsmith]

NYC office leasing activity drops 40% from December

Colliers' report reveals a stubborn office market with record availability

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NYC office leasing activity drops 40% from December​

Availability hits a record high for second straight month

Manhattan’s market has all but frozen over in January.
Office leasing activity plummeted for the month, thanks to lagging demand, with office availability at an all-time high for the second straight month.

Total activity for the month ended at 2.25 million square feet, barely half the volume from last January, and a fall of almost 40 percent from December. The data comes from Colliers’ latest Manhattan office leasing report, which covers Midtown, Midtown South, and Downtown.
The report shows the latest signs of a stubborn office market, where availability has stood pat at 17.9 percent for two months. Even in the busiest of months, the amount of office space coming onto the market has often outstripped leasing volume. But in January, leasing volume fell below the five-year monthly average of 2.35 million square feet.

The drop in leasing didn’t surprise Colliers’ Frank Wallach, the report’s author, who said January often brings a drop in leasing after tenants rush to sign leases in December. The fourth quarter of 2023 was the strongest period since mid-2022, paving the way for the slow start to this year.
One or two megaleases can make all the difference between a lackluster month and a solid one. But January saw no such megaleases, and only four leases over 100,000 square feet.
The biggest lease came courtesy of law firm King & Spalding, which signed a new lease for 175,000 square feet at Vornado Realty Trust’s 1290 Sixth Avenue. For comparison, there were at least four leases over 250,000 square feet in December, including one record-setting lease of over 765,000 square feet.
Other major deals include Intercontinental Exchange, Inc., which signed a new lease for 143,000 square feet at Fisher Brothers’ 1345 Sixth Avenue, and the Archdiocese of New York’s new lease for 142,00 square feet at the Feil Organization’s 488 Madison Avenue.

​

The sublet market stayed busy in January, with large blocks of space hitting the market and leaving it.

More than 400,000 square of sublet space hit the market at Rudin Management’s 1675 Broadway, while BXP’s 200 Fifth Avenue saw a 336,000-square-foot chunk become available for sublease.
Still, most of the damage done was recovered, as sublet space was either leased or taken off the market. Altogether, available sublet space increased by just 47,000 square feet for the month, and has actually decreased throughout the borough by 1.4 percent over the last year.
Office leasing continues to be a fractured market across Manhattan, with each neighborhood facing different demand.
Leasing in Midtown fell by almost half from December, at 1.34 million square feet leased. But that was enough to outdo its monthly average for the last five years. Midtown South had its worst leasing total in six months at 0.53 million square feet , while Downtown saw a modest decline from December to 0.39 million square feet.
Even within each neighborhood, demand can vary vastly from one avenue to the next, Wallach said. In Midtown, the average availability on both Sixth Avenue and Park Avenue sits around 11 to 12 percent. Third Avenue is closer to 20 percent, though that’s a stark improvement from the 25 percent availability rate in early 2023.

Typically, 10 percent availability is a healthy equilibrium for a market, Wallach added.
Asking rents ticked downward by a few cents for the month, to $74.64 per square foot annually, as the highest quality, most expensive space becomes harder to come by.

​

 

[David Goldsmith]

Is Manhattan’s flight to quality over? Report shows dip

Rents for prime New York City Class A office space peaked at the beginning of last year but dripped over the next three quarters, according to a new report.

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Is Manhattan’s flight to quality over? Report shows dip​

Rents for prime office space have fallen since peaking last year

The “flight to quality” is losing altitude.

Rents for prime office space in New York City peaked at the beginning of last year but dipped over the next three quarters, according to a new report.
“What we found is that effective rents for prime Class A space have been going up at a much higher rate than everything else, although this year in New York City they seem to have plateaued a little bit,” said CompStak’s Alie Baumann, one of the authors.
Average effective rents for prime Class A office space — which includes new construction, trophy and recently-renovated buildings — peaked around $105 per square foot in the first quarter of 2023. That was up 19 percent from the same time in 2019, according to CompStak, a commercial real estate data firm.

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But average effective rents, which factor in the concessions that tenants score from landlords, started to drop in the second quarter. They continued to ebb, finishing the year at around $88 per square foot, according to CompStak.
The lengths of office leases, meanwhile, are down overall but are recovering faster for prime Class A buildings. Office leases inked for regular Class A buildings suffered the biggest drop, falling to an average of 125 months from a pre-pandemic 154.
“These tenants aren’t committing to the major 10- or 15-year deals at the 50 Hudson Yards or One Vanderbilts of the world,” Baumann said. “They’re making more short-term decisions.”
Office landlords across the board are striking deals to attract tenants without lowering the nominal rates often demanded by mortgage covenants. Concessions remain well above pre-pandemic levels, especially in Prime Class A buildings, and made up about 12 percent of the total deal value in 2023, according to CompStak.

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[David Goldsmith]

Office valuations slashed in Midtown and FiDi: NYC’s top loans report

Owners of several office properties in Midtown and the Financial District reduced the debt on their properties amid falling values for the asset class.

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Office valuations slashed in Midtown and FiDi: NYC’s top loans report
Loan amounts tumbled for several major commercial properties last month

Here Were New York City’s Biggest Real Estate Loans in June

Research by Matthew Elo
A trio of Manhattan office buildings faced a reckoning in June as refinancings indicated substantially lower valuations than pre-pandemic for the big commercial properties.


Brookfield’s 1 Liberty Plaza landed a $750 million refinance loan after the value of the office tower had fallen by a third, to $1 billion, last year.

Debt at 640 and 650 Fifth Avenue, office buildings that total more than 600,000 square feet, was reduced to $300 million from $500 million, also implying a substantial decline in asset values.

Multifamily fared better, especially in Brooklyn, with large loans provided by traditional and non-traditional lenders in Downtown Brooklyn, Greenpoint, Gowanus and Manhattan’s Upper East Side.

Two hotels were also refinanced: the TWA Hotel at the JFK airport and the Mark Hotel on the Upper East Side. Here are more details of the 10 biggest real estate loans, five in Manhattan and five in the outer boroughs, recorded in June.

Buyback dividend | $750 million | Financial District
Morgan Stanley gave a lifeline to 1 Liberty Plaza, a 2.3-million-square foot office tower in the Financial District, with a $750 million refinance loan to Brookfield Properties, which bought the minority interest in the property last year from Blackstone Group in a deal that valued the 54-story building at $1 billion, a sharp drop from a $1.5 billion valuation in 2018, when Blackstone bought the minority interest from Brookfield. The building was rumored to have collapsed following 9/11, but only its facade was damaged.

Bonanza for Bistricer | $330 million | Greenpoint, Brooklyn
JPMorgan Chase refinanced a three-building multifamily complex with 766 units at 77 Commercial Street, on the northern edge of the Greenpoint waterfront, with a $330 million senior loan to David Bistricer’s Clipper Equities as part of a $430 million financing package that retires a $386 million construction loan issued by Bank of China and SL Green just weeks into the pandemic. Some 230 units were set aside for households earning 40 to 125 percent of the area median income, Yimby reported. Market-rate one-bedrooms are listed from $3,800 to $4,000 per month.

On the Mark | $300 million | Upper East Side
Goldman Sachs provided a $300 million commercial mortgage-backed securities loan that made up the bulk of a $335 million refi of the Alexico Group’s luxury Mark Hotel at 25 East 77th Street. The remaining $35 million is mezzanine financing held outside of the CMBS trust. Alexico last refinanced the 153-key property in 2022, also leaning on the CMBS market then. That debt was originally scheduled to mature last month, but the maturity date had been extended three years.

Debt reduction | $300 million | Midtown
Morgan Stanley refinanced two office buildings, 640 and 650 Fifth Avenue in Midtown, with a $300 million loan to a subsidiary of Vornado Realty Trust. The loan is collateralized by a fee interest in 640 Fifth Avenue and leasehold interest in 650 Fifth Avenue, which had been seized by the Department of Justice before the seizure was overturned in 2019. Vornado granted Morgan Stanley the power of sale as a condition of the loan, meaning the lender can pursue a nonjudicial foreclosure to recoup its loan, which replaced $500 million in debt issued by Bank of China in 2019. Nike’s New York flagship store is a retail tenant at 650 Fifth Avenue.

Runway refi | $290 million | Jamaica Bay, Queens
Barclays provided a $290 million loan to MCR Development for its TWA Hotel at John F. Kennedy International Airport. The financing replaces a $270 million loan from Bank of America. The hotel at the landmarked Eero Saarinen-designed terminal opened in 2019 after a roughly $265 million renovation. The 512-room hotel has a rooftop infinity pool, curling rink and a cocktail lounge inside a 1958 Constellation airplane.

Canalside capital | $286 million | Gowanus, Brooklyn
G4 Capital provided a $286 million construction loan to Rabsky Group for its 604-unit rental project at 313 Bond Street. Rabsky, led by Simon Dushinsky, will use the loan to build its 567,000-square-foot rental complex next to the Gowanus Canal. Dushinsky is one of many developers who have capitalized on a 2021 rezoning in the formerly downtrodden, industrial neighborhood to build apartments.

East Side story | $270 million | Upper East Side
BDT & MSD Partners provided a $270 million loan package to Jeffrey Levine’s Douglaston Development for a big development project on the Upper East Side. Douglaston bought the 90-unit rental property at 1450 Third Avenue for $114.5 million. The loan package includes $201 million in construction debt and $69 million in acquisition loan, according to property records. The property, which is also known as 170 East 83rd Street, covers the full western blockfront between East 82nd and East 83rd streets.

Refi therapy | $150 million | East Harlem
Nomura Holdings lent $150 million to the New York Proton Center for the proton therapy center at 225 East 126th Street. The financing replaced a $240 million loan from JPMorgan Chase. The specialty medical building was created through a partnership between Memorial Sloan Kettering Cancer Center, Montefiore Health System, and Mount Sinai Health System. It opened in August 2019.

Avery Haul | $140 million | Downtown Brooklyn
KKR provided a $140 million loan to Avery Hall for its luxury rental building One Boerum. KKR affiliate Forethought Life Insurance Company provided the loan for the 22-story luxury rental building above the Borough Hall subway station in Downtown Brooklyn. The loan replaces debt from Canadian asset manager QuadReal. The 250,000 square-foot building was originally set to be condos but the developers pivoted to luxury rentals before it was completed.

Fleet feat | $100 million | Downtown Brooklyn
Affinius Capital extended a $100 million senior loan to the Jay Group, as part of a $160 million finance package, for a 21-story multifamily building at 101 Fleet Place in Downtown Brooklyn. The loan will be used to complete construction and lease the 294-unit building. The developer bought the property in 2021 for about $40 million.

 

[David Goldsmith]

Vanbarton Group unloads 292 Madison Avenue at steep loss

The Vanbarton Group has sold the Midtown office building where the company is headquartered to 60 Guilders and Sentry Realty.

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Vanbarton Group unloads 292 Madison Avenue at steep loss​

Firm defaulted on $90M loan from Deutsche Bank earlier this year

The Vanbarton Group has unloaded the Midtown office building where the company is headquartered at a steep loss, after defaulting on a nearly $90 million loan on the property earlier this year.

The investment firm sold the 26-story Art-Deco office building at 292 Madison Avenue, located between East 40th and 41st Streets, to 60 Guilders and Sentry Realty, the real estate arm of American Exchange Group, for approximately $90 million last week, sources told the Commercial Observer.
The group purchased the property for nearly $180 million in 2016, renovating the building’s lobby, elevators, and building systems in 2018. In May, it defaulted on an $87.5 million loan Deutsche Bank had provided for the building in 2019.
The loan had an original term of two years with three one-year extensions, all of which expired this year. Vanbarton and the bank were close to a restructuring deal on the debt, but Deutsche Bank ultimately opted to sell the property.
The above-par sale of the note has cleared the outstanding debt. Newmark’s Adam Spies, Adam Doneger, Josh King, Marcella Fasulo, Avery Silverstein and Doug Harmon negotiated the deal. The commercial real estate firm was hired by Deutsche Bank to sell the non-performing loan.
Vanguard Group has been experiencing financial difficulties at other properties as well. Last year, the company bought the building it owned at 115 Sansome Street in San Francisco, after Bank of America, the company’s lender on the property, put it up for auction in a short sale.

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At 200,000 square feet, the purchase price of 292 Madison Avenue breaks down to approximately $450 per square foot.
“We are very active and have significant confidence in the New York commercial real estate market,” Joe Mamrout, executive vice president at American Exchange Group, told the outlet. “This is a trophy property that we are proud to add to our strong portfolio.”
Sentry Realty, the real estate arm of Alen Mamrout’s American Exchange Group, also bought the $200 million debt on Savanna’s 1375 Broadway from Aareal Bank in August, with the debt trading at 90 cents on the dollar. The firm is close to owning the equity on the building, and has retained Savanna to help manage the property.
The same Newmark team, along with Jordan Roeschlaub and Nick Scribani, negotiated the sale.

 

[David Goldsmith]

Ultra luxury office towers doing well.

SL Green deal values One Vanderbilt at $4.7B

SL Green sold a stake in One Vanderbilt to Mori Building Company in a deal valuing the Midtown Manhattan tower at $4.7 billion.

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SL Green deal values One Vanderbilt at $4.7B​

REIT sells 11% stake to Japan’s Mori Building Company

SL Green sold a piece of One Vanderbilt in a deal that values the trophy Midtown office tower at $4.7 billion.

The REIT sold an 11 percent stake in the 1.7 million-square-foot skyscraper to Japan’s Mori Building Company, SL Green announced Thursday afternoon.
SL Green had owned a 71 percent stake in the building prior to sale. The National Pension Service of Korea owns a 27.6 percent interest and Hines owns 1.4 percent.

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It is not clear how the $4.7 billion valuation compares to the previous one, because SL Green did not release it when it last refinanced the tower, in 2021, with a $3 billion CMBS deal. However, an appraisal that spring by Newmark Knight Frank put its as-is value at $4.1 billion and said it would be worth $5 billion upon stabilization.
The 1,401-foot-tall building is 100 percent leased, and has come to be the gold standard for new office development. In April 2022 a Canadian company leased One Vanderbilt’s 73rd and highest office floor, which had an asking rent of an astonishing $322 per square foot. The deal, for 9,871 square feet, might have been the most lucrative in the city’s history on a per-foot basis.
“One Vanderbilt is a globally-renowned and architecturally celebrated modern development, which has continued to demonstrate that well-located, highly amenitized and sustainable buildings will attract premier tenants and prestigious investors,” SL Green CEO Marc Holliday said in a statement.

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[David Goldsmith]

Manhattan office leasing jumps 24% in January

Tenants inked deals for 3.6 million square feet of office space and leasing volume jumped 24 percent last month.

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