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

David Goldsmith

All Powerful Moderator
Staff member

Another Office Tower Goes Bust: Blackstone Walks from Manhattan Tower it Bought for $605 Million. CMBS Holders to Eat Remaining Losses​

Older office towers are besieged. Working-from-home and hybrid-work aren’t helping. The losses are huge.

Another older office tower is going to cost lenders an arm and a leg, after it already cost PE firm Blackstone an arm and a leg. Blackstone is walking away from the 26-story 621,000-square-foot office tower at 1740 Broadway in Midtown Manhattan that it had bought in 2014 for $605 million. The two biggest tenants moved out well before their leases expired: L Brands, occupying 77% of the rentable area (lease expires March 31); and law firm Davis & Gilbert, which had 15.8% of the space. Now the building is mostly vacant.
The property, built in 1950, is the collateral for a $308 million loan that was originated by Deutsche Bank and securitized into a single-asset single-borrower CMBS in 2015. This CMBS is backed by only the loan on this building, and there is no diversification within it. Now Blackstone is letting the holders of the CMBS have the building and eat the losses.
“This asset faces a unique set of challenges, and we are working diligently to find a solution that is in the best interests of all parties involved, including our investors and lender,” a Blackstone spokesperson told the Commercial Observer.
“It’s the smartest move for their investors,” one source told the Commercial Observer.

Investing more money to upgrade the building, on top of the $308 million in existing debt, didn’t make any sense, particularly with the continued uncertain recovery of the Midtown submarket, another source told the Commercial Observer.
Blackstone’s investment – it purchased the tower for $605 million – had been written down before the pandemic due to the broader challenges in both the Midtown office submarket and the asset, and the pandemic only accelerated those pressures, particularly on the leasing front, sources told the Commercial Observer.
In Manhattan, 18.6% of the total office space was on the market for lease at the end of Q4, according to Savills. And new buildings are being completed and add to the total availability, and when their lease expires, companies can upgrade to the latest and greatest, and they can downsize and upgrade, and what’s left behind are these vacant older office towers.
These reports of vacant older office towers going back to lenders are piling up, as the shift to working-from-home and to hybrid arrangements has reduced the need for corporate office space. Companies are moving out of older buildings and are upgrading to newer and often smaller spaces. And as new office towers are still being built, the older office towers end up vacant.
Lenders get to eat the often huge losses while the future of these older office towers remains uncertain.
We got some ideas of how big the losses can be when the older office towers were sold in foreclosure sales. All this can take years.
For example, in Houston’s Energy Corridor, the 450,000-square-foot Two Westlake Park defaulted on a $87.5 million loan in 2018 and was sold in mid-2020 in a foreclosure sale for $18 million. After fees and expenses, the CMBS holders booked a loss of 82%. The vacant Three Westlake Park in the same complex, once “valued” at $121 million, was sold last month at a foreclosure sale for $20.6 million. After fees and expenses, the CMBS holders booked a loss of 88%.
Last week, in Chicago Downtown, where 23.2% of the total office space is on the market for lease, two huge older office buildings, each with over 1.3 million square feet, were sent back to the lenders: the 175 West Jackson Blvd. and the 135 South LaSalle St. This is now a happening everywhere, tower by tower, in slow motion and will spread over years.

David Goldsmith

All Powerful Moderator
Staff member
NYC office construction starts dwindle in 2021

New supply deliveries likely to start falling by 2024​

The pandemic hasn’t hampered New York City’s supply of new office construction yet, but that time appears to be coming soon enough.
Developers have started office projects totaling 2.1 million square feet since the beginning of 2021, according to Commercial Edge data reported by GlobeSt. That number is well below the 3.2 million square feet of office construction starts in 2019 and the 5.7 million square feet of office construction starts in 2020.

There are 19 million square feet of office construction underway in Manhattan, according to the report. New construction is trailing new deliveries, meaning the office market could be in line for an office shakeup.

Deliveries are expected to surpass supply in both 2022 and 2023, increasing the supply of office stock by 4 percent, according to Globe St. After that, however, office deliveries will likely begin to fall off in 2024, a decline that may continue through 2027.
The data comes as the city is still trying to navigate office life in the wake of the pandemic. Manhattan office availability hit a peak of 17.4 percent in February, according to Colliers, as workers in the city don’t appear to be eager to return from remote work arrangements.

Slightly under 94 million square feet of office space was available to rent in Manhattan last month, according to Colliers. Availability last month was up 74 percent since the start of the pandemic, despite a doubling of demand from a year ago.

While office construction starts are slipping in New York, there’s life in other markets, according to GlobeSt. Dallas and Austin combined for 15 percent of all office starts in the nation last year, according to the Commercial Edge report. Miami, Nashville and Raleigh-Durham were among the other markets to see an increase in office construction.

David Goldsmith

All Powerful Moderator
Staff member

Brits hand over Candler Tower to Isaac Hera’s Yellowstone​

Midtown office transferred through deed-in-lieu​

A troubled Times Square office property has dodged foreclosure with a change in ownership.
UK-based investment firm EPIC signed over the deed for the property at 220 West 42nd Street to Yellowstone Real Estate Investments last week, PincusCo reported. The transaction, which was in lieu of foreclosure, came with a $161.1 million valuation of the property.

The transaction ends a decade of ownership after the firm purchased the Candler Tower from Paramount Group in 2012 for $261 million, according to PincusCo. The mortgage on the building at the time was for $150 million and came from German lender Landesbank Baden-Württemberg.
In 2017, M&T Bank provided a $150 million loan to refinance the historic building. Yellowstone purchased the note in November 2021, leading to last week’s deed-in-lieu of foreclosure.

The 24-story, 235,000-square-foot office property was built in the early 20th century for Coca-Cola founder Asa Candler. At one point, it was the tallest building in Midtown.
According to PincusCo, the city-designated market value for the property this year is $196.7 million.

Last April, Isaac Hera’s Yellowstone made the biggest distressed hotel deal in Manhattan of the pandemic at the time when the company bought the 600-room Watson Hotel at 440 West 57th Street. It bought the leasehold on the property, as well as the mortgage held by HSBC. The loan financing the ground lease had an unpaid principal balance of $33.9 million.

This is the second major case of an owner losing control of its Midtown office property this week. Blackstone decided to hand over the keys to its building at 1740 Broadway after a $308 million loan on the 26-story property was transferred to special servicing. Blackstone is reportedly looking at loan resolution options for the building.

David Goldsmith

All Powerful Moderator
Staff member
Even the most staunch holdouts in the "we will never allow work from home" game now seem to be bending. It's hard to imagine this won't lead to the shrinking their office footprints.

Wall Street’s Rigid Culture Bends to Demands for Flexibility at Work

Many big banks are offering flexible working arrangements — sometimes grudgingly — as they chase talent that would rather stay home.

When Tom Naratil arrived on Wall Street in the 1980s, work-life balance didn’t really exist. For most bankers of his generation, working long hours while missing out on family time wasn’t just necessary to get ahead, it was necessary to not be left behind.

But Mr. Naratil, now president of the Swiss bank UBS in the Americas, doesn’t see why the employees of today should have to make the same trade-offs — at the cost of their personal happiness and the company’s bottom line.

Employees with the flexibility to skip “horrible commutes” and work from home more often are simply happier and more productive, Mr. Naratil said. “They feel better, they feel like we trust them more, they’ve got a better work-life balance, and they’re producing more for us — that’s a win-win for everybody.”

Welcome to a kinder, gentler Wall Street.

Much of the banking industry, long a bellwether for corporate America, dismissed remote working as a pandemic blip, even leaning on workers to keep coming in when closings turned Midtown Manhattan into a ghost town. But with many Wall Street workers resisting a return to the office two years later and the competition for banking talent heating up, many managers are coming around on work-from-home — or at least acknowledging it’s not a fight they can win.

Flexibility is a new mantra at many major banks, which are shifting to more days at home, hours that adjust to suit family needs and reworked office spaces, in a break with industry tradition that has long emphasized face-to-face relationships built over grueling hours and punishing workloads.

UBS, Citigroup, Wells Fargo, HSBC and BNY Mellon have all announced flexible work plans. Even JPMorgan Chase, the nation’s biggest bank and a hybrid-work holdout, expects that only about half its employees will ultimately be in the office five days a week. The bank’s chief executive, Jamie Dimon, wrote in his annual shareholder letter on Monday that he believed 10 percent of JPMorgan’s roughly 271,000 employees could eventually work from home.

“Although the pandemic changed the way we work in many ways, for the most part it only accelerated ongoing trends,” Mr. Dimon wrote.

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But he didn’t sound particularly happy about it, ticking off a list of “serious weaknesses” of virtual work, including slowed decision-making and a lack of “spontaneous learning and creativity.”

“While it’s clear that working from home will become more permanent in American business, such arrangements also need to work for both the company and its clients,” he wrote.

But increasingly, work schedules also have to work for workers.

“It’s all about the talent — how do you retain it, how do you attract it,” said Mr. Naratil of UBS. The bank rolled out its plan last month to allow 10 percent of its 20,500 U.S. employees to work remotely all the time and offer hybrid schedules for three-quarters of its workers.

“Talent will move, and it’s not only about a paycheck,” he said.

Citigroup has its 65,000 U.S. employees in the office two days a week and has held workshops for managers and employees on remote collaboration. Globally, most roles will move to a minimum of three days a week when it is safe to do so, the company said. Wells Fargo started bringing back most of its 249,000-person work force in mid-March with what it calls a “hybrid flexible model” — for many corporate employees, that entails a minimum of three days a week in the office, while groups that cater to the bank’s technology needs will be able to come in less often.

BNY Mellon, which has nearly 50,000 employees, is allowing teams to determine their own mix of in-person and remote work. And it introduced a two-week “work from anywhere” policy for people in certain roles and locations. “The energy around the office has been palpable” as employees eagerly map out their plans, said Garrett Marquis, a BNY Mellon spokesman.

Moelis & Company, a boutique investment bank, has strongly encouraged its almost 1,000 staff members to come to the office Monday through Thursday, but with added “intraday flexibility” over their hours, said Elizabeth Crain, the company’s chief operating officer. That might mean dropping children off at school in the morning, or taking the train during daylight hours for safety reasons, she said. The new approach fosters teamwork and enables employees to learn from one another in person, while also giving them more control over their schedules.

Ms. Crain said everyone was much more flexible. “We all know we can deliver,” she said.

Ms. Crain, who has worked in the financial industry for more than three decades, recently committed to something that would have been unthinkable before the pandemic: a weekly 9 a.m. session with a personal trainer near her office. She said she hoped that breaking out of the confines of the traditional workday sent a message to employees that they were trusted to get the job done while making time for their personal priorities.

“After two years, haven’t we all changed?” she said.
Not yet. There are some notable holdouts: The Wall Street heavyweights Goldman Sachs and Morgan Stanley have acknowledged the need for more flexibility, but have so far resisted overhauling their operations.

Both called employees back to offices full time last summer, emphasizing the merits of in-person work for building company culture, innovation and learning. James Gorman, the boss at Morgan Stanley, said at the time: “If you can go to a restaurant in New York City, you can come into the office.”

While he stands by that comment, Mr. Gorman’s tone has softened somewhat: Showing up three or four days a week is important for career development and growth, enabling professionals to hone skills like emotional intelligence and reading body language, he said last month.

But he and Goldman’s David Solomon have welcomed efforts to get workers back into Manhattan offices. Mr. Solomon echoed Mayor Eric Adams at a talk at Goldman’s headquarters in March, saying it was “time to come back.”

Andrea Williams, a spokeswoman for Goldman Sachs, said returning to the office “is core to our apprenticeship culture” and client-focused business. “We are better together than apart, especially as an employer of choice for those in the beginning stage of their career,” she said.

For months, Mr. Dimon has made a similar argument at JPMorgan — and continued to even as he said about half its employees would work from home at least some of the time.

“Most professionals learn their job through an apprenticeship model, which is almost impossible to replicate in the Zoom world,” he wrote. JPMorgan has hired more than 80,000 workers during the pandemic, he said, and it strives to train them properly.

“But this is harder to do over Zoom,” he said. “Over time, this drawback could dramatically undermine the character and culture you want to promote in your company.”

Some banks are rethinking their real estate needs. With more people working from home, HSBC — which has nearly half its 8,000 U.S. employees in Manhattan — expects to reduce its real estate footprint, said Jennifer Strybel, its chief operating officer in the United States.

The bank is keeping its building, which overlooks the main branch of the New York Public Library on Bryant Park in Midtown Manhattan, at 40 percent capacity. The space has been retooled, replacing rows of open-plan terminals with more tables to encourage collaboration. There’s a booking system for desks, lockers for employees to store belongings and a “keyboard garage” for those who don’t want to lug around equipment. Charging stations are dotted around the premises.

Mr. Dimon said JPMorgan, which is building a new headquarters in Midtown that will be the home base for up to 14,000 workers, will move to a more “open seating” arrangement.

Banks outside New York are also adapting: KeyCorp, which is based in Cleveland, hasn’t set a specific return-to-office date, but expects half its staff to eventually show up four or five days a week. Another 30 percent will probably come in for one to three days, with the ability to work from different offices. And 20 percent will work from home, albeit with in-person training and team-building events.

The new setup is “uncharted territory” that is necessary to keep the work force engaged, said Key’s chief executive, Chris Gorman. While he comes in every day and is a big believer in face-to-face meetings, Mr. Gorman said he had avoided a heavy-handed approach that could alienate employees and prompt them to look elsewhere.

Mr. Naratil, the UBS president, is also a believer in in-person gatherings — he still spends most of his week at UBS’s office in Weehawken, N.J. — but he said the great remote-work experiment of the last two years had debunked the myth that employees were less productive at home. In fact, he said, they are more productive.

The increasingly hybrid workplace has forced leaders to connect with their teams in new ways, like virtual happy hours, Mr. Naratil said. The rank and file have shown that they can rise to the occasion, and the onus is on bosses to attract workers back to physical spaces to generate new ideas and strengthen relationships.

Managers, he said, need to have a good answer when their employees ask the simple question: “Why should I be in the office?”

“It’s not ‘Because I told you to,’” he said. “That’s not the answer.”

Upstairs Realty

Well-known member
"The Information," a tech-focused media thing that seems to be the new Industry Standard, keeps sending me e-mails. Here, from today's is their RTO graphic ZT1Yr5_OHkcarLhVM_EPEPz7DTK9lBbFybZBYtLHxxq7DHeeQ7fyrWeI96psZD5iIE9aLZYmXIjfBuUVF6Ie0u7Jv2WXfy...png

David Goldsmith

All Powerful Moderator
Staff member

Jamie Dimon to work-from-homers: You win​

In blow to office landlords, JPMorgan Chase CEO gives in to remote work​

“People don’t like commuting, but so what?” JPMorgan Chase CEO Jamie Dimon said a year ago.
Since then, leverage has shifted to workers as it became clear they would ditch any employer that chains them to their desks five days a week.
In turn, Dimon has softened his stance, recognizing the staying power of remote work.
“It’s clear that working from home will become more permanent in American business,” Dimon acknowledged in his annual shareholder letter Monday. He then revealed how that trend will affect the real estate of his firm, the city’s largest commercial tenant.

The company expects to have about half of its employees work in-person full-time. That includes retail bank branch workers, security and facility workers, and others whose jobs cannot be done remotely.

Meanwhile, approximately 40 percent will be able to embrace a hybrid work model, coming into the office a few days a week. The remaining 10 percent of employees will be able to work from home full-time.

Changes are also coming to the layout of JPMorgan offices. Dimon said the company would embrace “open seating” across its real estate, predicting it would need between 60 and 75 seats for every 100 employees by utilizing more conference rooms and utility space.
Still, Dimon said the company is “moving full steam ahead with building our new headquarters.” He expects the tower, at 270 Park Avenue, to house between 12,000 and 14,000 people.

Last year, Business Insider reported the bank was pursuing a “universal design” for the tower, allowing for flexible configurations of space. The building is planned for 2.5 million square feet between Park and Madison avenues and East 47th and East 48th streets.
The consolidation of JPMorgan workers in the new building, in combination with the hybrid office plan, means the company will be leasing a lot less space at other buildings in Manhattan.

Last year, the company cut its commercial footprint in the city by 400,000 square feet, a year after downsizing by 300,000.
The bank rents 8.7 million square feet in the city, but is still looking to shed. It has been looking to sublease 700,000 square feet at 4 New York Plaza in the Financial District. It also seeks a subtenant for 100,000 square feet at its Hudson Yards office, 5 Manhattan West, Bloomberg previously reported.

David Goldsmith

All Powerful Moderator
Staff member
Long run is looking more and more likely for a big reduction in overall office use in NYC.
As Remote Work Becomes Permanent, Can Manhattan Adapt?
With more companies adopting hybrid work, New York City’s economy, which relies on commuters and full office buildings, faces an uncertain future.

PwC, a global consulting firm with its American headquarters in New York City, has told 40,000 of its United States employees that they can work remotely forever. Quinn Emanuel Urquhart & Sullivan, a white-shoe law firm with about 300 lawyers in New York, is allowing its staff to live anywhere in the country.
Verizon, which is headquartered in New York, has started permitting hybrid employees to come to the office as many, or as few, days a week as they want.
The list of companies permanently changing the way they work keeps growing longer, making the five-day-a-week trek into Manhattan an increasingly fading corporate practice — with enormous consequences for New York, whose economy is especially dependent on filling its forests of office towers.
The shift has raised alarms for Mayor Eric Adams and Gov. Kathy Hochul, who have stepped up their urgent messaging that the city’s roughly 1.3 million private-sector office workers need to return to their desks.

“You can’t stay home in your pajamas all day,” Mr. Adams has said. But Ms. Hochul and Mr. Adams may well be shouting into the wind, as society changes around them.
They have valid reasons for concern. With more companies settling into a permanent period of hybrid work, the average New York City office worker is predicted to reduce annual spending near the office by $6,730 from a prepandemic total of around $13,700, the largest drop of any major city, according to research from economists at Instituto Tecnológico Autónomo de México, Stanford University and the University of Chicago.
And even as other indicators — like Broadway attendance and tourism — show early signs of a rebound, workers are far less eager to return to office buildings.

The decline in Manhattan office workers poses a profound threat to the city’s real estate-reliant tax base, money that helps fund schools, the police and parks. Without regular commuters, the region’s public transit systems face service cuts that will disproportionately harm workers who must show up in person.

And it has also contributed to the shuttering of coffee shops, dry cleaners and other small businesses that served commuters. Vacant storefronts have increased across Manhattan, according to the city comptroller’s office, and in some parts of Midtown, one in three retail spaces are empty.
But even as flexible work models take hold, policymakers have barely begun to grapple with what that portends for Manhattan. The state has yet to take any steps to relax zoning regulations that hamper the conversion of office buildings to residential housing, including low-income units. A new $100 million fund authorized last year to help developers convert empty hotels and commercial buildings into housing has not been used, stymied by regulatory hurdles.
The city’s leaders have also been slow to consider repurposing Midtown office buildings, like for entertainment, start-up incubators or education, said Brad Lander, New York City’s comptroller. Mr. Adams has so far proposed creating a joint city and state panel to study the future of work and its implications for the city.

Ms. Hochul and Mr. Adams have prioritized making the city’s subway safer, so that office workers feel more comfortable commuting.
“We are not going back to 100 percent Midtown office occupancy,” Mr. Lander said. “The sooner that stakeholders come to grips with that reality, the sooner we can take smart action.”
In the meantime, private employers are making policies that stand to fundamentally alter New York’s business districts, the largest in the country.
TIAA, a life insurance company headquartered in New York, is letting its 1,100 New York City workers report to its other U.S. offices, provided they are vaccinated. Penguin Random House, a New York firm with roots that date back to the 1800s, has no plans to require that employees return to its Midtown offices

“We have said if you want to move, have at it,” said Paige McInerney, the director of human resources at the publishing house, which employs roughly 2,500 people in the New York City area. “There’s not going to be some date where we’re going to be like, ‘OK, everybody back in the pool.’”

About 37 percent of New York employees went to the office in late March, according to data from Kastle Systems, an office security firm, a pandemic-era high, but still far below the 80 percent norm before the pandemic.

“It’s never really going to be a return like it was,” said Sam Hammock, who runs human resources for Verizon. “We’re treating people like the adults that they have proven to be over the last 24 months.”

Many New York companies are still requiring workers to return to the office, emphasizing the need for in-person interaction to mentor new hires and collaborate more easily. Certain industries, like real estate and investment banking, were calling employees back to the office as early as June 2020.
Still, Jamie Dimon, the chief executive of JPMorgan Chase, said this month in his annual shareholder letter that about half of his roughly 271,000 employees would be in the office five days a week, a notable shift from one of the biggest holdouts for in-person work. JPMorgan is New York City’s largest private-sector employer.
Mr. Dimon also criticized virtual work, saying that it slowed decision-making and hurt “spontaneous learning and creativity.”

But in the current war for talent, with job openings near record highs, many companies say flexible work policies are key to gaining an edge over competitors. Women are also far more likely to cite remote work as a job requirement, according to research from Indeed, the job search website.

During the pandemic, Unqork, a software start-up founded in New York in 2017, reduced its office space in Manhattan’s Flatiron neighborhood to 8,500 square feet, from nearly 50,000 square feet before the pandemic.
The change came as Unqork announced it would become a remote-first company, allowing employees to work from anywhere. The company almost tripled in size during the pandemic and has about 600 employees worldwide.
“It’s a more efficient way to find talent,” said the firm’s chief executive, Gary Hoberman. “If they want to work in Antarctica, that’s fine,” noting that one employee did in fact spend a month of the pandemic near the South Pole.
Nina Anziska, 33, permanently relocated to Los Angeles seven months into the pandemic after her boss said she did not have to return to her office in Manhattan. Her employer, Skillshare, an online education company, gave up its 11,000 square feet of office space in the Flatiron neighborhood at the end of 2020.

Although the company signed up for co-working spaces around the country, Ms. Anziska has barely used them, saying that a requirement to be in an office is “close to a deal breaker” for her.
Matt Cooper, Skillshare’s chief executive, is reluctant to sign a lease on a long-term office space, worried that everyone would be pressured to use it. Whenever he sees a competitor announce a return-to-office date, he said he directs his recruiters to target engineers at those companies.

“If I have to look at you for you to get something done, you’re not the right hire,” he said.
Other companies, like PwC, are keeping their office spaces despite flexible work policies.
Late last year, after PwC announced the option for employees to go fully remote, 22 percent of workers chose to do so while 78 percent wanted to go into an office occasionally.

Still, Nicholas Bloom, an economist at Stanford University, found in his research that New York City’s office workers plan to cut in half the number of days they spend in the office, the most of any city except San Francisco.
That poses substantial risks to the city’s tax base, which is heavily reliant on full office buildings. Before the pandemic, office buildings in Manhattan supplied more than a quarter of the city’s property tax revenue, according to the New York State Comptroller’s Office.
Despite a flurry of recent deals, 18.7 percent of Manhattan’s office space is available for lease, close to a record high, according to the real estate brokerage Newmark.
Despite the prevalence of remote work policies, they have not necessarily triggered an exodus out of New York, some employers said.

After announcing a work-from-anywhere policy in December, the number of lawyers at Quinn Emanuel reporting to its New York office remains largely unchanged at around 300. Some lawyers are instead keeping their apartments in the city and spending winters in a warmer location or a skiing destination, said Andrew Rossman, a New York managing partner at Quinn.

“It’s almost shocking to me that I don’t have tons of people saying they’re going to live in a less expensive place than New York,” Mr. Rossman said.
During the pandemic, Quinn Emanuel also opened an office in Miami, where many of its portfolio manager and tech clients had moved.
In June 2020, Zillow Group, the real estate website, announced that employees could move anywhere in the country and never return to an office. The company now has more than 300 employees living in New York City, a 15 percent increase compared with two years earlier, according to a company spokeswoman.

One of them is Joshua Clark, 28, an economist. Last year, Mr. Clark moved from Seattle, where Zillow is headquartered, to New York, so he could be closer to friends and family and indulge in the vibrant music and nightlife scene.
Mr. Clark was able to choose an apartment in Brooklyn’s Bedford-Stuyvesant neighborhood that was far from the nearest subway because he no longer had to commute.
“My stress levels are way lower,” Mr. Clark said. “I’d have a hard time having to be in the office. It’s outdated.”

David Goldsmith

All Powerful Moderator
Staff member
Remember all the predictions everyone was going to be back in office September 2020, then September 2021... Now we are 2 years in and at 42% of pre-pandemic numbers.

Office occupancy hits pandemic high​

Attendance hit just 42% of pre-pandemic levels as employers give in to flexibility​

There have never been more office employees going into offices across the United States since the onset of the pandemic, but the in-office population is still less than half of pre-pandemic levels.
A record number of employees were back at the office for the week of March 30, according to Kastle Systems’ “Back to Work Barometer” reported by Bisnow. While that’s positive news for the office market, the level marked only 42 percent of pre-pandemic levels.

The share of workers back in the office was the highest in around three months, prior to the surge of the omicron coronavirus variant. Kastle Systems measures about 2,600 buildings in 10 major markets for its barometer.
Some cities are seeing more workers back in the office, particularly in Texas. Bisnow reported office occupancy in Austin hit 61.7 percent of its pre-pandemic level the week of March 30, the first time one of the barometer’s cities crossed the 60 percent threshold. Houston and Dallas are also leading the national return-to-the-office markets.

The pandemic-high office occupancy may be lifting the spirits of landlords and building owners, but the number seems certain to plateau eventually. Two-thirds of the 50 million Americans affected by work-from-home trends would prefer not to return to the office, according to a New York Times survey from last month. Many cited workplace culture as a reason to stay away.

Before the pandemic, only about 4 percent of employees in the United States worked exclusively from home. By May 2020, that figure had jumped to 43 percent, according to Gallup.

While some major companies are still working on bringing employees back to the office, others have formally acknowledged that remote work is here to stay. In a shareholder letter released earlier this week, JPMorgan Chase CEO Jamie Dimon recognized that “working from home will become more permanent in American business.”
The company expects to have about half its employees work in-person full-time, Dimon wrote. Approximately 40 percent of workers will be able to embrace a hybrid model, coming into the office a few days a week, while the remaining 10 percent of employees will be able to work remotely full-time.

David Goldsmith

All Powerful Moderator
Staff member

Office market’s next crisis: a surge of lease expirations​

Nearly 243M sf of leases set to run out in 2022​

As the office market teeters on the brink of a calamity, landlords are preparing for a big rise in vacancies this year.
JLL data shows about 243 million square feet of office leases are set to expire across the country in 2022, the Wall Street Journal reported. The figure is a 40 percent increase from 2018 and the highest since JLL began tracking it in 2015, representing approximately 11 percent of the country’s leased office space.

The volume of lease expirations is projected to exceed 200 million square feet in each of the following three years as well, which could only be the beginning, considering Green Street reportedly estimates a 15 percent decline in office demand.
The surge is preceded by tenants negotiating shorter lease extensions than usual while landlords rode out the storm. Brokers told the Journal as more companies confront the reality of a hybrid work environment, they’re looking for smaller spaces.

That’s bad news for office landlords, who have been able to avoid the worst of the pandemic as they continued to collect rent, regardless of whether or not tenants’ employees were in the office.
“I don’t think the landlords have felt the pain yet,” Jeffrey Peck, vice chairman of Savills, told the Journal. “Now they’re going to start feeling the pain.”

Landlords won’t be the only ones hurting. Banks and other lenders may also be stuck with more troubled loans if office properties begin underperforming as a result of vacancies.

Barclays reported in February that 21.2 percent of office loans made after the recession package into CMBS deals were either with special servicers or on watch lists, the highest level in more than a decade. Trepp reports about $1.1 trillion of loans backed by office buildings are already outstanding, while another $320 billion of loans will mature in the next two years.
Last month, Blackstone handed the keys over to its Midtown office building at 1740 Broadway. A $308 million loan was transferred to special servicing, which typically results in the servicer acquiring the title via deed-in-lieu of foreclosure. Blackstone is seeking loan resolution options, saying the “asset faces a unique set of challenges.”
The national vacancy rate is already 12.2 percent, the highest of the pandemic, according to CoStar data reported by the Journal. It’s up from 9.6 percent at the end of 2019.

David Goldsmith

All Powerful Moderator
Staff member

One Vanderbilt lease at $300+ psf may be city’s highest office rent ever​

Top-most rentable floor at SL Green’s signature tower goes to Canadian firm​

One square foot of office space — about what a pair of Louis Vuittons takes up — had reportedly never been leased for more than $300 a year in New York City.
But now a Canadian-based environmental services company has agreed to break that barrier to lease the 73rd floor of SL Green’s One Vanderbilt tower, The Real Deal has learned.

Sources say GFL Environmental signed a deal for all 9,871 available square feet on the building’s highest office floor, right below its Summit observatory. The asking rent was $322, TRD reported last summer.
The ultra-high-end work space with commanding views of the city stands in stark contrast to the job sites of many of GFL’s 18,000 employees across much of Canada and more than half the 50 states: They provide non-hazardous solid waste management, infrastructure and soil remediation along with liquid waste management services.

Nearby, GFL has a soil remediation facility in Logan Township, New Jersey, that is being used to cap a 172-acre brownfield in Gloucester County.
The company was represented in its search for office space by Rob Lowe of Cushman & Wakefield, which did not respond to a request for comment. SL Green Realty was represented in-house by Steve Durels and David Kaufman and by CBRE’s Bob Alexander and his team. CBRE declined to comment.
The record rent of $300 per square foot had been set by the top floors of 425 Park Avenue in 2015, when that L&L Holding tower was under construction. Billionaire Ken Griffin’s hedge fund Citadel inked that deal and added to it in 2019. A source said he paid $350 per square foot for some of the best space, leaving some doubt as to whether the One Vanderbilt lease is the new record holder.

But the 73rd floor of One Vanderbilt is even higher and is the uppermost office space in the building, which, at 1,401 feet, towers over the city skyline.

As one of the two so-called sky floors, it has unobstructed “helicopter” views from the George Washington Bridge to the Statue of Liberty through its floor-to-ceiling windows. The floor also has a 24-foot slab height and windswept private outdoor space.
Headquartered in Ontario, GFL calls itself the fourth largest diversified environmental services company in North America.

At the end of last year, building owner SL Green Realty had interests in 73 buildings totaling 34.9 million square feet, including ownership stakes in 26.9 million square feet of Manhattan buildings and 7.1 million square feet securing debt and preferred equity investments.
SL Green’s Durels declined to comment on the rent but boasted, “The floor unquestionably is the single most spectacular floor given the combination of all the factors.” Aside from its height and newness, the building benefits from its immediate access to Grand Central Terminal.

David Goldsmith

All Powerful Moderator
Staff member

Renovate or bust: NYC offices face risk of obsolescence​

Three-quarters of the city's office buildings are more than 40 years old. Can they survive the pandemic?​

New York City’s office market increasingly resembles the demographics of the nation: a land of haves and have-nots, with a shrinking middle class.
Two years after the pandemic sent white-collar workers home, office buildings across the metro area were only 37 percent occupied, according to March 16 card swipe data from Kastle Systems, a popular index for office use. That includes “trophy” spaces occupied by the big banks that have pushed workers hardest to return.

Landlords don’t expect them to remain empty much longer. Companies still need dedicated workspace, they say, even if it serves a different purpose — as flexible, refined meeting places rather than 9-to-5 holding pens.
Assuming they are correct, there remains an essential problem: The bulk of Manhattan’s office property is ancient. The unweighted average age of office buildings across the city’s roughly 540 million-square-foot market is now “well over” 100 years, according to Colliers. About 75 percent was built before 1980, and 45 percent was built before World War II.
Age alone isn’t the fundamental issue, according to Ruth Colp-Haber, founder of Wharton Property Advisors and a 30-year veteran Manhattan tenant broker. It’s older buildings’ outdated layouts, features and functionality. With some exceptions, older buildings typically lack the column-free floors, high ceilings, gyms and cafes that tenants want in a workplace.
If tenants are going to commit to a long-term lease, they want that space to be special, Colp-Haber said. And while there are gems among the older stock, preference skews to the new and improved. Landlords either have it or they don’t.
“We’ve definitely never seen anything like this — even remotely,” Colp-Haber said of current office market conditions. “We’re in the midst of a bear market in commercial real estate in New York, and the Class B buildings are going to be bearing the brunt of it.”

Have-nots to haves​

The bifurcation between high- and low-quality space has been going on for years; the work-from-home boom only made the contrast more pronounced. Space that was once passable for companies that maintained large offices will no longer do as those firms redefine, and in most cases moderate, their workplace needs.
Among landlords of “value” properties, there is a belief that one can renovate one’s way into the upper echelon.
“I don’t see Class B as a business I want to be in,” said Jonathan Bennett, president of AmTrust Realty, which is overhauling 250 Broadway across from City Hall to attract a major tech tenant. “I want to be in the Class A business.”
Tony Malkin, chair and CEO of Empire State Realty Trust, maintains that the distinction between Class A and Class B has been “erroneously oversimplified,” and has framed his company’s largely Class B portfolio as part of the broader “flight to quality.”
Well-located, energy-efficient buildings with amenities are “critical in all price ranges,” Malkin said on an earnings call in February.
“We offer office space of these important attributes at rents that are accessible to the broadest population of tenants, not just those who can afford or want to pay triple digits for brand-new buildings,” he added.
New York’s creative industries like publishing and architecture, as well engineering firms and nonprofits, have historically been renters of Class B offices. And in recent years, medical businesses have taken up aging space vacated by typical Class A renters like banks and law firms.
Loft-style Class B space is a draw for tech and other tenants in submarkets like Midtown South, Flatiron and Soho. In those enclaves, demand is booming, according to Duval & Stachenfeld’s Eric Menkes, who represents owners like RXR Realty, Savanna and Jamestown in lease deals at B buildings.
“They’re hitting the ball out of the park right now, and that has absolutely nothing to do with the fact that the buildings are Class B buildings,” Menkes said, declining to offer specifics on rents. “These buildings are not going back to the bank.”
Pronounced softness in other submarkets, like the Garment District and Midtown, including whole stretches of Third Avenue, suggests Class B stock far outweighs demand.
The glut of space is due in part to downsizing flex-office companies, which took over much of the languishing lower-tier space as the business model boomed over the last decade, only to see demand evaporate during the pandemic, said Frank Wallach, executive managing director for research and business development at Colliers.
Over the last two years, WeWork, Knotel and similar firms have given back more than 4 million square feet of space, most of it Class B, he said.
“The question is, will there be enough demand in the post-Covid era to fill it up?” Wallach said. “What we’re seeing so far is the Class A and newer property is seeing the results first in the post-pandemic increase in demand.”

A “distraction play”​

As tenants upgrade their offices, they are also taking less square footage — a consequence of hybrid work plans and column-free floors’ greater efficiency — causing softness in the market for even lower A-grade space in less central locations. Class A vacancy at year-end (17.9 percent) was higher than Class B vacancy (17.1 percent).
David Goldstein, branch manager of Savills’ New York office, described an ongoing “amenities arms race” among landlords below the top tier. On a recent tour of older buildings in Midtown, he and a prospective tenant played at guessing how many times the agent would say “amenity.”
“Agents are spending more time talking about the amenities of the building than the office space itself, because the office space is not that exciting in a lot of these buildings,” he said.
Goldstein called the tactics a “distraction play.”
“The reality is, a lot of the Class B stock has aged perhaps more quickly than anticipated,” Goldstein said. “Certain buildings just have physical limitations that can’t be overcome.”
For owners that could reposition an outdated property, there remains the issue of financing. Rising interest rates and construction and labor costs have made projects that won’t ultimately command top-dollar rents untenable. Lenders, sensing softness in the market, are hesitant to finance projects whose appeal to prospective tenants may be tenuous.
A possible future for Manhattan’s obsolescent Class B office buildings can be glimpsed in Lower Manhattan, where developers have converted millions of square feet to residential and hotel use over the last three decades. A similar transformation in Midtown would be challenging given the submarket’s larger floor plates, which are not as well suited for residential repurposing due to fresh air and light requirements, according to architect Mark Ginsberg of Curtis + Ginsberg Architects.
In the meantime, the central problem is demand, which experts say is markedly lower than it was before 2020 due in part to tenant migration outside New York.
Some Class B tenants became owners during the pandemic, when money was cheap and pricing made buying more attractive, according to Michael Rudder of Rudder Property Group, which specializes in the conversion and sale of New York office condos.
The company helped convert a “weak” Class B building at 35 West 36th Street to a “creative” office condo building during the pandemic, he said. The project was approved in January 2020 and is now effectively sold out.
“The whole project was a success,” Rudder said. “Had they done a leasing campaign, I think they would be dead in the water right now.”

David Goldsmith

All Powerful Moderator
Staff member
only 8% are in the office five days a week
4 out of 5 NYC employers anticipate post-COVID hybrid work model, survey finds
COVID-19 update for NYC

Nearly 80% of New York City employers anticipate a hybrid work model moving forward, according to a Partnership for New York City survey.

Nearly 80% of New York City employers anticipate a hybrid work model moving forward, according to a survey conducted by the Partnership for New York City.

Roughly 38% of Manhattan office workers are already back on an average weekday, though only 8% are in the office five days a week, while 28% remain fully remote.
Recent Stories from ABC 7 NY
The majority of employers say restoring public safety and reducing homelessness on the streets and subways are the key to having workers return to offices.

The Partnership for New York City surveyed more than 160 major employers between April 21 and May 4, 2022, to gauge the status of return to office among Manhattan's one million office workers, as well as the implications for the future of the Manhattan central business districts.

Return to office rates will increase after Labor Day, with 49% of workers expected in the office on an average weekday in September 2022.

However, remote work is here to stay, with 78% of employers indicating a hybrid office model will be their predominant post-pandemic policy, up from just 6% pre-pandemic.

Employers remain committed to New York City, with 58% expecting their New York City office employee headcount will increase or stay the same over the next five years. Only 8% expect a decline in headcount.

Among those who may reduce their New York presence, high costs, taxes and public safety rank among the biggest factors.

The Partnership survey of employers found:

On an average weekday, 38% of Manhattan office workers are in the workplace as of late April 2022.
--8% of Manhattan office workers are in the office full time (five days a week)
--11% are in four days per week
--17% are in three days per week
--21% are in two days per week
--14% are in one day per week
--28% of Manhattan office workers are fully remote

49% of Manhattan office workers are expected to be in the office on an average weekday by September 2022.
--9% of Manhattan office workers are expected to be in the workplace five days per week by September 2022
--12% will be in four days per week
--33% will be in three days per week
--19% will be in two days per week
--13% will be in one day per week
--14% of Manhattan office workers will still be fully remote

The real estate industry has by far the highest average daily attendance (82%) as of late April, followed by law (46%), tech (44%), media (43%), consulting (41%) and financial services firms (40%).
--Real estate firms expect average daily attendance to increase slightly to 85% by September; law firms expect 54%; financial services firms expect 52%.
--Industries with the lowest projected return to the office by September include consulting (44% daily attendance), public relations (35%) and accounting (26%).

Larger firms project the slowest pace of return to offices:
--Among firms with fewer than 500 employees, 53% of employees have returned to the office on the average weekday. Average daily attendance is expected to increase to 59% by September.
--Among firms with more than 5,000 employees, 31% of employees are currently in the office on the average weekday and 42% are expected back by September.

The Partnership also asked employers about their office attendance policies:
--Prior to the pandemic, 84% of employers had a mandatory daily attendance model, while 7% permitted departmental discretion. Only 6% used a hybrid model and 1% were fully remote.
--Post-pandemic, 78% of employers currently or plan to deploy a hybrid model and only 10% will require daily attendance. The remainder will rely on departmental discretion (9%) and employee discretion (4%).
--Among employers with mandatory daily attendance pre-pandemic, 77%, say they are instituting a hybrid model post-pandemic.
--91% of employers are encouraging employees to return to the office and nearly two-thirds (64%) are offering at least one incentive to those that return to the office.
*Common incentives include social activities (50% offering), free or discounted meals (43%), transportation subsidies (13%) and child care support (10%).
--30% of companies are offering additional remote work flexibility during the summer. The most common arrangements include a hybrid schedule during the summer months, summer Fridays and permitting remote work in August.

The Partnership asked employers to provide their post-pandemic outlook on their New York City real estate footprint and headcount:
--39% of employers expect to increase their New York City office-based workforce in the next five years.
*Only 8% expect their office employee headcount will decrease and 18% expect headcount to remain the same.
*Among employers that expect to reduce New York City headcount, 75% cited high costs of doing business in the city as driving their decision. Additional motivating factors include employee requests (58%), uncompetitive tax burden (50%) and crime and public safety (33%).
*21% of employers say their future headcount depends on business conditions, while 13% say they do not know at this time.
--18% of companies plan to increase their New York City real estate footprint in the next five years.
*A slightly larger share of companies-22%-expect to reduce their footprint; the majority of employers either expect their footprint to either remain the same (32%) or do not know at this time (29%).

The Partnership asked employers to identify which factor or intervention would be most effective in encouraging employees to return to the office:
--32% indicated greater return to office rates among peer companies would be most effective.
--31% of employers indicated that reducing the presence of homeless and mentally ill individuals on streets and subways would be most effective.
--22% indicated that expanded police presence on the streets and subways would be most effective.
--10% of companies identified a combination of the above factors or additional factors. Nearly two-thirds (64%) of the additional interventions referenced by employers related to homelessness or public safety.

Employers provided additional detail on office policies and summer internship programs:
--38% of employers will continue to require vaccinations for employees who work in the office even if all government vaccine mandates are lifted, 18% say they will not continue to require vaccinations while 44% have not yet decided.
--Among employers with 2022-2023 summer internship programs, 50% will have in-person programs, 48% will have hybrid and 2% will have remote programming.

Additional information:
--The majority of surveyed employers have offices in Midtown West (38%), Midtown East (33%) or the Financial District (16%).
--The majority of respondents are in financial services (35%), real estate (17%), law (11%), tech (6%), media (6%), consulting (4%) and accounting (4%).
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David Goldsmith

All Powerful Moderator
Staff member

Empty boxes: As remote work endures, many office buildings are losing value​

Cities are bouncing back. Offices remain mostly empty. What are all those towers really worth?​

Blackstone is handing back the keys to an outdated office building north of Times Square. In Chicago, Alliance HP walked away from the leasehold on a West Loop office. A loan on Jamison Properties’ Equitable Life Building in Los Angeles is on a watchlist of properties in danger of defaulting.
Office landlords across the nation, hammered by the work-from-home revolution, are coming to terms with the first signs of distress. While a number of buildings were struggling to make debt payments even before Covid, home offices and hybrid work schedules have accelerated their downfall. The busts may be an early sign of a larger problem concealed by slow sales activity: Many office buildings are losing value.

“I don’t think we’re ever going back to the same level of economic activity in the big cities we saw in 2019,” said Manus Clancy of Trepp, the largest commercially available database of securitized mortgages. “People have fallen in love with this three-days-in-the-office thing,” he added. “I think that’s here to stay.”
Even as masks come off and urbanites return to the cities they fled, pushing up rents, sparking bidding wars and filling nightclubs with such alacrity that Miami Beach imposed a rare spring break curfew, offices remain stubbornly lifeless. Just over 40 percent of office workers were back in buildings in 10 major cities at the end of April, according to Kastle Systems, which tracks keycard swipe data.
On top of that, about $1.1 trillion of office buildings — some 30 percent of the national inventory — are in danger of becoming obsolete due to changes in work patterns, according to an analysis by commercial real estate economist Randall Zisler, cited by Bloomberg.
One big caveat: Any change in building values hasn’t yet been reflected in data. Properties that have sold so far have mostly held their value. Concessions are showing signs of decreasing, and some leases in big cities appear to be recovering to pre-pandemic levels. One Vanderbilt, SL Green’s brand-new Midtown office tower, leased its uppermost office space for more than $300 a foot last month, a probable New York City record, people familiar with the deal told TRD.
Yet a recovery in sales and leasing has mostly been for higher-end assets, which are more likely to be insulated from valuation shifts. Struggling properties aren’t coming to market now and smaller tenants aren’t signing new leases, masking those changes.
“It appears that smaller-size deals are still lacking as a percentage of leasing activity,” real estate database CompStak wrote in a recent analysis. “Since smaller floor plate spaces tend to be cheaper than premier space, the recovery indicated by the average rent calculation is more of a reflection on the higher end of the market.”
Put another way, much of the market is hard to value because of a dearth of deal activity. So far, the shift is anecdotal, not based on viable data points.
“We’re still in discovery mode, and everyone is starving for more information and facts and data to really help them understand what the implied changes to value are,” said Erik Hanson of JLL’s capital markets team in San Francisco.

Widespread challenges​

Midtown Manhattan’s second- and third-tier office buildings faced competition from newer properties even before the pandemic. As in other markets, these properties have been the first to show distress.
At 1740 Broadway, for example, L Brands relocated to 55 Water Street in the Financial District, signing its lease in January 2020 — meaning Blackstone’s largest tenant in the 26-story Midtown building decided to move out before the pandemic.
The asset manager paid just over $600 million in 2014 to buy the now-70-year-old building from Vornado Realty Trust, which had renovated it seven years earlier.
Blackstone is reportedly handing over the property to the special servicer on its $308 million CMBS loan.
Trepp’s Clancy said the buildings that are getting into trouble are the older ones in less desirable locations that were already facing a tough road before Covid sent most office tenants home.
“Those buildings would need a fortune to be retrofitted to attract higher-paying companies,” he said.
In Chicago, a lender took control of Brookfield’s 22-story building at 175 West Jackson Boulevard in March, while the most likely outcome for AmTrust Realty’s 1.3 million–square-foot 135 South LaSalle Street is a deed-in-lieu of foreclosure, Trepp reported on March 21. The two owners had struggled to keep the properties sufficiently occupied to make loan payments before the pandemic, and were prevented from recovering as the virus raged.
New York-based AmTrust bought the South LaSalle Street property for $330 million in 2015, but longtime anchor tenant Bank of America exited its 830,000-square-foot space last year to head to its new namesake, a 57-story tower on Wacker Drive. A recent appraisal slashed the building’s value to $130 million.
“If you ever land an anchor tenant in your building, you should sell it the next day,” said Andy DeMoss, a landlord rep for Chicago-based brokerage Bradford Allen. “You’re so vulnerable to be picked off when their lease rolls.”
As occupancy declined at Jamison’s Equitable Life building in Downtown Los Angeles, the rating agency KBRA gave the 42-story Class A office tower a value of $89 million last April, when its outstanding CMBS debt sat above $92 million.
The 50-year-old building’s occupancy fell to 66 percent last June from 82 percent in late 2020, according to DBRS Morningstar, and it remains on a special servicer’s watchlist since being placed there last October. KBRA appraised the building at $150 million in 2014, when Jameson refinanced and took out $95 million in loan proceeds. The building began facing issues as early as 2018, when its largest two tenants decided to vacate.

San Francisco has probably been the slowest of the nation’s major office markets to rebound from the pandemic in terms of occupancy, said JLL’s Hanson.
About 22 percent of its office space was vacant at the end of last year, an almost fourfold increase from 2019, JLL data show. Direct asking rents, meanwhile, have decreased to about $80 a square foot a year after hitting $90 a square foot in 2019, according to JLL.
One such building downtown — steps away from Union Square, the city’s retail center — is testing the city’s office market. The 51,000-square-foot structure at 166 Geary Street consists of two levels of retail and 14 floors of offices, with the latter backing a $19 million CMBS loan that Concord Capital Partners took out from JPMorgan Chase in 2019.
Things were looking rosy for Concord, owner of the 115-year-old property’s office space, when it said in March 2019 that WeWork had signed a 10-year lease for 12,500 square feet. The deal, valued at over $10 million, made the flex-office company 166 Geary’s largest tenant and left the building more than 95 percent occupied.
Three years later, the outlook has become murkier. WeWork exited the building seven years ahead of schedule after defaulting on its lease, special servicer LNR disclosed in December. Concord began falling behind on its loan payments in April 2020 but emerged from delinquency in February after pumping more equity into the building’s offices, whose appraised value has dropped by 17 percent, to $21.5 million, since 2019, according to DBRS.
Almost 11,000 square feet of the building’s office space — the 12,700-square-foot retail condo portion of the property is owned separately by The Jackson Group — was available for lease as of April 28, according to its LoopNet listing. Concord is offering $10,000 to any tenant rep broker that gets their client to sign a full-floor lease by the end of the year, the listing said. Other San Francisco office landlords are handing out perks including higher commissions and a vacation in Cabo to avoid cutting rents in a stubbornly soft market.

Bargain buys​

The data from Kastle Systems underlines the uneven pace of various office markets’ recovery.
New York- and San Francisco-area office properties tracked by the firm were 33 percent occupied in late April, trailing eight other major markets, including Chicago’s 37 percent, Los Angeles’ 39 percent and Austin’s 59 percent.
Averaged across all 10 major markets, occupancy has recovered to its pre-Omicron peak of just above 40 percent, but has generally flatlined there. Now, more than two years into the pandemic, Kastle’s index has yet to cross the 50 percent threshold.
One way to assess the impact on office building values is through capitalization rates, which aim to show how much an investor pays for a property relative to the income it generates.
While cap rates vary by market, they’ve generally stayed even or compressed slightly since the end of last year, suggesting investors haven’t yet been scared off, according to CBRE.
“In the markets that have been impacted, there’s still some uncertainty, but they’ve remained relatively stable,” said Darin Mellott, a researcher at CBRE. “A lot of this has to do with the success of the policies responding to the pandemic. Trillions of dollars in fiscal policy did a good job of maintaining asset values.”
Cap rates for trophy office buildings in Los Angeles have moved up to 4 percent from about 3.5 percent, but New York has had some compression. Mellott said secondary markets like Atlanta, Dallas and Denver have led the recovery.
Mellott noted that very few buildings have been selling. Those trading are typically well-leased properties that can attract strong pricing, so it’s difficult to assess the impact hybrid work has had on their values.
In Chicago, DeMoss said that if lenders get more aggressive in prying older properties back from struggling owners whose rent rolls were diminished by both the pandemic and the Windy City’s appetite for new development, it could propel the market upward.
“The 135 LaSalle and 175 Jackson seizures aren’t going to be the last,” he said. “There are multiple buildings that are probably in a very similar situation. If lenders take them back, that creates chances for fresh blood to come in and get it at a low basis. That’s good for the market. Some of that will flush out over a longer time horizon than we would want. I’m thinking two to three years before we’re fully out of this.”
For now, investors seem confident that markets will largely recover and that the busts will be contained, even though offices have been through a number of false starts as planned returns have been derailed by Covid spikes.
CBRE’s Mellott said a strong economy and job creation are stirring hope among investors that they will blunt the impact of companies cutting back space due to hybrid work. He said they generally say it will take three years.
“They’re clear-eyed about the changes in work patterns,” Mellot said. “The market clearly understands there are timing issues and uncertainty to be sorted through.”

David Goldsmith

All Powerful Moderator
Staff member

Office space up for sublease back on the rise​

Availability increased to 159M sf in first quarter: CBRE​

The office sublease surge showed signs of abating late last year as companies juggled hybrid work plans and signed for space, but the rise in nationwide availability was back on in the first quarter of 2021.
Sublease available rose 3.6 percent to 159 million square feet across the country, according to CBRE data reported by the Wall Street Journal. The availability is significantly higher than pre-pandemic levels and only 3 million square feet shy of the pandemic high.

In Manhattan, the amount of sublease space available is near record highs. According to Savills, more than 20.2 million square feet were available in the first quarter. That’s down from the 22 million square feet available a year ago, but well above the 13.6 million square feet up for grabs in the first quarter of 2020.

Not every subleasing market is created equally. Along with Manhattan, San Francisco and Washington, D.C. are seeing close to historic highs, while booming Sun Belt cities have lower sublease availability.
The increase in sublease space is likely tied to a widespread increase in more permanent hybrid work scenarios. As a result, companies don’t need as much space as they signed up for prior to the pandemic.

In New York City, a some major names have joined the search for subletters in recent months.
Warner Bros. Discovery is marketing a massive 450,000 square feet for sublease at 30 Hudson Yards, about a third of the company’s footprint at the building. S&P Global is marketing 140,000 square feet occupied by IHS Markit at 5 Manhattan West.

The sublease surge is rankling landlords amid low demand, a changing work environment and rising vacancies.
“There are not enough tenants who will absorb these spaces,” Savills vice chairman Jim Wenk told the publication.
Another crisis is on the horizon for landlords, as JLL data show about 243 million square feet of office leases are set to expire nationally this year.

David Goldsmith

All Powerful Moderator
Staff member

Office royalty talk conversions, distress and the “downsize upgrade” trend​

Between inflation, rising interest rates, and employees working from home, there have been better times to be an office landlord or broker.

Even some of the city’s largest commercial real estate landlords and brokers — folks not known for broadcasting pessimism — agree that certain properties are going to suffer and need to be converted for other uses. Conversions to hotels or residential are not easy but possible, according to panelists at The Real Deal’s commercial office discussion Thursday.

“The bottom 20 [percent of office space] is going to be ripe for alternative use,” said Chris Shlank, a founder and managing partner at Savanna Fund. “It’s going to be the middle 60 that I think about and I worry about.”

Shlank, joined by Will Silverman of Eastdil Secured and Bob Knakal of JLL Capital Markets, talked about this bifurcation of the market, among other topics. While the middle-market space may be called Class B, a step down from top-of-the-line office buildings, only half of that class will do well, according to Shlank.

“The top 30 percent of the middle 60 percent is going to survive,” said Shlank. “The bottom 30 percent of the 60, I don’t know where that is going.”

The idea of converting office buildings to residential has gained some steam. But Knakal said the city needs to reenact 421-g, a tax abatement that was used to spur conversions from commercial to apartment buildings in Lower Manhattan after 9/11.

“Without that tax abatement the numbers are really, really hard to work,” said Knakal.

However, it’s not all doom and gloom. Deals are getting done. Recently, the Australian financial services firm Macquarie Group leased 220,000 square feet across six floors of Brookfield’s 660 Fifth Avenue, a formerly snakebit property that was known as 666 Fifth Avenue and owned by the Kushner Companies. Brookfield started a $400 million overhaul of the building.

Silverman said that many firms like Macquaire are looking to reduce their office footprint but lease space in higher-quality buildings.

“The one trend for real estate we are seeing is the downsize upgrade,” said Silverman.

Panelists said distance to major travel hubs is among the most desired characteristics for tenants. Employees who have to take multiple trains to reach the office are much harder to entice to leave their homes.

“Grand Central will probably be more important in the next 20 years than it has been in the last 50 years,” Silverman.

Office space around Grand Central Terminal is highly desirable, according to the panelists. Shlank said being within seven minutes of a major transportation hub is important for office landlords.

One thing that isn’t needed: extraneous amenities. Outside of ample conference space, things like ping pong tables are unlikely to entice employees back to the office, the panelists predicted.

“In four years, all of us owners and advisers are going to laugh at each other and how much money we spent on amenities that no one uses,” said Shlank.

David Goldsmith

All Powerful Moderator
Staff member

Banks, tech among departures sinking Midtown office market​

Midtown South moved ahead in asking rents for first time​

Midtown Manhattan’s struggles in the wake of the pandemic have reached a new low, with banks and big tech companies partly to blame.
These companies are eschewing Midtown offices in favor of spots in trendier neighborhoods, the Wall Street Journal reported. The widespread flight to quality over the last year has seen companies drawn to features like outdoor space and smaller carbon footprints in hopes of luring workers back to the office.

The shift from Midtown — identified as the area between Bryant and Central parks — is having a sizable effect, particularly on asking rents. Asking rents in Midtown South — the area south of Bryant Park stretching west to Hudson Yards and down to Canal Street — surpassed those in the longtime business corridor for the first time this spring, according to Colliers data reported by the Journal.

At the end of last month, Midtown South boasted a 2.5 percent premium in asking rents over its uptown counterpart.
Big tech’s move away from Midtown has been plastered across search results and news feeds. Last year, Google shattered a pandemic record by purchasing 550 Washington Street in Hudson Square for $2.1 billion. The building is under construction and isn’t expected to open until the middle of next year, at the earliest.
Meta Platforms has also shown an increased interest in offices away from Midtown, occupying four buildings south of Midtown. Big tech’s importance in the office market only increased during the pandemic, as CBRE data showed tech companies leased 76 percent more space year-over-year in the last three quarters of 2021.

Banks and financial institutions are also hoping to be hip by moving from Midtown. Earlier this month, HSBC signed a lease for 265,000 square feet at the Spiral, Tishman Speyer’s high-profile development in Hudson Yards. In a sign of the times, the 20-year lease means HSBC is leaving Fifth Avenue, its Midtown headquarters.
There are detractors who are still betting on Midtown, whether because of belief or because it would simply be too costly to bail at this point. The most prominent among them is JPMorgan Chase, which is moving ahead with a 60-story, 1,388-foot-tall tower at 270 Park Avenue. The 2.5 million-square-foot building is expected to house up to 14,000 employees and be completed by the end of 2025.

David Goldsmith

All Powerful Moderator
Staff member

Office occupancy in New York finally hits 40%​

First time city has reached milestone since start of pandemic​

The glass is almost half full for New York City’s office landlords.
Office occupancy pushed past 40 percent last week for the first time since the start of the pandemic, The City reported. The Kastle Back to Work Barometer increased to 41.2 percent; Kastle Systems measures office occupancy by entry into office buildings.

The attendance level represented a jump of nearly 5 percentage points from the previous week. Covid case numbers have been falling for about six weeks in the state, but considering how they have see-sawed in the past two years, it’s too soon to say the rise in occupancy will be sustainable.

Nevertheless, real estate leaders celebrated the milestone.
“This is good news for our city’s recovery as the presence of office workers in the central business district is critical for retail, restaurants and other storefront businesses hit hard by the pandemic,” James Whelan, president of the Real Estate Board of New York, told The City.

Occupancy has surged in the past few months. Toward the end of last year, attendance cratered as the Omicron variant gave New Yorkers a serious scare. Occupancy levels dipped as low as 10.6 percent.

Even as more workers report to their desks, the overall office picture remains gloomy. A recent report from City Comptroller Brad Lander estimated that office value declines could cost the city $600 million in annual property tax revenue. The city’s office market has a vacancy rate of 16 percent, while the sublease vacancy rate is 5 percent; both are higher than they were during recent economic crises.

A recent analysis from a team at NYU estimated that by 2029, the city’s office buildings will drop in value by 28 percent, or $49 billion.
The return of people to the office is uneven across the country. Commuting remains one of the biggest obstacles for people returning to the office, as many have grown comfortable sliding out of bed and getting to work without sitting in traffic or taking mass transit.

Nationally, office occupancy hit 44 percent last week, also the highest since the onset of the pandemic. Three Texas cities led the charge, spearheaded by more than 60 percent occupancy in Austin.
But fewer than a third of workers are back in the office in San Francisco, where the occupancy rate hovers around 31 percent.

David Goldsmith

All Powerful Moderator
Staff member

Facebook Parent Meta, Amazon Pull Back on NYC Office Expansions​

  • Meta halts expansion at 770 Broadway near Astor Place
  • Amazon is cutting back its plans for Hudson Yards office space

Tech giants Meta Platforms Inc. and Inc. are cutting back on planned office expansions in New York.

Facebook’s parent company Meta has decided against taking an additional 300,000 square feet (27,870 square meters) of space at 770 Broadway, a building near Astor Place where it’s already located, according to people familiar with the matter. The company is also pausing plans to further build out its new offices in Hudson Yards as it evaluates what to do with the space, said the people, who asked not to be named discussing private information.
Nearby, Amazon has also cut back on the amount of space it had intended to lease from JPMorgan Chase & Co. at Hudson Yards, reducing the square footage it aims to take over, according to a person familiar with the matter. No deal has been signed yet.

Meta spokesperson Jamila Reeves said the company remains firmly committed to New York and is looking forward to opening the Farley Building near Pennsylvania Station in the coming months.
“There are often a number of reasons why we wouldn’t proceed with a particular deal, including office utilization,” Reeves said in an emailed statement. “The past few years have brought new possibilities around the ways we connect and work. We are working to ensure we’re making focused, balanced investments to support our most strategic long-term priorities.”

Spokespeople for Amazon and JPMorgan declined to comment.

Office Shifts
Many tech companies have been moving toward more flexible, remote-working options since the start of the pandemic. At the same time, broad stock market declines and increasing concerns about the potential for the US economy to head into a recession have prompted some companies to slow hiring. Meta has announced plans to slow or pause hiring for some mid- to senior-level positions.

While both Meta and Amazon are still building out giant offices in Manhattan, the two companies’ more-cautious approach is a potential harbinger of future challenges across the city’s office market as businesses seek to cut costs and re-evaluate real estate strategies. New York still faces a glut of office supply, with more than 18% of space available despite a slight leasing rebound earlier this year, according to second-quarter data from Savills Research.

Meta is still committed to large leases the company signed in recent years at both Hudson Yards and the redeveloped Farley Building. Even while most of its employees worked from home, the firm continued to build out its new offices and seek extra space in anticipation of even more growth.

Meanwhile, Amazon also leased space in Hudson Yards in 2019 and shelled out more than $1 billion in 2020 to purchase the Lord & Taylor building in midtown Manhattan for new offices.

David Goldsmith

All Powerful Moderator
Staff member

Meta, Amazon bail on NYC office expansions​

Facebook parent was eyeing 300k sf addition at 770 Broadway​

Two tech titans appear to be retreating from office expansions in the Big Apple.
Both Meta and Amazon are backing away from their plans to expand in New York City, Bloomberg reported. Neither has signaled any intent to eliminate space they already have in the city, but are backing off potential deals to add space.

Meta, the parent company of Facebook, was reportedly planning on taking 300,000 square feet of additional space at Vornado Realty Trust’s 770 Broadway, where the company already has a large swath of space. The lease would have brought the company footprint to more than 800,000 square feet at the office building.
The space Meta was interested in was formerly leased by Verizon. Four years ago, Meta made its most recent expansion at the building, signing a lease for 78,000 square feet to hit 513,000 square feet in the building.

Meta didn’t comment specifically on the 770 Broadway decision to the outlet, but noted the company remains committed to the city. The company in 2020 leased 730,000 square feet at the redeveloping Farley Post Office, which remains in the works.
The company also paused plans to build out further offices at Hudson Yards.
Amazon is also reportedly retreating from an office expansion in the city after the tech giant was in talks for an undetermined amount of space at 5 Manhattan West in Hudson Yards. JPMorgan Chase put more than 100,000 square feet at the building up for sublease last year.

Both parties declined Bloomberg’s request for comment.

It’s not clear how much of that space Amazon was planning to take. No deal has been signed yet, suggested Jeff Bezos’ company was going to take a smaller amount of square footage, but was still planning on taking something.
Amazon still has plenty of space in Hudson Yards. In 2019, the company signed a 335,000-square-foot lease at 410 Tenth Avenue, owned at the time by SL Green.
One year later, 601W Companies purchased the building for $952.5 million.

David Goldsmith

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Staff member
2006 price $498 million.
2010 price $400 million.
2022 price $325 million

RXR, Blackstone sell 1330 Sixth Avenue for $325M​

Empire Capital Holdings buying 40-story office tower​

RXR and the Blackstone Group are in contract to sell 1330 Sixth Avenue weeks after putting the 40-story office property on the market.
The joint venture is selling the building to Empire Capital Holdings for $325 million, a person with knowledge of the deal told the Commercial Observer. When marketing efforts were first reported in June, the joint venture was looking for $350 million.

Empire Capital plans on putting new debt on the property to fund the purchase. The building has $285 million in debt from DekaBank via a 2018 refinancing, which paid off a $200 million loan from New York Community Bank.
When the joint venture started marketing, it was believed the $285 million loan would be paid upon a sale, but it’s not clear if that’s the case.

The sale is expected to close by the end of the year.
RXR led a group of investors in the purchase of the building in 2010 for about $400 million. The seller at the time was Canadian lender Otera Capital, which took the 520,000-square-foot property from Harry Macklowe after he was forced in 2009 to put it up for auction; Macklowe purchased the property in 2006 for $498 million.

Blackstone became a part owner of the property formerly known as the Financial Times Building in 2015, buying a stake as part of a 50 percent stake deal involving six RXR properties.

Tenants include Silvercrest Asset Management, Knoll and the Robert Wood Johnson Foundation. Silvercrest has the honor of having its initials adorn the top floor of the tower.
An Eastdil Secured team including Steven Binswanger, Gary Phillips and Will Silverman brokered the deal for the joint venture.
This is Empire Capital’s second big office purchase in recent months. Empire bought the office building at 345 Seventh Avenue with Igal Namdar of Namdar Realty Group for $107 million. The seller of the 220,000-square-foot building was Clemons Management.
The continued decline of the building at 1330 Sixth Avenue could be a harbinger of what’s to come in New York’s office market. An analysis from NYU’s Arpit Gupta and Columbia University’s Vrinda Mittal and Stijn Van Nieuwerburgh recently determined that by 2029, the city’s office stock will drop in value by 28 percent, or $49 billion.