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Weekly Market Report - April 23, 2024

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New York City Mayor Eric Adams announced that Citadel founder Ken Griffin, along with partners Vornado Realty Trust and Rudin Management, are moving forward with a 1.8M SF office tower at 350 Park Ave. The building is expected to house 6,000 jobs in Midtown Manhattan by the completion date and create a new 12K SF public space at the corner of Park Avenue and East 52nd Street. The project will provide $35.8M to the East Midtown Public Realm Improvement Fund, although it still needs to pass the city's approval processes.


The tower will be designed by UK-based architecture firm Foster + Partners. The deal between Griffin, Vornado, and Rudin first became public in December 2022 and closed in the first quarter of 2023. The joint venture valued the development at about $1.2B, with Griffin having the option to acquire a 60% interest, Vornado owning 36%, and Rudin owning a 4% equity stake and a $250M preferred equity interest.



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Earnings up 15% in first quarter for property group


Blackstone's real estate group's earnings in Q1 were driven by the demand for data centers, with the company investing $50 billion in the sector. The demand has been driven by content creation, cloud adoption, and the revolution in artificial intelligence. The real estate segment's earnings were $616 million, up 15% from Q1 2023. Despite persistent reports of distress, Blackstone is beginning to deploy cash into real estate, with a $10 billion deal to acquire apartment landlord AIR Communities. New supply is trailing off, reducing competition for real estate asset owners.



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$1.1B in debt went to special servicing in December


Two of the city's largest office landlords, SL Green Realty and Vornado Realty, have increased their $100 million commitment to extend the maturity date for the Midtown East building's $1.1 billion debt by two years. The extra cash was used for leasing costs, not the loan repayment. The landlords also bought a $125 million mezzanine loan tied to the block-long building for $63 million. The property, built in the 1960s and last renovated in 2015, held a healthy occupancy rate during the pandemic. However, as interest rates rose in 2022, pricier loan payments impacted cash flow. The modified interest rate for the 280 Park debt is 1.76 percent over SOFR, which stands at 5.3% as of April 17. The building's leasing demand remains strong, with investment bank PJT Partner and private equity firm Antares Capital renewing office space.



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Samson Management sold 129 West 29th for barely half of what it paid in 2012


New Tang Dynasty, Epoch Media's television arm, has purchased an office building in West Chelsea for $31 million, breaking down to $360 per square foot. The deal was made by Samson Management, a developer based in Queens. The property was acquired for $54 million in 2012, a year after the Epoch Times newspaper was founded by John Tang. The Epoch Times, which published conspiracy theories, gained popularity during the 2020 presidential election. Other media and publishing companies to make small office purchases nearby include Japanese manga publisher Kodansha and Korean media company MediaWill.



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Barclays, PPM America foreclosed on Midtown East office this year


Savanna's 360 Lexington Avenue office property is being sold by Barclays and PPM America due to a challenging office leasing environment. The property, which spans 269,000 square feet, is located near Grand Central Terminal and may have been a factor in Savanna's $110 million loan in 2019. The largest tenant is believed to be Webster Bank, which signed a new lease for 31,000 square feet in 2022. The property is only 60% leased. Savanna, one of several major New York City landlords, faces high interest rates, lower valuations, and an office occupancy situation that may never recover to pre-pandemic levels due to remote work.



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SL Green signs crypto exchange to 11-year deal


Coinbase has signed a lease for 67,000 square feet at One Madison Avenue, a 1.4-million-square-foot office tower, with an 11-year term. The cryptocurrency exchange will take two floors at the building, with a 23rd-floor lease at $170 per square foot. SL Green acquired the property in 2005 for $918 million before launching a $2.3 billion redevelopment. Other tenants include Palo Alto Networks and celebrity chef Daniel Boulud. Coinbase's recent leases are inconsistent with its move to go fully remote, which led to its abandonment of its San Francisco headquarters in 2021.



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Amazon, Google, Meta among those reevaluating leases


Tech firms are downsizing or reevaluating their office needs, impacting office landlords across the US. Amazon, Google, and Meta are all reevaluating their office needs, with Amazon passing on lease renewals, terminating deals early, and dropping underutilized floors. In 30 cities with high volumes of tech tenants, office space up for sublease is at its highest levels in a decade. This loss of tech tenants can also affect retail landlords in central business districts, who rely on steady foot traffic. The vacancy rate of offices across the US rose to 19.8% in Q1.



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Blackstone, a leading investment firm, is predicting a recovery in the commercial real estate market, particularly in multifamily rentals. The company deployed nearly $25B in Q1 2023, a 21% decrease from the $31B it deployed in Q1 2023. The firm's Q1 deployment was a result of its belief that commercial real estate values were bottoming, creating conditions for increased transactions. The disconnect between supply and demand in rental housing is a major investment theme for Blackstone, as the country is building about the same number of homes annually as it did in the 1960s. The shift in interest rate expectations has caused rallies in both debt and equity markets, making it challenging to deploy capital.


The protracted high interest rate environment and market reaction may extend the investment window for Blackstone's $191B of dry powder. Blackstone's BREIT, which has been in the spotlight since December 2022, has seen repurchase requests fall 85%, dropping to the lowest level in nearly two years.

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