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Weekly Market Report - August 21, 2023


Working out or just working? More gyms are encouraging remote-working members to stay all day and do both

Jessica DiGiovanna, a 25-year-old audit project manager in Arlington, Va., uses a co-working space on the fourth floor of her Life Time gym to work from home. She signed up for a $499-a-month membership package in July, which allows her to toggle between self-care and her job without travel time and lost motivation. The setup allows her to work more efficiently without returning home. Gyms are now offering extra desks, offices, and outlets to accommodate remote workers. Co-working arrangements, where workers share office space for average monthly fees around $300 to $400 a desk, are facing market tumult. There is appetite for co-working spaces that are close to the places workers already frequent and enjoy spending extra time, like they do at gyms. Many employees who work remotely are coming down from their work-from-home highs and crave the buzz of more social environments. The monthly cost at her Life Time gym's co-working space allowed her to grow her business, which began with $475 a month for one desk in 2020. The upfront cost of setting up a similarly tastefully-appointed space with audiovisual equipment, conference rooms, and full kitchen would be too much, and her employees might miss the gym. Gym membership levels are still recovering from the pandemic-induced shutdowns, but usage rates have caught up or surpassed pre-Covid levels.


Firm pinched by falling occupancy, rising interest rates

Savanna, a prominent office investor in New York City, has been struggling with distress in its own portfolio due to defaulting on debt, repeatedly extending loans, and reducing ownership stake within individual properties. The firm has blown past maturity dates on securitized loans and vacancies are rising on two of its big Midtown office buildings. Chris Schlank and Nick Bienstock, Savanna's co-chairs, believe that a deep distress investing opportunity is emerging across many real estate assets, especially in New York City office buildings. The firm faces numerous similar situations, including rising vacancy and interest rates coupled with declining rents, forcing the firm to push maturity dates back as far as possible. Savanna's prime Midtown office buildings, 521 Fifth Avenue and 5 Bryant Park, have seen occupancy rates drop significantly, with the company exercising its last maturity extension, pushing the loan's expiration date back to June 2024. The Falchi Building in Queens, which was bought for $257.5 million in 2016, has also been underperforming, with the debt's original maturity being March 2023. Savanna's exit from the company has further exacerbated the situation.


New York's in-office rate is at one of its lowest points of the year

This article is a combination of all three articles.

In 2023, nearly 3 million workers are expected to be subject to new in-person work requirements. The impact of these mandates on actual office usage remains uncertain. 65% of employers have some in-office requirements, while 30% leave it up to employees. The rise in return-to-office requirements is due to changes rolled out by major companies like Disney, JPMorgan Chase, Amazon, and Zoom. The federal government is also pushing more agencies to enforce more days per week. New York City's return to office is improving, but office occupancy in Midtown and Lower Manhattan is still down compared to pre-pandemic numbers. Midtown visits were down 30% compared to 2019, while the Financial District dropped 16%. Pennsylvania Station commuters rebounded to pre-pandemic levels, while Grand Central Terminal experienced slightly better numbers. New York's in-office rate reached its lowest point of 2023 at 44.8% for the week ending Aug. 9, the lowest since the Fourth of July. The data from Kastle Systems shows Tuesday as the most popular in-office day, while Friday is the least popular.


Building lost Tommy Hilfiger in 2019 and recently began marketing the vacated space

Metropole's $215 million loan at 681 Fifth Avenue has fallen delinquent, a reminder of the industry's headwinds in prestigious commercial corridors. The property's troubles began in 2019, when Tommy Hilfiger's flagship tenant, Tommy Hilfiger, lost his lease. Despite this, Metropole's CEO, Robert Siegel, managed to pay the rent in full until the lease expired on May 31st. Since then, Metropole has spent around $350,000 renovating the location, which is listed with JLL. The property was acquired in 2005 for $86 million from Fortunoff, a New York-based furniture and jewelry retailer. Metropole's $215 million CMBS loan came from a 2016 refinancing by UBS and Citigroup, replacing a $125 million Ladder Capital loan scheduled to mature in 2018. The building's previous lenders were Hypo Real Estate Capital in 2008 and Ladder Capital in 2010. Metropole's renovation in 2009 included tenants like Hilfiger, Vera Bradley, and MCM Worldwide.


Multifamily, retail, construction and development all had their moments this week

Office market woes have also been exposed in other real estate sectors. Multifamily giant CA Ventures faces eviction from its headquarters and a United Center luxury box in Chicago, with a River North office venture pursuing an eviction against the company. In New York, AECOM Tishman's Jay Badame abruptly left the construction giant after a terse announcement. Warren Buffett's Berkshire Hathaway disclosed $814 million in investments across three home builders, reflecting builders capitalizing on limited supply. Unibail-Rodamco-Westfield is close to a deal to refinance a $925 million loan on its Westfield Century City mall in Los Angeles. Brian Tuttle has switched from being a "land flipper" to a developer in South Florida, transitioning from the high-risk, high-reward land business to income-generating real estate. In Dallas, Douglas Elliman brokerage's Texas leader Jacob Sudhoff allegedly factored a Sikh real estate agent's religion, race, physical appearance, and former Dallas Cowboys cheerleader into its sale strategy when the two agents were paired together in a deal. Experts are unclear on the inappropriate-to-illegal spectrum of the situation.


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