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Manhattan's office market remains stagnant, with a 17.8% availability rate in July, according to new research. The city government is providing limited relief, with 2.3 million square feet of office space transacted, indicating a potential recovery from the downturn caused by remote work, downsizing, and layoffs. However, a megadeal by the Administration for Children's Services (ACS) accounted for nearly a quarter of all July's activity. ACS will lease 641,000 square feet at 110 William St., a postwar building in the Financial District, for about two-thirds of its 928,000 square feet. The property, which has been empty in recent years due to departures from other organizations, has struggled to stay current on mortgage payments. The ACS deal may have helped secure a lifeline, as Deutsche Pfandbriefbank issued a mortgage to Pacific Oak for $56.5 million in July. However, the move could also take away 150 William, a full-block, 20-story, prewar structure owned by Braun Management, which could be nearly hollowed out on its upstairs floors.
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Vornado, a real estate investment trust (REIT), has continued to sell properties and restructure its debt in the second quarter of the year amid tough economic conditions. The REIT is working with lenders to push out maturities for future obligations, with some loans extended to land extensions. The company has over $10.3B in debt on its books, with $2.1B of it being variable-rate debt. In Q2, Vornado reached agreements to sell five properties for $124.4M, with the sale expected to close in the third quarter. The company also sold the Armory Show in New York, an international art fair. Vornado's current liquidity is $3.2B, including $1.3B of cash. The REIT's CEO, Steven Roth, has resisted buybacks in the past, stating that the current view on office is similar to that of malls five years ago. The REIT's immediate business plan is to conserve cash and raise funds by "creatively selling" assets.
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Opinion
Washington is a shadow of its former self due to the continued work of federal employees from home. The pandemic has not stopped the government from encouraging federal workers to return to the office, but the situation remains dire. A recent survey by the Government Accountability Office revealed that six of 24 federal agencies had an average occupancy rate of less than 10%, with 17 agencies having a 25 percent or less occupancy rate. Across all 24 agencies, the average occupancy rate was only a little more than 20%. Bowser's efforts to reopen public schools during the pandemic have been met with resistance from federal agencies. Some argue that remote work isn't a problem, but it's important to consider the costs to taxpayers, small businesses, and residents. Remote work by civil servants is particularly troubling as the federal government is a monopoly supplier, and poor service can lead to customers taking their spending elsewhere. Employee union leaders are resisting return-to-office efforts, but the case for remote work is increasingly weak.
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Deal went into contract over a year ago as buyers struggled to get financing
Silverstein Properties and Metro Loft Management have closed on the acquisition of 55 Broad Street from the Rudin family, marking one of the largest office-to-residential conversions in New York City history. The 30-story, 410,000-square-foot building, originally valued at $180 million, was sold for $172.5 million, a 4% discount from the initial contract price. The developers secured $220 million in financing from Mexico-based Banco Inbursa. They plan to convert the 30-story building into 571 market-rate apartments, with Ares Real Estate and Rudin holding a stake. CetraRuddy Architecture has been chosen for the conversion, utilizing 55 Broad's unique form and setbacks to design various apartment sizes and layouts. However, one office tenant, Solstice Residential Group, filed a lawsuit against the conversion, claiming it would be a violation of the lease and disruptive to the company. Construction is expected to begin next month and finish in about two years.
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The Gowanus rezoning project has faced challenges due to rising interest rates and the expiration of the 421-a affordable housing tax break. Gov. Kathy Hochul announced a program to replace the tax break, which is essential for ensuring the rezoning meets its housing goals. The 421-a program, which expired in June 2022, provided developers with a tax break in exchange for making 30% of their residential units affordable housing. The program was controversial, with critics arguing it was a giveaway to the real estate industry and developers insisting that the economics of building affordable housing in the city do not work without such a program. The replacement program, announced by Hochul, would allow for the construction of 4,500 units, including 1,000 affordable ones. However, many in the real estate industry are less certain about the numbers and the process of accepting developments into the program.
The pilot program would involve the state buying privately owned properties and leasing them back to the owners, who would then pay the state what they would have owed in taxes under 421-a. The state would then return ownership to the developers after the 421-a benefit period ends. Currently, 25 projects with 6,323 housing units in the development pipeline for Gowanus are in the development pipeline, with nine projects with 2,373 units having secured construction loans. Residential projects need to have more than 50 units to be eligible for the state's program, and most of the ones that have not landed construction financing yet meet this qualification.
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