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Weekly Market Report - December 16, 2022

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Citadel and an affiliate of its founder and CEO Kenneth Griffin reached an agreement with Vornado Realty Trust and Rudin Management Company that will give it the ability to build a new office tower in Midtown East, Vornado announced Friday. As part of the deal, Citadel will master-lease Vornado’s 585,000-square-foot 350 Park Avenue for 10 years on an “as is” basis, with an initial annual net rent of $36 million. The hedge fund behemoth will also master-lease Rudin’s adjacent 390,000-square-foot 40 East 52nd Street.


Vornado has also formed a joint venture with Rudin to purchase 39 East 51st Street for $40 million. The companies will combine that property with the above two assets to create a “premier development site,” Starting in 2024, Griffin will have options to invest in the future of the development site, and either acquire a 60 percent interest in the Vornado/Rudin JV — valued at $1.2 billion — to build a 1.7 million-square foot office tower; execute a 15-year anchor lease for Citadel to take 850,000 square feet at the new tower, terminating its master leases at 350 Park Avenue and 40 East 52nd Street when the properties’ are demolished; or exercise an option to purchase the development site for $1.4 billion, with Vornado reaping $1.085 billion in that scenario and Citadel being the sole developer.


Everyone likes options, and there’s one more. Between October 2024 and September 2030, the Vornado/Rudin JV will be able to sell the site to Griffin for $1.2 billion — with Vornado raking in $900 million — and the JV will have the right to invest in Griffin’s development of the site. Vornado originally planned to build a new 1,500-foot tower at 350 Park. In November the commercial mortgage-backed securities loan on the property went into special servicing, with a Vornado spokesperson stating the transfer was due to a “complex consent request.” Chances are, this was it.


Citadel is already a tenant at 350 Park and a new development there could serve as its new New York City headquarters. The firm seemingly has an unending appetite for office space, having expanded to 331,800-square-feet at 425 Park Avenue in 2019.


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While office availability in Brooklyn sat at 21.1% at the end of the third quarter, it was actually down 3% from March 2020 — compared to Manhattan’s 65% increase. Leasing volume for the borough for the first nine months of the year is at 990K SF, per Colliers, 41% higher than 2021. Rents were up 3% from the quarter before to reach nearly $52 per SF. The Williamsburg/Greenpoint neighborhood is now commanding $67 per SF. Panelists said Brooklyn, though facing many of the same challenges as Manhattan, has plenty of bright spots in both the office and retail market. The borough continues to hold international cachet, is home to more than 2 million people — many of them younger New Yorkers who stand to reap benefits as companies rejigger their office policies to allow workers to partially work from home. Haskell said that while the office market is still “spotty” like Manhattan, with newer buildings largely commanding more attention and higher rents, the borough is better placed to weather the upheaval in the office world.


This year, deals like design firm Huge’s 72K SF lease at Rudin and Boston Properties’ Dock 72 have garnered attention, but Two Trees’ Managing Director Alyssa Zahler said there is an "insatiable" demand coming from small tenants. It is a part of the market that Brookfield is also looking to capture, said Jesse Cooperman, vice president of leasing at Brookfield Properties. The company is currently revamping MetroTech Center, part of which it acquired in 2018, and rebranded it as Brooklyn Commons. Interest from startups, he said, is starting to pick up, after years of growth in technology, creative and advanced manufacturing industries in the borough. The Center for an Urban Future found in 2019 that there were more than 200 tech-focused startups based in Brooklyn, a 356% increase since 2008. In the years leading up to the pandemic, the market had too much office space and new developments delivering with little or no pre-leasing. In 2019, 7M SF of office space was due to come online by the end of 2022, as places like 25 Kent Ave. and the Jehovah's Witnesses' former headquarters, the Watchtower Building, hit the market. But Joe Riggs, principal at Hudson Cos., said he thinks most local office owners will fare well — even as the asset class more broadly faces an uncertain future.


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SL Green CEO Marc Holliday, who has been one of the biggest advocates for returning to the office, had some sobering words at the company’s investor day. Much of that has to do with the uncertain state of the economy, which Holliday said has caused many tenants to hit pause on their leasing plans. But the CEO, who this time last year was cheering the city’s recovery, acknowledged that the return to office hasn’t played out as he anticipated.


Although New York City now has more office jobs than it had before the pandemic, Holliday said this is the first year that a “healthy New York economy didn’t align with the health of the overall office sector.” Manhattan’s largest office landlord hasn’t suddenly become a pessimist. Holliday said SL Green is on track this year to sign 2.4 million square feet worth of leases, which he said surpasses its expectations. In their presentation, SL Green executives hyped their proposal with Caesars Entertainment and Jay Z’s Roc Nation to bring a casino to Times Square. They also announced a deal with chef Daniel Boulud to bring a culinary market and steakhouse to the REIT’s One Madison Avenue development and unveiled plans for a $170 million redevelopment of 245 Park Avenue.

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