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Weekly Market Report - January 16, 2023

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The two separate leases span more than 1.1 million square feet, or roughly equivalent to the company’s current footprint. The agreement includes renovations to the exterior and interior of the building. Mr. Murdoch, whose family has large stakes in both News Corp and Fox Corp., in October proposed a deal that would merge the media companies after nearly a decade of separation. Each company’s board has set up a special committee to consider the deal. The lease renewals are an encouraging sign for Manhattan’s office market, where vacancy shot up during the Covid-19 pandemic and nearly 17% of space is now available for rent. Office leasing in the borough last year was down 12% compared with the 10-year rolling average of annual leasing volume.


Some businesses, including technology companies, law firms and financial firms, continued to add Manhattan office space even during the pandemic, often paying premium rents for floors in state-of-art buildings located near transportation hubs. Older buildings in Midtown have had less success and many are struggling to attract tenants. Corporate tenants are vacating hundreds of thousands of square feet on the Avenue of the Americas as a number of firms decamp to newer office buildings that often feature more amenities and outdoor space and fewer carbon emissions.


D.E. Shaw Group, an investment and technology development firm, said in September that it planned to move to the new Manhattan West development. And insurance giant Chubb Ltd. said in late 2021 that it would lease nearly a quarter of a million square feet at the recently renovated 550 Madison Ave. Still, Avenue of the Americas—known as “corporate row” for its long stretch of skyscrapers housing corporate headquarters—has held up better than many of the other avenues in Midtown.


Many of the office towers were built in the years following World War II and are starting to show their age, but the office corridor’s availability increased only slightly to 11% during the pandemic from 9.2% in early 2020. News Corp and Fox occupy more than half of the 2 million square feet in the 44-story office tower at 1211 Avenue of the Americas, which opened in 1973. The new leases run through 2042 and include renovations to the lobby and the outdoor plaza where Fox News hosts holiday events, election coverage and other broadcasts.


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The owners of an aging office building in Midtown are pitching it as a potential redevelopment play in the heart of Billionaires’ Row. APF Properties is looking to sell its plot at 24 West 57th Street for north of $80 million, marketing materials show. The block-through site between Fifth and Sixth avenues is currently home to a pair of office buildings facing West 57th and West 56th streets. But its real value is as a development site: The property holds about 140,000 square feet of buildable space as of right. A buyer could also seek to acquire a site next door owned by Stefan Soloviev’s Solow Realty & Development and combine the two properties for an even larger project.


Representatives for APF Properties could not be reached for comment. Eastdil Secured is marketing the property; a spokesperson for the firm did not immediately respond to a request for comment. APF Properties, founded in 1995 by Kenneth Aschendorf and Berndt Perl, purchased the site in 2006 for $69 million, property records show. The site sits directly across the street from Solow’s 50-story office tower at 9 West 57th Street, meaning a new development would lack the park views that are major selling points for the corridor’s supertall skyscrapers, like Extell Development’s Central Park Tower or Vornado Realty Trust’s 220 Central Park South. But more modest developments are moving in, looking to capitalize on the area’s rising cachet.


Rotem Rosen and his partners are developing a 180,000-square-foot condo project a few blocks east at 126 East 57th Street. The developers recently landed a $170 million construction loan from Bank OZK and the project is expected to be completed in 2025.


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Investors held short positions on more than 27 percent of WeWork’s publicly tradable shares as of Dec. 15, according to MarketWatch. Shorts totaling more than 10 percent of a company’s float are generally a sign that the market is pessimistic on its future; more than 20 percent is a highly shorted stock. Since it went public about 15 months ago, WeWork has continued to burn through cash and has several times pushed out its timeline to turn a profit, now eyeing later this year. WeWork has been able to stem losses but is still burning through cash. The company had $460 million of cash on hand at the end of September, down from $924 million at the start of the year, according to its most recent financials. The company is trying to get a grip on costs and recently cut 40 locations.


CEO Sandeep Mathrani said he now expects WeWork to be in the black at the end of this year. On the balance sheet, the company has $3.2 billion worth of debt maturing in 2025. And it has a $1.25 billion letter of credit due the same year. With the tech industry cutting jobs and the prospect of a recession looming, investors are concerned about how WeWork will address those maturities. WeWork was trading below $1.40 per share on Tuesday, down from its IPO price of nearly $10. Still, there are optimists. Analysts at BTIG believe that three years’ worth of cost cutting and higher occupancy have set WeWork on the path to profitability.


WeWork went public in October 2021, and it’s been a bumpy ride since. Short investors piled in almost from the beginning, with short positions peaking at about 38 percent of the float in July. Short interests have since come down, but remain elevated. Cantor Fitzgerald analyst Brett Knoblauch, who also has a buy rating, said short interest really started picking up around the time that WeWork’s corporate bonds were trading at yields down around 10 percent. Yields have since climbed to about 60 percent.


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Whether it’s because of the new remote-work culture shift or weak balance sheets, more and more media and tech companies are putting their physical office leases on the market these days. Because market conditions were great as the pandemic began to fade, it didn’t matter that companies were paying rent on unused office space. But when 2022 rolled around, the economy took a sharp turn for the worse. Media and tech giants were thrown for a loop. By the second half of 2022, companies began laying off employees to reduce headcount. To cut costs and bolster balance sheets in preparation for a looming recession, subleasing office spaces became increasingly common. That made sense because rental agreements are a line item companies can easily reduce in a pinch. On average, rental agreements can account for roughly 5% of total operating budgets.


Reducing real-estate footprint is also a much more welcome cost-cutting measure than layoffs. But sometimes things get so tough that both are necessary, much like it was for Meta. Following the company's Q3 2022 results, Meta management said it would be significantly slowing down hiring and spending around $2 billion in office space consolidation globally. In Q4, Meta said it planned to spend $900 million on that effort. Streaming giant Netflix had to do the same, both laying off hundreds of employees and shedding real estate in Northern and Southern California. Some, like TikTok parent company ByteDance, took on brand-new leases, as it expanded their footprint in the U.S.

The company is coming off a tough year, and investors will be closely monitoring its Q4 2022 financial result next week.


On the flipside, not all companies shed real estate during the year. Then there’s iPhone maker Apple, which expanded in Sunnyvale and San Diego, CA, in June of this year. The company faced some serious supply chain woes at the end of 2022, so even as it was able to expand a bit, things might shake out a bit differently in 2023.

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