News.

Weekly Market Report - March 10, 2021

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Pandemic-Hit Industries Gain Jobs on Long Road to Recovery

“Covid is still the boss and we cannot assume that won't be true for at least the next few months” - Mr. Frick, Navy Yard Credit Union

Leisure and hospitality drove most of the economy’s overall job gains last month, but still had 3.5 million fewer jobs than in February 2020. Manufacturing has shown continuing signs of a bounce back, but industry payrolls were still down by 651,000 last month. Employment exceeded February 2020 levels in warehousing and storage, residential construction, and non-store retailers. The unemployment rate for Americans without a high school diploma moved higher by a full percentage to 10.1% in February.

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That empty feeling: Manhattan office availability at record-worst 15.5%


Office availability set an unfortunate record at 15.5% in February, up 0.6% from January. Local space leased in February was down by 51% from the volume in January and by 57% from a year ago. The total was 43% lower than the 2020 monthly average volume of 1.58 million square feet. Net sublet availability rose by 1.14 million square feet last month. The biggest February lease signing was 132,094 - square-foot renewal by law firm Seyfarth Shat at the New York Times tower. ‘But demand is likely to be outpaced by supply in the near future because a big chunk of new office space is scheduled to be added to Manhattan inventory: 1.5 million square feet at Brookfield’s 2 Manhattan West and 1.3 million square feet at Tishman Speyer’s Spiral, both in the Hudson Yards neighborhood.’


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Underwater hotel owners are walking away from their properties

Commercial real estate owners are giving up on their debt-laden properties rather than going through the foreclosure process. The number of owners walking away is a considerable threat as many properties are still struggling financially with no end in sight to almost a full year of the pandemic. Hotels have a long way to go before they get back to pre-COVID levels. Occupancy across the U.S. was just north of 40 % in the last week of January.


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Mack Real Estate takes over 7 distressed Manhattan hotels


Mack Real Estate paid transfer taxes on $315.8 million, or less than 40% of the portfolio’s 2016 value for the 7 Manhattan properties. Earlier this year, the firm initiated UCC foreclosure proceedings against the owners of the properties, a joint venture between Hersha Hospitality Trust and Chinese investment firm Cindat Capital Management. Those firms defaulted on an $85 million mezzanine loan issued in 2018 by Mack Real Estate Credit Strategies. The seven hotels are located in Times Square, Chelsea, Harold Square and the Financial District. The properties are 116 West 31st Street, 108 West 24th Street, 337 West 39th Street, 339 West 39th Street, 343 West 39th Street, 51 Nassau Street, and 126 Water Street.


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Charles Koch Is Betting Big on Distressed Real Estate


Koch Industries Inc. is emerging as a major real-estate investor during the pandemic, using its robust cash reserves to buy properties at beaten-down prices and betting on a long-term recovery. Real estate is only four years old to Koch Industries, up until last year they had kept a low-profile buying stakes in properties but mostly behind developers and other investors. Last month Koch took over an unfinished multibillion-dollar hotel and casino development in Las Vegas. Koch’s Real Estate Investments’ president, Jacob Francis indicated they plan to buy more hotels and ‘build a world-class portfolio of hospitality assets.’


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New York Could Turn Hotels, Office Buildings Into Affordable Housing Under State Senate Bill


The Senate bill is similar to a plan proposed by Gov. Andre Cuomo during his State of the State speech in January. In Manhattan, the overall commercial vacancy rate increased to 13.3% in the third quarter of 2020, the highest in 24 years. Recent data indicates the city’s homeless shelter population was 52,010 - the lowest it has been in years. The state could use federal money to purchase distressed properties. This bill would mandate that only hotels with fewer than 150 units can be converted to affordable housing.

Office Observations

● Sublease space increased in the aftermath of COVID-19 with 18.3 million square feet available at year’s end, or 21.0 million square feet

● Leasing activity closed the year at 21.3 million square feet - the lowest point in over 2 years

● Annual leasing activity in Midtown South reached a record low of 2.6 million square feet

● Since the start of the pandemic, less than half of all square footage leased has been through relocations, versus 65.1 % of activity in 2019