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Weekly Market Report - March 13, 2023


Technology-driven hedge fund Two Sigma is in the market for a major space expansion and consolidation that could be worth a fortune to a number of Manhattan landlords. Although it’s rarely in the press, the international, privately held firm boasts $58 billion in assets under management. It’s currently headquartered in a mini-campus at 100 and 101 Sixth Ave. in Tribeca. Now, we’re told by sources that the setup and floor plates there no longer work for the company. With lease expirations looming in 2023, Two Sigma is prowling for larger new digs — of 400,000 to 600,000 square feet — in either the FiDi area or Midtown South. Landing Two Sigma would be a breakthrough for several older office buildings that are either vacant or soon will be. Among them: EQ’s 1740 Broadway, Paramount Group’s 60 Wall St., Rudin’s 3 Times Square and 80 Pine St., Five Times Square and Nightingale’s 111 Wall St.


As the result of an ongoing disagreement among the current owners of an iconic Manhattan building, the property will soon be available to the highest bidder. The 121-year-old Flatiron Building, which is currently empty, will hit the auction block in what is known as a partition sale on March 22 — stemming from a ruling in the contentious legal fight between its multiple landlords. In January, a New York state judge issued an order allowing the auction to move forward following a 2021 suit by Sorgente Group, Jeffrey Gural’s GFP Real Estate and ABS Real Estate Partners, who together own 75% of the building. The co-owners sued after reaching a stalemate with Nathan Silverstein, who owns 25% of the steel-framed 175 Fifth Ave. building, which was completed in 1902 and is the namesake for the surrounding neighborhood. Due to the building’s shared ownership, which gives every owner veto power on every major building decision, the parties were not only unable to agree but also unable to move forward — trapped in a very expensive standoff over the future of an extremely pricey piece of real estate.

The situation became untenable after MacMillan Publishers — which at the time occupied all 21 floors of the triangular structure — announced in 2017 that it would be moving out within two years. Silverstein subsequently proposed a slew of what Gural deems “preposterous” ideas, including that no upgrading be done in the time period between MacMillan leaving and a new tenant moving in — despite that fact that upgrades were legally required to re-rent the structure and for fire safety, Gural said, according to an affidavit. Despite the building being landmarked, Silverstein also had the idea to divide the property into separate ones — an impossibility due to its historic status, wrote Gural.


There’s a “shock” coming for the commercial real estate industry, but the opportunities ahead are huge, according to Mark Dixon, CEO of flexible office company IWG. Technology enabled a “fundamental seismic shift” in commercial real estate as the Covid-19 pandemic forced millions of people to work from home for the first time, Dixon said — and workers don’t necessarily want things to go back to how they were before. “There’s this assumption that people like commuting into a central business district. They don’t. It’s a complete waste of time and money and they don’t want to do it,” Dixon told CNBC on “Squawk Box Europe” Tuesday. He added that employees are now working more productively “than they’ve ever done before.”

Dixon founded IWG — formerly known as Regus — in 1989. Now, it has over 3,300 offices across 120 countries. He says “there’s a shock coming” for commercial real estate looking ahead. “Look at the United States. You’ve got some of the largest property companies in the world handing back properties to their banks.” But it’s not all bad news; Dixon said there is a “real opportunity” for the use of real estate to change. In fact, he said that offices in the future could actually work in a similar way to gas stations. “They’re everywhere, it’s a network of petrol stations, [you can] drive anywhere in the country. Work will be like that. You will find places to work everywhere, we network them all together and make them easy to use,” he said. “We’ve got such a huge amount of opportunity in the business we’re in.”


Signature Bank, a major lender on New York multifamily assets, became the second bank to close in three days Sunday night as officials rushed to stabilize the banking sector. State regulators shut down the bank and the Federal Deposit Insurance Corp. took over its operations, officials announced Sunday. The bank's leadership was disbanded with the move. In a joint statement issued Sunday night, the Department of the Treasury, the Federal Reserve and the FDIC announced a “systemic risk exception” for Signature.

SVB was closed by California regulators on Friday morning. Signature was one of the largest lenders to the cryptocurrency industry, accepting digital currency as deposits, which made it vulnerable to the same type of run that doomed SVB on Friday. The bank had $17.8B in digital asset deposits at the end of 2022, 20% of its total deposits. But unlike SVB, which had just $2.6B of CRE loans on its books, Signature was the third-largest commercial real estate lender in New York City. As of the end of last year, real estate made up 48% of its total funded loans, representing about $35.6B. The bank had experienced a run of billions of dollars on Friday, with customers spooked by Signature’s crypto exposure in the wake of the Silicon Valley Bank collapse last week.

Since January 2020, Signature has issued $13.3B across more than 800 loans, according to PincusCo, second only to Wells Fargo and JPMorgan Chase in terms of dollar volume. For the most part, the bank's loans are on multifamily, cash-flowing properties, according to the publication’s analysis, with just two loans provided on ground-up construction since 2020. The most active borrower in the last three years was A&E Real Estate, which has received almost $1.3B in loans from the bank. SDG Management and FBE Limited have also sought loans from the bank.

In a statement, the FDIC said Signature Bank would reopen as Signature Bridge Bank Monday morning as the institution is marketed to bidders. Signature Bank’s official checks would still clear, according to the statement, and borrowers "should continue making loan payments as usual." Signs of distress have already been picking up in commercial real estate, especially in New York. Sophisticated landlords like Blackstone, Related and Columbia Property Trust have defaulted on building loans in recent months, and market insiders expect the worst is yet to come.


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