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Weekly Market Report - March 26, 2024


Return-to-office rates at certain Manhattan towers reached 78% earlier this month, according to JPMorgan, a global bank. The rate is trending upwards, with improvements in the commute rate since 2022. JPMorgan tracked return rates at two dozen large office buildings in Midtown and the Financial District, using cell phone usage. The Real Estate Board of New York estimates office visitation rates in January were 60%, while Kastle Systems data showed only 51% of New York metro workers returned to office in early March. Offices near Times Square have consistently outperformed, with return rates of 88%, while the Grand Central and Garment District neighborhoods have lagged behind over the years.


Law firms are increasingly winning the office space market, with revenues at the top 100 firms rising to $131 billion in 2022, a 19-fold increase from $7 billion in 1986. Profit margins never fell below 35% in even the worst years and hit a record 45% in 2021. Law firms typically don't pay top-dollar rents or seek out penthouse space, but they soak up space in the middle or lower floors of buildings, helping landlords balance their books. A return-to-office survey by the Partnership for New York City showed law firms had average daily attendance of 65%, the same as finance and the most of any profession except real estate, at 75%. Law firms typically lease 600 square feet per lawyer, or 40% less than before, a decline that predates the pandemic. However, there are an awful lot of law firms, and they have supplanted tech firms as brokers' favorite clients.


Financial institution quadrupling office space to 74K sf

Paramount Group has secured a significant lease for 74,000 square feet at 1301 Sixth Avenue in Midtown Manhattan, with Rhode Island-based Citizens Bank signing the deal. The move comes as Citizens Bank moves from Kaufman Organizaton's 437 Madison Avenue. Other tenants at the 45-story building include Nexstar Media Group and Smith Gambrell Russell. Paramount secured an $860 million refinancing package in 2021, with Wells Fargo and Morgan Stanley providing mortgage and mezzanine loans. Sixth Avenue has seen strong leasing momentum, with three of New York City's four biggest leases signed on that avenue.


The wreckage left in the wake of the bankruptcy

WeWork has been unable to make payments on a $55 million loan backed by Winter Properties' Greenwich Village office building, which was one of 40 rented properties to the coworking firm after its November bankruptcy filing. The property failed to make January's loan payment and was one of 40 that WeWork rejected after its November bankruptcy filing. The Real Deal published an analysis of New York office buildings that listed WeWork as a top-five tenant, leaving them vulnerable if WeWork ended those leases. Five buildings with publicly available loan data, including 57 East 11th Street, were named in WeWork's lease termination plans, backing about half a billion dollars in debt. The coworking firm has already wreaked havoc at several other properties, including Walter & Samuel's 315 West 36th Street and 81 Prospect Street in Dumbo.


Los Tacos No. 1 in Times Square is set to be sold at a foreclosure auction on May 29. The retail property, which was acquired by Kushner Cos in 2015 for $295 million, is now leased to Bowlmor Times Square, a bowling alley. The property, which was 60% vacant last year, was acquired by Kushner for $295 million. The mortgage was transferred to special servicing in 2019, and in 2020, two large tenants defaulted on their leases and moved out. Lenders moved to foreclose on the retail space, which was 60% vacant last year. A May 2023 appraisal valued the property at $84 million, an 82% decline from its original value of $1,892 per square foot. The sale is not yet clear who will handle the sale.


The bank got many of its loans from a broker now blacklisted by Fannie Mae and Freddie Mac

New York Community Bancorp (NYCB) and Meridian Capital Group, a commercial mortgage broker, have faced challenges in the real estate industry. NYCB shares have fallen 65% this year after the bank disclosed problems with real-estate loans and internal controls. Meridian, a firm specializing in property finance, was recently blacklisted by Fannie Mae and Freddie Mac amid allegations that some brokers falsified figures to help clients get bigger mortgages. The turmoil at both companies comes at a difficult time for the commercial real-estate market and the banks that lend to it. Investors and regulators are wary of a coming crush of soured loans and what it might do to the still-fragile regional banking system. Federal prosecutors are investigating landlords and suspected mortgage fraud. NYCB received a lifeline with an investment of over $1 billion from former Treasury Secretary Steven Mnuchin and others.


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