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Weekly Market Report - March 5, 2024

Converging needs are leading to more dialogue and transparency than ever before

Investors and occupiers are increasingly focusing on high-quality real estate, meeting green specifications and attracting people back to the office. This shift in the industry is driven by three main factors: the office is key to their future, they want their people to collaborate and innovate, they want to meet ESG requirements, and they are concerned about the economic impact of the bottom line on their businesses.

Occupiers are seeking flexible, amenity-rich workspaces, while investors are shifting to creating measurable ESG journeys. Occupiers are conflicted between their demands for shorter, more flexible leases and the availability of spaces that meet their priorities. Greater transparency between parties is driving greater collaboration and collaboration, with the focus shifting from traditional landlord-tenant hierarchies to ongoing dialogues and collaboration. The ongoing resilience in real estate markets is attributed to the ability of investors and occupiers to work towards common goals.


Jamie Dimon, CEO of JPMorgan Chase, believes commercial real estate problems will be contained within the sector as long as the US avoids a recession. He believes that property owners can handle the current stress and that lower valuations tied to higher interest rates are not a crisis. If rates go up and a recession occurs, real estate problems will be more severe for some banks. Investors are now assessing the vulnerabilities at other US banks, with Dimon stating that higher defaults are a normalization process after a long period of low default rates.


WeWork has amended leases at two New York City and Boston locations as it seeks to exit Chapter 11 bankruptcy. The company has agreed to reduce rent, shrink its space, reduce its letter of credit, and terminate its guarantee at 154 W. 14th St. in Manhattan's West Village. WeWork will vacate the 10th and 11th floors of the 166K SF, 12-story building owned by Abner Properties and pay $651K to cure unpaid rent. A similar deal was struck at Boston's One Beacon St., owned by MetLife and Norges Bank Investment Management. In Tribeca, WeWork has occupied the entire 60K SF office portion of United American Land's 408 Broadway, and has revised its expiration date. Since filing for bankruptcy in November, WeWork has rejected leases and contracts at 89 buildings.


X Corp.'s former social media company, Twitter, has secured a tenant for its Chelsea office, a 2.7 million SF portfolio tied to a $1.7 billion CMBS loan. The building, which has faced issues with Columbia Property Trust, is part of a 2.7 million SF portfolio. X is on the hook for 76% of the property, with 200K SF of its property on the sublease market in March. The deal follows a 15-year high in available sublease space in Manhattan, which reached 20.1 million SF at the end of 2023, down 6% from the end of 2022. Overall availability in Manhattan is still near an all-time high of 91.2 million SF, or 19.5% of the borough's inventory.


Citadel's CEO Paul Darrah is predicting a pivot in office space usage and employee preferences as companies shift towards in-office work. The company is planning billion-dollar office towers in Miami and Manhattan for both its own space and lease to other companies. Darrah believes that innovation happens in the office, and that more companies will eventually succeed in getting employees to show up. Citadel's real estate strategy is focused on growth in Miami, London, and New York, with the firm's investment in those cities aiming to have an impact beyond Citadel and boost business activity more broadly. Darrah commended Jamestown's development of Ponce City Market in Atlanta, which includes 700K SF of office and 350K SF of retail space with plans to add 400 furnished apartments.


Firm bought 100 Wall Street for $270M in 2015

Barings is aiming to sell a 29-story office tower in Manhattan for less than half of its previous price of $270 million, according to The Real Deal. The real estate arm of insurer MassMutual has put the tower up for sale, with an estimated price of $125 million. This is nearly $150 million less than Barings paid for the tower in 2015 through its subsidiary Cornerstone Real Estate Advisors. Office owners are showing more willingness to sell properties at a discount as declining occupancy rates and higher interest rates have driven down building values. Barings has also entered into a $160 million contract for the Midtown office building, about 25% off the $217 million it paid in 2005. The 515,000-square-foot building is being pitched as a potential residential conversion or as an opportunity for investors to increase revenue.


International investment manager Barings is buying 1370 Sixth Ave., a major Midtown office tower, from Principal Real Estate Investors for $160 million. The property, which spans 342,000 square feet, is currently 92.9% leased and has tenants including Canyon Partners Real Estate and Eliant Trade Finance. The office market in Midtown experienced a relatively quiet January, with firms leasing about 1.3 million square feet of space, and the availability rate increased to 16%.


Blackstone Real Estate Income Trust (BREIT), a $60 billion real estate trust for wealthy individuals, has seen redemption demands fall below a key threshold, indicating that investor pressure for cash is abating. Since November 2022, BREIT has returned less money than investors requested each month, enforcing a key limit that helps it avoid forced selling. BREIT allows withdrawals of as much as 2% of the fund's net asset value monthly or 5% each quarter. Investors sought to withdraw $961 million from BREIT in February, 26% lower than a month earlier and down 82% from the peak in January 2023. The fund fulfilled all withdrawal requests in the month and returned more than $15 billion to shareholders during the 15 months it restricted redemptions.

Blackstone believes BREIT has passed the test and has directed cash into big deals, such as purchasing Tricon Residential and acquiring a stake in a venture for Signature Bank property loans. The firm has said BREIT's semi-liquid structure worked as intended, offering investors the potential for higher net returns in exchange for a measure of liquidity.


After rocky start, David Werner and Highgate/Rockpoint team up for sale

Manhattan's Row hotel, which has been plagued by defaults and disputes, is being sold for around $350 million. An investment group led by David Werner and a group of investors led by Highgate and Rockpoint Group are marketing their interest in the property. The joint offering would consolidate ownership and make each piece more valuable. However, the deal took time and trouble before everyone agreed. Werner's group defaulted on its $275 million mortgage in 2020 and is facing foreclosure on its fee interest. Highgate and Rockpoint Group have struggled with operating the hotel but have paid down their debt, giving them full control to sell their interest along with the ground underneath. The hotel has recently been used by the Adams administration as a shelter for migrant families.


These were the month’s biggest office lease deals

The largest office leases in the five boroughs of February 2024 included MBS Group, Dentons, Intercontinental Exchange, Nexstar Media Group, Burlington Stores, Sol de Janeiro, Fly E-Bike, Central Queens Academy Charter School, Selfhelp Community Services, and New York State Office of Temporary and Disability Assistance. MBS Group signed a 300K sf lease for the Glendale warehouse, while Dentons renewed its lease in the Times Square building. Intercontinental Exchange, which owns the New York Stock Exchange, signed a new lease in the Midtown West building.

Nexstar Media Group inked a new sublease in the Midtown West building. Fly E-Bike expanded its 11-year lease in the Grand Central building. Central Queens Academy Charter School signed a new 32-year lease in the Elmhurst building, while Selfhelp Community Services signed a 30-year lease in the Plaza District building. The New York State Office of Temporary and Disability Assistance signed a 10-year lease in the Financial District building.


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