top of page


Weekly Market Report - May 14, 2024


Vornado Realty Trust, one of Manhattan's largest owners of office and retail space, reported a $104M decrease in Q1 2023 funds from operations, compared to $119M the previous year. The company's office portfolio was 89.3% occupied at the end of Q1, down more than a percentage point from Q4. The company expects occupancy to decline this quarter due to planned move-outs and a "backlog" of large office leases in the works. Demand remains consistent from legal and financial services firms, with the tech sector showing renewed interest after downsizing in recent years.

The market remains competitive as tenants search for the best value space for their needs. Vornado offered a concession package to persuade Bloomberg to stay put at 731 Lexington Ave., where the $98-per-SF rent could be lowered by as much as 10% once a 2029 appraisal takes place. However, Vornado has persuaded lenders that it can handle its debt maturities. The combined $1.8B Prada and Kering drop on Fifth Avenue retail buildings around the beginning of the year is good news for the REIT's portfolio.




Donald Trump's Manhattan office tower at 40 Wall St. is facing challenges due to weakening office demand. The tower's vacancy rate has risen to 21%, compared to 5% in 2015, and Trump faces a bigger reckoning next year when its $120.5 million mortgage matures in July. If the mortgage were refinanced today, the rate would likely be above 7%, which would be roughly double the 3.7% rate Trump pays today. Bond-ratings firms have taken notice, with Fitch Ratings downgrading four tranches of a commercial-mortgage-backed-securities issue that includes the debt on 40 Wall.

Trump Organization executives have maintained that 40 Wall is not in financial peril, noting that it is current on its mortgage payments. However, the mounting distress in the U.S. office market is intensifying as more companies accept hybrid work and reduce their demand for office space. The downtown Manhattan availability rate increased to 21.3% in the first quarter, and average asking rents have fallen to about $57 a square foot.



Sale includes more than 20 properties in Queens

Blackstone has sold a large portfolio of industrial properties in New York and New Jersey for $246 million to Terreno Realty, with over 20 properties in Queens near JFK Airport. Terreno also acquired a portfolio of industrial properties in New York City, Northern New Jersey, San Francisco's Bay Area, and Los Angeles for $365 million. The deal was confirmed by New York City property records. The logistics sector has been a high-conviction theme for Blackstone Real Estate for over a decade, with the company buying the Queens properties from TA Realty in 2019. The pandemic has led to a surge in industrial values, with over 4.4 million square feet of space set for completion this year. However, demand for Class A industrial has slowed, with only 35% of the development pipeline pre-leased as of Q1 2024.



Co-founder calls company restructuring deal “unfeasible”

WeWork, the co-working company, is set to emerge from bankruptcy without co-founder Adam Neumann rejoining. Neumann has repeatedly criticized WeWork's restructuring plan, claiming it is "definitely unfeasible" and projecting unrealistic performance benchmarks. He admitted that his pursuit of WeWork was a pursuit of redemption, but denied making decisions "that way." Neumann's objections to WeWork's restructuring plan are well-known, as he offered $650 million to buy his old company, but WeWork is being sold to Yardi, which Neumann claims was an inside job. Neumann has also squabbled with WeWork about its alleged unwillingness to enter into a non-disclosure agreement and claims WeWork made false statements against him and his offer to buy the co-working company. WeWork recently unveiled its agreement to exit bankruptcy, including a $337 million capital injection from Yardi Systems and $112 million from existing bondholders.



At TRD’s Real Estate Forum, Jed Walentas says demand from smaller tenants is rising

Jed Walentas, a partner at Two Trees, argues that the office market in New York City is not entirely accurate. He argues that the sector's struggles were partly due to lazy corporate executives who allowed middle managers to continually expand their office footprints for future growth. Walentas believes that companies are now abandoning that space, and it will take a couple of years for the bloat to disappear. He also highlighted Two Trees' 460,000-square-foot Domino Sugar Factory office development, which attracts companies looking for satellite offices with employees living in Brooklyn. Visser, a professor of real estate at Columbia University, said that demand for office in places where people have fun, like the Brooklyn waterfront, is expected. Walentas said that while some companies are still looking to lease 5,000 square feet, the process is different from hiring a broker to scout out a 20,000-square-foot lease from a large corporate tenant. However, Will Silverman of Eastdil Secured said that investors are still showing interest in areas previously considered undesirable, including areas hit hardest by the pandemic.



Kroll picks up new headquarters space from publisher at Durst property

Financial advisory firm Kroll has taken 48,000 square feet from Conde Nast's space at One World Trade Center, covering the entire 31st floor of the building. The 10-year deal, which is expected to move Kroll's headquarters from 55 East 52nd Street to the 104-story, 3.1 million-square-foot 1 WTC, is part of Conde Nast's ongoing efforts to sublease its space. The Durst Organization and Port Authority of New York and New Jersey own the property, but Conde Nast has been involved in a large amount of activity there. Since 2019, over 230,000 square feet have been claimed by subtenants, and another six floors are up for grabs. Conde Nast was involved in a public spat with its landlords, withholding $2.4 million in rent at one point.



The mortgage for a 44-story, 1.8-million-square-foot tower at 245 Park Ave. is a "loan of concern" as two high-paying tenants could soon leave for other first-class office buildings in Midtown. SL Green acquired the building near Grand Central Terminal in 2022 and sold a 50% stake to Japan's Mori Trust for $1 billion. The proceeds are being used to renovate the building, keeping tenants such as investment firm Ares Management and Dutch lender Rabobank, who lease 18% of the space and pay about 30% of the rent. The building's biggest tenant, Societe Generale, leases 500,000 square feet through 2032. The mortgage carries a 3.7% interest rate and matures in 2027. The building's biggest tenant is Paris-based financial institution Societe Generale.



Studio Nazar, a midmarket women's clothing company, has acquired a 7-story office building at 124 W. 36th St. as an investment property. The company's founder, Joseph Nazar, believes that interest rates will soon decrease and office rents will rise, revitalizing the market. The midblock site will become the new location for Studio Nazar's offices, which are currently located at 499 Seventh. The building is more than 30% vacant, with rents averaging $28 per square foot a year. The deal went into contract on January 10 and closed on May 3. Bank of America provided $5 million in acquisition financing. The seller of the 1922 structure was Dosol Corp., a real estate entity based on West 37th Street.

Fashion companies have shown interest in such deals in recent months, with Prada spending $822 million on a pair of Fifth Avenue buildings in the Plaza District and Gucci parent Kering buying 715-717 Fifth Ave. The acquisition is not the first Garment District clothing company to avail itself of depressed values in its neighborhood. Older office buildings in untrendy neighborhoods have been particularly vulnerable in the current office-market slump.



Foreclosure filing triggered by default on $130M CMBS debt

Charles Cohen is facing another foreclosure filing, the second in two weeks, due to his $130 million debt backed by 750 Lexington Avenue. The special servicer filed the action, citing multiple default events, including Cohen's failure to pay taxes, provide financial statements, and certify that his net worth and liquidity are not materially less than they were at the origination of the loan in 2015. Cohen's net worth is estimated at $3 billion, but his office portfolio may need updating. Cohen Brothers Realty acquired the property for redevelopment in the early 1980s, but it has been in trouble since the pandemic. Cohen's $130 million debt started amortizing in late 2020, and loan payments surged over 1,000 percent to $1.9 million. In 2021, occupancy slipped to 71%, and the loan was sent to special servicing for imminent maturity default.

Cohen managed a speedy workout that deferred principal payments and cut interest payments and reserve requirements for property taxes, but the nearly 400,000-square-foot tower's occupancy rate kept slipping. In October 2023, WeWork quit paying rent, and Cohen's loan was again en route to special servicing. Last month, a reappraisal axed the property's valuation to $50 million, an 83% cut from its 2015 value. Cohen could still avoid foreclosure by negotiating new loan terms that would allow his firm to stave off an auction and buy time to beef up occupancy at 750 Lexington Avenue.


Scribner Building on Fifth Avenue has renewed its lease for its last remaining tenant, apparel retailer Club Monaco, at a higher rent of $208 per square foot. The building, which was once home to F. Scott Fitzgerald and Ernest Hemingway, has lost nearly all its tenants since 2020. The building's exterior and interior are both landmarked, and the upper-floor spaces are small. The building's landlord, Thor Equities, has effectively abandoned the building, and investors in the defaulted $105 million mortgage face a 72% loss. The building's court-appointed receiver, Hope Plasha, said more good news is to come. The new lease provides stability for the Scribner Building, but its rent illustrates the decline in fortunes for some of Fifth Avenue's handsome but older retail spaces.

Skims, the apparel company founded by Kim Karsdashian, has agreed to lease space at 647 Fifth Ave. at a rent 75% below the previous tenant, Donatella Versace. An appraiser last year valued 597 Fifth at $980 per square foot, or 40% below the price paid by Thor Equities to buy 597 Fifth from a Kuwaiti investor in 2011. Club Monaco, owned by California-based private equity firm Regent, first leased space in late 2019 and agreed to forego free rent but negotiated a $2 million inducement payment in return for agreeing to the seven-year extension. The building needs more than $1 million worth of repairs to its sprinkler systems and facade and sidewalk elevator.


Madison Realty Capital, Maguire Capital Group to buy RFR’s distressed debt

Madison Realty Capital has acquired Aby Rosen's 827-unit multifamily project in Gowanus, Brooklyn, after the developer defaulted on the $80 million mortgage. Madison Realty Capital plans to foreclose on RFR's interest in the site, which could disrupt another development site in Gowanus, which has been a hub of activity despite slowing multifamily construction. RFR financed the site with a loan from Union Labor Life Insurance Company in 2018, but defaulted on the loan. Madison Realty Capital partnered with Maguire Capital Group to purchase the debt and have scheduled a UCC foreclosure of RFR's interest in the property.

Madison and Maguire have previously partnered on the Fifth Avenue Hotel in Nomad. RFR has struggled to hold onto some of its properties, including the Lever House and Gramercy Park Hotel. The Gowanus project, one of the largest apartment developments pending in Brooklyn, has remained dormant since its inception in 2019. The state extended the construction completion deadline for 421a by five years to 2031, but high interest rates and a tight lending environment continue to pose challenges to the development market.



bottom of page