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Weekly Market Report - November 28, 2023


First deal following $350M renovation by TIG, PGIM, Meadow Partners

Textile Building in Manhattan has welcomed its first tenant since undergoing $350 million renovations. Law firm Quinn Emanuel Urquhart & Sullivan is leasing 132,000 square feet at the Midtown South property, which was renovated in 2019 by Tribeca Investment Group, PGIM Real Estate, and Meadow Partners. The building's asking rents range from $95 per square foot at the bottom to $135 per square foot for the penthouse. The 99-year leasehold was acquired by TIG and its partners in 2019. Manhattan office leasing activity surged by 26% in the third quarter, with 43% increase in Midtown South and an all-time high availability of 18.6%. Construction projects, including 360 Bowery and 375 Hudson, are contributing to the rise of office vacancies in Midtown South.


Office shares experienced the largest one-day rally in three years last week, with REIT shares jumping an average of 11.5% on November 14, marking the biggest single-day jump since November 2020. However, this rally does not address the long-term outlook for REIT companies, which are facing elevated debt costs and reduced demand for office space. REIT shares have fallen 65% since the beginning of the pandemic, and the diminished role of the office in society has clouded the asset class's long-term future.

Office vacancy nationwide hit a record 19.4% in the third quarter, and tenants gave back almost 21M SF more space than they took up during the period. BMO Capital Markets Senior Analyst John Kim said that there is a lot of uncertainty among asset classes, and the future values of some companies are uncertain.


WeWork, a coworking company, has filed for Chapter 11 bankruptcy protection, asking to reject 69 leases in total. The deadline for landlords to object to WeWork's rejection requests was Tuesday, and several locations have pushed back against that motion, claiming landlords may not have enough time to respond and should have full access to letters of credit WeWork signed as a tenant. WeWork's restructuring adviser, Hilco Real Estate, notified it that it was abandoning its space eight days after it sought to reject the lease. Walter & Samuels are asking the judge overseeing the case in the U.S. Bankruptcy Court for the District of New Jersey to confirm that WeWork is liable for rent until the date it surrenders properties to landlords rather than the date it requests to reject the lease. WeWork's bankruptcy attorney Rocco Cavaliere said that the unfolding in court will set a precedent for WeWork to reject future leases.


Strategy to pay down debt

Highwoods Properties, a Raleigh-based office landlord, is raising capital and improving liquidity by offering $350 million in unsecured notes. The move is part of Highwoods' strategy to pay down existing debt within the real estate investment trust. The proceeds will be used to repay a $200 million unsecured loan acquired in October 2022, which service debt payments, acquisitions, working capital, and development activities. The remaining funds will be directed toward Highwoods' $750 million unsecured revolving credit facility, nearly zeroing out the outstanding balance. The decision to raise capital comes amid a challenging lending market and rising interest rates, making it harder for commercial real estate borrowers to secure funding. Highwoods aims to de-risk its future capital raising needs, signaling confidence in the availability of capital and support from bond investors. The move positions the company to potentially avoid the need for capital raises for a few years.


Borrowers negotiated deals to kick can

October's biggest real estate loans were dominated by refinancings, with two Class B office buildings in Midtown receiving financial lifeline after debt from the CMBS market came to term. Construction loans were refinanced by the Hudson Companies in Flatbush, Brooklyn, and Bruman Realty in Hallets Point, Queens. New construction loans also made the list, with the Jay Group funding a project in Inwood and East New York, and Avery Hall Investments funding a project in Gowanus.

The top 10 biggest loans recorded last month were five in Manhattan and five in the outer boroughs. Wells Fargo put up $386 million to refinance 70 Pine Street, a 1 million-square-foot office building in the Financial District, replacing a five-year, floating-rate loan from Goldman Sachs. Arker Companies received $232 million to repair and renovate the Union Avenue Consolidated public housing campus in the Bronx. Joe Moinian refinanced the Marc apartment tower in the Theater District with a $136 million loan from Freddie Mac.


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