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BXP CEO Owen Thomas believes that companies requiring employees to return to the office are creating an environment where remote work's impact will not be as significant for office landlords. He believes that companies like Amazon and Salesforce, and startup AI companies, are recognizing the benefits of remote work and are encouraging competitors to take action. Amazon's announcement in September that all employees will return to the office five days a week starting in January could fuel momentum in the sector. Thomas is optimistic about the impact of macroeconomic indicators on the company, including interest rates, corporate earnings, return-to-the-office behavior, outperformance of premier workplaces, and valuation in public and private markets.
BXP's leasing activity increased 5% in Q3, with the REIT executing 74 leases totaling over 1.1M SF. BXP's revenues increased 4.2% to $859.2M for Q3, and its net income increased from $111.8M during Q3 2023. However, the level of improvement and demand varies greatly by market due to differences in return-to-office trends.
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Conversions make up 40% of 18K units coming online through 2028
Manhattan's rental pipeline is being boosted by office conversion projects, which are adding thousands of apartments to the city. These developments, each generating hundreds of apartments, are helping to build back a supply choked off by the expiration of the city's main development tax break, 421a. Office conversions are expected to deliver about 7,500 new rental apartments in Manhattan starting next year through 2028, making up over 40% of all new rental apartments scheduled to come online during that period. There are about 18,500 market rate units set to be built during that four-year period, surpassing the last four-year peak of 14,550 market rate units delivered between 2015 and 2018. However, the number of units actually delivered could be lower due to delays with projects in the pipeline. The city also passed an incentive program for office conversions, but the scheme's tax break expires after 35 years, requiring rent-restricted units to remain under regulation in perpetuity.
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Google, the parent company of Alphabet, is reducing its global office space by $607M in impairment charges to reallocate its capital to artificial intelligence. The company leases or owns around 50 million SF of office and flexible space worldwide. Alphabet's chief financial officer, Anat Ashkenazi, believes the company is well-positioned to deliver meaningful innovation, which will translate to revenue growth. Last year, Alphabet paid $1.8B to get out of leases globally, incurring $269M in accelerated rent and depreciation. The continued reduction in office space is a reversal from its pre-pandemic days when it scooped up real estate around its Mountain View, California, headquarters and elsewhere. The company employed roughly 181,270 people by the end of September, down from the year prior. Despite this, Google continues to make calculated investments in the office sector, such as purchasing the 1.2M SF Thompson Center in Chicago for $105M in July 2022, pending completion of renovations.
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The Emerging Trends in Real Estate report for 2025 suggests that the tide is turning for commercial real estate, with a new market upturn beginning. However, the report warns that interest rate cuts that could fuel a recovery typically come when an economy is struggling. The net result will be a slow, and in some cases grinding, return to prepandemic valuations. Real estate executives are more upbeat than last year, with 65% of respondents expecting their firm's profits to be good or excellent for the year ahead. Real estate professionals expect interest rates to continue declining, with 80% of survey respondents predicting commercial mortgage rates will come down more in 2025 and 75% expecting a further decline over the next five years. However, slower economic and job growth reduces growth in net operating income, and tenant demand may fall as job growth moderates. The report also notes that housing affordability remains a defining issue in the commercial real estate sector, with home values nationally up roughly 50% since the onset of the pandemic.
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The New York City Council's Committee on Governmental Operations, State and Federal Legislation held an oversight hearing on the Department of Citywide Administrative Services (DCAS) after a lucrative real estate contract was steered towards a building owned by a donor to Mayor Eric Adams. The hearing questioned the qualifications of DCAS executives to make crucial decisions regarding city real estate leases and the relationships between DCAS and real estate players who had donated to Adams. DCAS oversees $1.5B in real estate contracts spanning 22M SF, making it a target for corruption. DCAS made a nonbinding offer for 250 Broadway but switched to 14 Wall St. due to the turnkey lease being cheaper and the Department for the Aging's preference for the Wall Street property. The agency's attorney, Molina, said the switch was a fluid negotiation process to ensure the best price for city taxpayers. Boutross, who oversees the brokerage's contract with the DCAS, earns a commission on executed leases and is in negotiations to potentially acquire the Bronx Logistics Center.
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Judge allows school to collect rents as RFR disputes lease termination
Cooper Union can begin collecting rents from tenants at the Chrysler Building in Manhattan, as the school and Aby Rosen's RFR Holdings battle for control. A Manhattan judge issued an injunction allowing Cooper Union to collect rents at the building, which RFR refused to relinquish control of after the school sent a notice terminating the ground lease. RFR's attorneys argued that Cooper Union's termination of the lease was invalid because the notice was sent to RFR's current offices, not to a previous office listed in the lease agreement. Schecter said that Cooper Union will win its case.
RFR's attorneys also argued that the reason tenants stopped paying rent was because Cooper Union's handling of campus protests over the Israel/Palestine conflict drove tenants away from the building. A spokesperson for RFR called the company's removal "temporary." Cooper Union will take over operations of the building on November 1 when it starts collecting rents. The Attorney General and independent financial monitor, already involved with Cooper Union due to historical financial mismanagement, are expected to step in to ensure the Chrysler Building doesn't fall into irreparable disrepair.
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Insolvency looms as Fortress pursues largest UCC foreclosure ever
Charles Cohen's fortune is set to be decided on the courthouse steps in just 10 days. Cohen's assets are tied to a $534 million loan Fortress Investment Group alleges is in default and a $187 million personal guaranty the lender won the right to collect on. This would be the largest UCC foreclosure ever. However, court filings indicate that the auction would likely fail to satisfy Cohen's debt. Cohen Realty Enterprises could potentially pursue the claim against Cohen if it's solvent.
Cohen's company has lost $22.5 million and posted negative equity of $502.5 million for the fourth quarter of 2022, a harbinger of bankruptcy. Cohen's attorney Donald Harwood and Fortress' attorney Lindsey Harris said that Fortress would have an unsecured claim against Cohen's firm if the auction didn't cover his debt. Cohen confirmed that the collateral for the Fortress debt is bleeding, with assets running a collective net loss of $42 million. Cohen's team has rebuffed the characterization of the billionaire as uninterested in the industry. Cohen and Fortress may yet settle the foreclosure case before the Nov. 8 auction date. However, Cohen's apparent efforts to shield personal assets from Fortress suggests he is bracing for the worst: an auction that does not cover his personal guaranty.
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Kriss, Israeli lender finance 137-unit project at former church site
Ian Bruce Eichner's Continuum Company has secured a $205 million construction loan for its condo project at a former Murray Hill church site. Kriss Capital and Klirmark Capital provided the $180 million senior loan for the planned 137-unit building at 26 East 35th Street, while real estate investment firm Corigin issued the $25 million mezzanine loan. The 173,000-square-foot building is expected to be completed by early 2027. The 18-story project will include a below-grade parking garage and ground-floor medical offices. The condo apartments will be an average of 1,200 square feet, as people are not working from home and the property is centrally located near two hospitals, the Queens-Midtown Tunnel and Grand Central Terminal. The Community Church, facing bankruptcy, agreed to sell its Murray Hill home to Eichner in 2022. The deal was structured as a $69.5 million ground lease that would later convert to a sale. The sale closed along with the loan, arranged by a team including Max Hulsh and Max Herzog of IPA Capital Markets.
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Struggling fashion retailer to liquidate 900K sf Jersey City warehouse
Global fashion retailer Esprit has filed for Chapter 7 bankruptcy to liquidate its US subsidiaries, Esprit U.S. Distributions and Esprit U.S. Retail, which had combined liabilities of $40.5 million as of June 30, according to Fashion Dive. The real estate holdings to be sold include a 900,000-square-foot warehouse in Jersey City. Esprit's popularity in the US peaked in the 1980s and 1990s, with its comeback attempt including pop-up stores in New York and Los Angeles. The company filed for insolvency for 11 subsidiaries worldwide earlier this year, including in Switzerland, Belgium, Germany, the Netherlands, and Hong Kong. The board cited poor business and financial conditions and unsatisfactory operational results of the US subsidiaries as reasons for shutting them down. The filings did not list Esprit's creditors.
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Since 2016, the real estate company has tripled its value
The Kushner Companies' total worth has nearly tripled since 2016, thanks to Donald Trump's rise to power and Jared Kushner's high-profile position in the White House. The company has reached a valuation of $2.9 billion, outstripping Trump's real estate empire, which is worth $2.2 billion. Kushner Companies faced debt issues in Manhattan, New Jersey, and potential investigations into Chinese and Qatari investors. However, investigations have been resolved, and the company has completed construction on two 64-story towers in Jersey City and sold a 99-year lease on 666 Fifth Avenue. The Kushner family's net worth has risen to an estimated $7.1 billion from $1.8 billion in 2016. Jared Kushner owns Affinity Partners, a private equity firm backed by Saudi Arabia's Sovereign Wealth Fund, and Thrive Capital, a venture capital firm valued at $3.5 billion. The Kushner family's real estate fortunes are poised to continue rising, as rising rents and falling interest rates make it easier to sell off high-value assets and develop new properties
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Former president’s second-eldest son is pursuing growth into crypto and global resorts that could bring family into new era but raise conflict-of-interest concerns
Eric Trump, the second-born son of Donald Trump, is steering the Trump Organization into crypto and establishing ties with Saudi-backed LIV Golf, aiming to cement his own place in the business world while reviving concerns over potential conflicts of interest in a second Trump administration. If Donald Trump Jr. becomes the crown prince of MAGA world, 40-year-old Eric Trump is guardian of the family business empire. While he is less fire-breathing partisan than his brother and not as recognized as his sister, Ivanka, Eric might play the lead role in carrying the family business into a new era. Eric has been served with dozens of subpoenas related to investigations into the Trump empire and handles them all “beautifully.” He is confident the business can function without conflicts if his father wins re-election. After the election, Eric plans to recede from the spotlight and focus on the business. He shares parenting duties with his wife, Lara Trump, who is co-chair of the Republican National Committee.
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Small businesses struggle to compete with national chains as rents rise
The rise in rent prices has impacted small businesses, particularly those that cannot compete with national chains for limited store space. Nearly six in 10 small businesses have reported increased rent over the past six months, and more than half of independent retailers couldn't pay their September rent in full. Property owners like renting to independent shops and restaurants, as they generate loyal local followings and help differentiate their properties from online offerings. However, the prospect of higher rent is hard to resist, as it ties back to valuation. Rising rent prices come on top of other small-business hardships, such as the struggle to retain good employees and secure affordable business loans.
Some business owners were able to negotiate lower rents during the pandemic, but many independent retailers were not so lucky. Emerging government loans, rising labor and supply costs, and inflated food prices have further weighed on bottom lines. Bigger retail chains have been able to access lines of credit needed to stay afloat, but still want independent shops and restaurants. Kimco, which owns over 560 open-air shopping centers across the U.S., has invested in fintech Bonside's emerging-business fund, which gives financing to bricks-and-mortar businesses looking to expand. For many small businesses, developing a close relationship with the local landlord is crucial to survival.
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