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Weekly Market Report - October 16, 2023


RXR’s is marketing 175 Park Avenue’s 2 Million SQFT of office where the Hyatt Grand Central hotel sits right now

New York's next skyline-defining office tower, Project Commodore, is running a leasing gallery for its planned 1,575-foot high building, 175 Park Avenue. The project, which has a mirror location across the other side of Grand Central Terminal, is aiming to play off the success of One Vanderbilt, a 99 percent full skyscraper. RXR and its leasing team are bringing prospective anchor tenants through the showroom, showing space to tenants representing about 15 million square feet of office demand. The 92-story project's 2.5 million square feet of office. The leasing center is described as an impressive showpiece with commanding views of Manhattan and overlooking the 175 Park site.

RXR had originally planned to get an anchor tenant and construction financing by the end of this year, but the team now acknowledges that that may get pushed into 2024. Manhattan leasing activity is down 33 percent this year compared to last year at 12.5 million square feet, and when renewals are taken out, that figure is down roughly 46 percent. RXR is co-developing 175 Park with the Elghanayan family's TF Cornerstone, which partnered to redevelop the site in 2019.


Co-working company’s credit rating can’t fall much further

WeWork, a co-working company, has been downgraded from a CC to a C credit rating by Fitch Ratings. The rating indicates a probable default, while a "default-like" process has already begun. The company is attempting to avoid bankruptcy by renegotiating leases and debt. Fitch rates the likelihood that WeWork will repay its $1.4 billion in debt. WeWork said it had enough cash to make the payments but chose not to as a tactic to open negotiations with lenders. Interim CEO David Tolley said lenders would "absolutely understand" the company's decision. Investors have sent WeWork's share price down 28% in the past month. WeWork worked with lenders to cancel or convert approximately $1.5 billion of debt, giving the firm until 2027 to repay much of it. Last month, WeWork announced its intention to renegotiate nearly all of its leases. WeWork has lost $11.4 billion since the start of the pandemic and its stock price plunge forced the company to execute a reverse stock split to remain on the New York Stock Exchange. WeWork's stock was up 5.5% Tuesday to $2.21, but it is down 96% year-to-date and nearly 98% in the past 52 weeks.


New Yorkers are returning to the office about half as much as they were during the pandemic, with an average of 49.1% of in-person activity in the city during the seven-day period ending October 4, according to data from real estate technology firm Kastle Systems. Office swipes reached 63% of prepandemic levels on Tuesday, while foot traffic surged after the holiday. The city's return to the office lags other major U.S. regions, including Houston, where in-person activity is at 60.9% of prepandemic levels. New York's rate is slightly below Chicago, where 53.5% of employees are back in the office, and slightly above Los Angeles, which reported in-office occupancy of 48.0%. The data represents commercial office buildings equipped with Kastle Systems security technology in 10 major U.S. cities and does not reflect a national average of the entire U.S. workforce.


Third Point, a hedge fund led by investor Dan Loeb, is reportedly seeking to sublease some or all of its Manhattan headquarters space at 55 Hudson Yards, a newly built skyscraper on the Far West Side. The firm, which committed to the space in 2017, has been looking to sublease at least half a floor for the past three years. After finding no takers, Third Point is now open to leasing out a larger space, as much as the entire three floors. The asking rent for the space is about $165 a square foot, more than double the average for Manhattan and higher than the $130 a square foot that Third Point paid for its lease. The company is looking to capitalize on the demand for offices in newer towers, as tenants are willing to pay a premium at developments like Hudson Yards. Third Point relocated to 55 Hudson Yards from the Lever House in Midtown and is keeping space elsewhere at Hudson Yards.


Manhattan office buildings are less bad than at their worst, but conditions are still far from good. As landlords report quarterly results, forecasters predict stormier weather ahead due to higher interest rates. General office conditions are "worse" than during the 2008 financial crisis, which may be a headwind for risk appetite on the part of lenders and buyers. Office landlords face growing risks that they won't be able to refinance when loans mature, which could force them to sell properties. Vacancy rates at towers around Grand Central Terminal, Park Avenue, and Sixth Avenue are almost two percentage points lower than their spring 2021 highs. However, last quarter's absorption rate was half that of the prior 12 months, a sign of falling demand. As return-to-office was around 50% in New York for the week of Oct. 9, employers seem to have roused many workers from their homes.


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