top of page

News.

Weekly Market Report - October 29, 2024

***



Amazon is in talks to take over 350K SF of office space at 452 5th Avenue (10 Bryant Park) in New York City next year after HSBC vacates the building formerly known as HSBC Tower. The 30-story skyscraper is next door to the former Lord & Taylor building, which Amazon bought in March 2020 for $1.2B to serve as the company's Manhattan headquarters for roughly 2,000 employees. HSBC announced plans to relocate from the 865K SF 10 Bryant Park to Tishman Speyer’s The Spiral in Hudson Yards in 2022. The building, owned by Israeli real estate firm Property and Building Corp., was 99% leased as of May but would be left with an anchor-sized hole when the bank relocates. HSBC's departure would leave the building nearly 40% vacant. Amazon taking the entirety of that vacancy would be a major win for PBC, which has twice had deals lined up to sell the building in recent years, only for them to collapse as buyers couldn't line up financing.  


***


Larry Silverstein, chairman of Silverstein Properties, believes that new office buildings in Manhattan will become more prevalent by the end of 2029, 30-30, 31-30, and 32 due to the need for a first-class brand of office space. Silverstein's daughter, Lisa Silverstein, is expected to become CEO of the company, and the company is currently working on an anchor tenant for 2 World Trade Center. American Express is rumored to be a potential anchor tenant for the project, but Silverstein has not commented on whether it is in negotiations. Silverstein also provided updates on Brooklyn Tower and 55 Broad St., the office-to-residential conversion he and Metro Loft Management are working on in the Financial District. He confirmed that JDS Development has no involvement with the Brooklyn project and plans to finish it to completion.


Silverstein and Metro Loft are already leasing apartments at 55 Broad St., and if successful, the company plans to buy other buildings for conversions next year. Silverstein also praised 485-x, the affordable housing tax break that replaced 421-a in this year's state budget. Silverstein had pleaded with state lawmakers last year to restore 421-a, which was essential to his plan to build 3,200 apartments in Astoria. Silverstein's firm parted with longtime CEO Marty Burger and named Lisa Silverstein CEO last year, describing the joy, satisfaction, and fulfillment that comes from creating something and giving it to one of his family members.


***


The chaotic market in New York City has led to some office owners freezing, firing brokers, and trashing marketing materials. Between January and September, approximately 8.5M SF of office space was unlisted from the market due to reasons other than leasing, such as offices being warehoused by their owners or space being removed due to lease renewals, renovations, or conversions. Manhattan's 419M SF of office space is 23.5% vacant, and the city has weathered more than 10M SF of office occupancy loss in the past 12 months alone.


Most leases have been signed by financial services companies expanding on Park Avenue and consolidating their footprints, with the majority of activity happening in new or recently renovated buildings. Interest rates and construction costs are expected to continue falling, motivating some landlords to pull their empty office space from the market. However, the optics of empty space can be an issue, and landlords must be thorough and diligent with their decisions.


***


Empire State Realty Trust reported a two-percentage-point increase in occupancy in its portfolio of pre-war office towers, with nearly 94% of its Manhattan office space leased, the highest for any publicly traded New York office landlord. The average rent of $70 per square foot is one-third below the rate for space in newer Manhattan buildings. Empire State Realty owns 8 million square feet of Midtown office space, better than a third of it in the Empire State Building. CEO Tony Malkin praised the firm's unique value proposition and said it draws from a "deep well of tenant demand."


SL Green, which owns 30 million square feet of space in Manhattan, reported rising occupancy in buildings across Midtown and along Third Avenue, a corridor whose towers were hit hard by the rise of work from home. Empire State Realty leased 304,000 square feet of space in the third quarter, compared to 272,000 in the second quarter and 256,000 in the year-earlier period.


***

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.


***


The Hotel 27 by LuxUrban, a 72-room hotel in the Flatiron District, has been in foreclosure for nearly three years. The property, which shares an entrance with a palm- and tarot card-reader, has been in the process of being foreclosed. The Assa brothers, co-founders of Assa Properties, have not been able to provide a viable workout proposal, according to credit-rating agency KBRA. The brothers, who own 3 million square feet of space in the U.S. The hotel was acquired by Waterscape Resort LLC in 2008, managed by Salim Assa, and was planned to turn it into a luxury hotel. However, plans were abandoned in 2009, and the hotel filed for bankruptcy two years later. In 2012, the Assas acquired the hotel again for $28.5 million, with the Assas contributing $10 million of their own money and borrowing another $22 million. The property quickly ran into problems, with average daily rates dropping to $150 from $190 in 2016 and operating as a homeless shelter by 2019. The hotel reopened to tourists but was foreclosed in late 2021.


***


The Chetrit Organization is facing legal challenges at another office building in SoHo, where the landlord has been in default on a mortgage for over a year. The landlord, Chetrit, is seeking to seize control of 428 Broadway, a mixed-use site that was mostly occupied by bankrupt coworking provider WeWork for the past decade. LoanCore Capital Credit is seeking to seize control of the structure after Chetrit failed to pay the principal of a loan that matured in April 2023. The financial firm claims it's owed $50 million and is asking the court to force the sale of 428 Broadway to pay off the unpaid balance plus interest, default interest, advances, late charges, attorneys’ fees and costs, and all other charges. WeWork, then the largest private tenant in Manhattan, imploded over mounting concerns about its debt load and lack of profitability, leading to the resignation of co-founder Adam Neumann and scotching a planned initial public offering.


In 2023, WeWork filed for Chapter 11 bankruptcy protection, wiping out $4 billion in debt for the company including most of its city office leases. No. 428, which Chetrit refers to as the Suspenders Buildings, is plagued by a 96% vacancy rate and retail space at the graffiti-tagged Class C building. The Chetrit Organization owns the building across the street, 427 Broadway, in which it installed THC NYC, a marijuana-themed museum, in 2022. The family-owned Chetrit Organization operates as a different entity than the similarly named Chetrit Group, though Jacob’s brother Joseph leads the latter firm.


***

Safety law could lead to service shut-offs that drag on


Edward Wydra, a landlord in New York City, is facing a $28,000 bill due to Local Law 157, which requires natural gas detectors in every unit with a gas appliance. The regulation, passed in 2016, was enacted after a series of deadly gas-related incidents, including a major explosion in the Bronx nearly a decade ago. The Department of Buildings claims that even inexpensive detectors can save lives by providing early warnings of gas leaks. The cost of compliance seems minimal, as apartments might have one or two gas appliances, meaning one $20 detector could suffice in many units. However, Lee Hoffman, president of Runwise, warns that these sensitive devices could trigger a "gas apocalypse," with reported leaks leading to gas shut-offs and costly repairs.


Landlords can't easily pass the costs onto tenants, as they must file for a major capital improvement, which can take two years to be approved by the New York State Division of Homes and Community Renewal. The owners' costs remain unrecovered, putting pressure on their buildings' cash flow. Gas shutoffs can last a while, as seen in Washington Heights, where tenants went more than a year without gas following a minor leak. As the May 2025 deadline for installing detectors approaches, landlords are bracing for compliance costs and unintended consequences.


***

Metropolitan College looks to stave off default with Financial District sale


Metropolitan College of New York is selling off part of its Manhattan campus to avoid default and avoid a debt payment due in November. The sale is part of a deal with bondholders, and Cushman & Wakefield has been enlisted as brokers to market and sell either a segment or the whole of the school's Financial District property. The college owns three floors and a portion of the ground floor at 40 Rector Street and an office building near the World Trade Center, in addition to its Bronx campus. The private college has listed part of the property as a portion of a forbearance agreement with investors after it broke certain terms of its bonds. Metropolitan College has $61 million in outstanding municipal bonds and has been severely downgraded by Fitch, which reported that "default of some kind appears likely."


This is not the first time the school has turned to the real estate market to pay off creditors in the wake of the pandemic. In 2023, it sought to sell two floors of an office building at 60 West Street to reduce its debt. Metropolitan College has experienced more higher-ed defaults in 2024 than in any year since at least 2009, and real estate is an important metric for potential investors in higher-ed bonds. The school plans to consolidate operations on its Manhattan and Bronx campuses and elsewhere based on the details of an eventual sale.


***

Tyko Capital lends on 60 unit condo project in landmark building


Dan Brodsky and his partners have secured a $357 million construction loan for a condo conversion of the iconic Flatiron Building. Tyko Capital provided the debt, and the Sorgente Group and GFP Real Estate plan to convert the iconic building into 60 residential condos. The project is an important milestone in the restoration of the iconic landmark. A Newmark team led by Jordan Roeschlaub and Nick Scribani arranged the debt. Tyko Capital has recently financed other major projects, including Gary Barnett's $160 million purchase of an office property and a $1 billion refinancing of Steve Witkoff and Len Blavatnik's One High Line condo project.


***

RFR refused to hand over skyscraper after school says it terminated lease


Cooper Union is seeking to eject Aby Rosen's RFR Holding from the Chrysler Building after the school refused to leave. RFR sued Cooper Union in September, challenging the school's termination of RFR's long-term ground lease on the building. Cooper Union's attorneys filed a response, calling Rosen's legal maneuver a "shameful" attempt to retrade a previous agreement to amend the ground lease. Cooper Union's attorneys are asking the court to dismiss RFR's lawsuit and order Rosen's company to hand over control of the building. A spokesperson for RFR said that an economically feasible deal has not yet been reached, and they remain ready to move forward and fund the project if Cooper Union agrees to a market deal. The dispute arose after RFR bought the lease on the Chrysler Building in 2019 for $150 million, a shockingly low sum compared to the $800 million that seller Abu Dhabi Investment Council had paid in 2008 to buy a 90% stake from Tishman Speyer. Rosen claimed that after taking over the building, it required much more work to bring it up to standard than he was led to believe. Cooper Union claims Rosen couldn't raise the capital necessary to close the deal.


***

Deal comes after dropoff in demand for life science space in 2024


Meta founder Mark Zuckerberg and his wife Priscilla Chan have leased 38,000 square feet from Columbia University to house the Chan Zuckerberg Biohub New York. The deal, which is for space in Columbia's Studebaker Building, comes amid a significant drop in demand for life sciences real estate in recent years. A report by commercial real estate firm CBRE places rent for life science space at $115.96 per square foot in the second quarter of 2024. The Chan Zuckerberg Initiative provided $250 million in funds for the $300 million facility. New York's Economic Development Corporation and Empire State Development, along with Gov. Kath Hochul and Mayor Eric Adams, spent $10 million in public funds on the property in 2023. Vacancy rates have also sharply increased, rising by 350 basis points since the end of last year. Factors driving availability include more sublease space on the market and a rise in spec deliveries lacking tenants.


Comments


bottom of page