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Weekly Market Report - September 11, 2023


Tower Research Capital, a financial trading platform with technology and engineering arms, is consolidating its two New York City offices into a new global headquarters at 120 Broadway. Silverstein Properties has signed a 15-year lease for the 1.9M SF, H-shaped landmark office tower, with Tower Research moving into the 37th through 39th floors in late 2024. The move is an expansion from offices at 377 Broadway and 148 Lafayette. The firm's primary goal is to find a space to cultivate its unique culture and foster employee collaboration. The building, known as the Equitable Building, has been renovated by Silverstein, which spent $52M on the project. The lease comes at a time of tension in NYC's office market, with the availability rate in Downtown increasing to 21.3% since March 2020. Tenants are now scrutinizing landlords' financial standings before signing in a building.


Office and multifamily investors and developers are still taking it on the chin

Fall is approaching, but it's not a favorable one for some real estate sectors. Office and multifamily investors have been hit hard, with the doom loop causing banks to cut back on lending, leading to a drop in property prices and more lender losses. The Wall Street Journal's analysis shows that banks' exposure to commercial real estate is worse than often reported, with total bank exposure to commercial real estate at $3.6 trillion, which it estimates is 20% of their deposits. WeWork, which has been reeling for years, has announced it will try to renegotiate nearly all of its leases due to high leasing costs and the need for more flexibility with leases. Multifamily developers are also facing challenges, with many firms no longer interested in building in Los Angeles due to market conditions. In Chicago, an investor bought a 237-unit multifamily portfolio for almost $12.3 million in foreclosure sales, while in Texas, MF1 Capital foreclosed on a Houston property after Rockstar Capital defaulted on a $51 million loan.


Massive office lease “neither done nor dead”

Citadel, a hedge fund led by CEO Ken Griffin, has halted plans for its office footprint in Manhattan, reportedly in talks to lease 400,000 square feet at 280 Park Avenue, owned by Marc Holliday and Steven Roth's firms. The company is also looking for space to temporarily relocate employees at 350 Park Avenue if its plan to replace that building with a 51-story tower moves forward. The reason for the halt in talks is unclear, but market conditions could be a factor. If Citadel ultimately takes the 400,000 square feet at 280 Park, it would occupy nearly a third of the 1.2 million-square-foot office tower, benefiting SL Green and Vornado, which could lose a few tenants whose leases are set to expire at the end of the year. Citadel's office movement in Manhattan has been difficult to track, with a few years ago signing a short-term sublease at 520 Madison Avenue and later relocating some of its New York employees to L&L Holding Company's 425 Park Avenue. Griffin's firm would occupy 54 percent of the 1.7 million-square-foot development, which is likely years away from fruition.


WeWork CEO David Tolley has announced that the office-sharing company is "here to stay" and is undergoing a process to rework its leases worldwide. The company is aiming to exit unfit and underperforming locations and reinvest in its strongest assets as it continuously improves its product. WeWork's market cap is now around $200 million, down from a private market peak of $47 billion. In mid-August, WeWork announced a 1-for-40 reverse stock split to get its shares trading back above $1, a requirement for keeping its New York Stock Exchange listing. The company's business has been on a downward slide since its failure to conduct its initial public offering in 2019.

The combination of Covid-19 shutdowns and the sputtering economy has left WeWork with massive leases in buildings that are underoccupied and worth far less than what the company paid. Tolley is taking immediate action to permanently fix the inflexible and high-cost lease portfolio to achieve a sustainable operating model. Cash and equivalents have sank to $205 million as of June.


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