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Weekly Market Report - September 18, 2019

Apple has entered the race of tech companies to lock down office space in Manhattan. They are looking for 200k to 500k SF but could go as high as 750k SF. Apple has looked at Hudson Yards, the Farley Post Office redevelopment, One Madison Avenue, and more. While it is the last big tech company to increase their office space in the city, it was bound to happen at some point. As the availability of office space and workforce grows tighter in Silicon Valley, companies such as Apple, Facebook, and Amazon, would naturally look at NYC. Apple currently leases 45K SF in the Flatiron District at 100-104 Fifth Avenue; it opened its office there in 2011.

In 2010, WeWork was created and started working with landlords to rent out their spaces. As soon as it got comfortable with that, the company started expanding and cutting deals with large corporations, making it a threat to landlords. In June, one landlord pushed back and created their own co-working firm, Hines Squared, with Hines Interests LP and Fifth Wall, a venture-capital firm. Other office building owners are doing the same, such as Boston Properties and Tishman Speyer, who created co-working brand Studio. Two questions arise from these actions: Will co-working companies be able to out pace landlords and their buildings or will the landlord be able to hold their own and strike back. This dynamic is important as WeWork has announced it will be going public, however, the company is already facing skepticism from potential investors. Some co-working startups are willing to create partnerships with landlords with expenses and profits to be shared – even WeWork said they want to. But people aren’t buying that. According to one landlord, “Co-working may be the biggest disruption to real estate since the invention of the elevator”. Landlords offer deals to tenants, which could take some time, while WeWork can offer the same tenants deals at half the amount of time. Landlords are being “uncharacteristically open with one another” and discuss the threat of technology change and how they can join forces to deal with it.

Office Leasing in Manhattan

· Midtown bounced back in July with 1.09 million SF in office space leased. It went up 10% from June but down 25% year over year. Availability rate stayed at 10.6% and asking average rent fell to $87.08. Largest deal went accounting firm EisnerAmper for 124,554 SF at 733 Third Avenue

· Midtown South leased 1.83 million SF and the availability rate fell to 9.5%. The asking average rent increased to $86.16, and Google was the largest deal with 1.3 million SF at 550 Washington Street

· Lower Manhattan leased only 650K SF in July, which is down 28% from June. The availability rate decreased to 12.4% and the asking average rent increased to $63.32. Largest deal went to Union District Council 37 for 130,449 SF at 55 Water Street

Chinese insurer company, Anbang Insurance Group Co., is selling a 15-hotel portfolio to South Korean group, Mirae Asset Global Investments, for more than $5.8 billion. While this deal was ready to be made last month, Anbang discovered fraudulent deed transactions for at least four California hotels. This occurred without Anbang’s knowledge or approval. Included in the deal are the Essex House near Central Park and the InterContinental hotels in Chicago and Miami. What was not included was the Waldorf Astoria in New York. In 2015, Anbang paid $1.95 billion for it. It is currently closed for renovation.

Marx Realty, owner of 545 Madison Avenue (17-story, 140K SF office building), is seeking to evict Thor Equities, who has ground-leased the property for over six years. This has allowed the firm to act as the property’s landlord in return for rental payments to Marx. However, as the property lost its tenants and Thor fell behind in rent and real estate taxes, Marx started filing for Thor’s eviction in July. Thor hasn’t paid $554,583 in ground rent and over $1.6 million in real estate taxes, which Marx said is a breach of terms of Thor’s lease. Even before the eviction, Thor was having financial problems and was in danger of defaulting on payments towards the buildings $30 million mortgage. In the past several years, Thor has lost other properties, including 1231 Third Ave., an apartment building on the Upper West Side, and 50% ownership in a trio of buildings for more than $500 million. In August, Thor purchased an 800K SF property in Bridgewater, NJ for $152 million as they want to start investing and buying warehouse spaces.

The Bronx is becoming New York City’s latest real estate front runner with its large amount of industrial and residential land available. Developers are paying high prices just to put down stakes in the land. Thanks to e-commerce companies, investment sales for industrial space have been higher than ever. For example, two warehouses at 1300 Viele Avenue and 1301 Ryawa Avenue in Hunts Point sold for $70 million ($603 per SF). In 2017, two developers bought a two-building complex for $25.6 million and then leased the entire 116K SF space to Amazon for a distribution center. In February, one developer paid $59 million for a pair of former industrial parcels and are planning to build over 2,000 units of housing. A 1.3 million SF residential project is being currently developed at 2401 Third Avenue and 101 Lincoln Avenue with 1,300 apartments, 20,500 SF of retail and 178-car garage.


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