Weekly Market Report - April 1, 2025
- Broker Support
- 2 days ago
- 11 min read
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S&P Global downgraded the credit rating for 1515 Broadway, a 57-story Times Square tower, due to concerns about its future unless SL Green secures a casino license. The property, where Carson Daly hosted "Total Request Live" in the late 90s and early 2000s, is 90% leased to Paramount Global, owner of CBS, Nickelodeon, and Showtime. Paramount accumulated $5 billion in operating losses last year and announced layoffs at 1515 Broadway, with more to come if Shari Redstone sells her enterprise to Skydance Media. The tower's sustainable cash flow has fallen nearly 10%, and its value has fallen by 40% to $634 million.
SL Green Chief Executive Marc Holliday expects to put all of their efforts into the project as of January 1, and if successful, Holliday stands to get a $10 million cash bonus. To collect, he must persuade the state gaming board to give him one of three casino licenses designated for downstate. At least 10 other parties are bidding for a license. If a casino isn't in the cards for 1515 Broadway, the tower would become one of several in the area with a lot of space to rent. S&P estimates the occupancy rate will stabilize at 83%, but the property may not be competitive in its current state and will require $68 million worth of work to become marketable.
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The office vacancy rate is at its lowest since 2018 despite high rents
Park Avenue, one of America's oldest and most venerable office districts, is struggling to remain relevant during a period of changing work habits. The stately boulevard created in the late 1800s is still one of the hottest office markets in the country, with buildings commanding some of the highest office rents anywhere. The stretch of Park Avenue in Midtown Manhattan is the rare boulevard where companies are willing to pay up for a trophy address. Many CEOs still consider it as the premier location to call home.
Financial firms are willing to pay for a Park Avenue address in part because peers are also based there. Churchill Asset Management signed a new lease at the Seagram Building, Ludwig Mies van der Rohe’s midcentury modern classic at 375 Park Ave. The real-estate community is responding by approving the construction of 350 Park Avenue, a 1.8 million-square-foot tower, and 175 Park Avenue, a $6 billion tower near Grand Central Terminal. Park Avenue's vacancy rate has fallen to 8.9%, its lowest rate since the end of 2018, according to data firm CoStar. Manhattan and U.S. office vacancy overall sits at 16.1%. Retailers are also cashing in, with the line for lunch at NAYA and Joe & the Juice bar doubling in midday orders.
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Fox Corp. plans to vacate a quarter of its space at 1211 Sixth Ave., a Midtown tower owned by Rupert Murdoch's media empire, three years after agreeing to stay until 2042. The company plans to leave 330,000 of its 1.25 million square feet in the building, which houses the corporate headquarters for Fox and News Corp., studios for Fox News, and the Wall Street Journal and New York Post newsrooms. Fox and News Corp. will continue to occupy about half of the 45-story, 1.9 million square-foot building, with about half of the space to be vacated subleased to Disney Streaming Services. Fox and News Corp. have signed separate long-term leases totaling almost 1.2 million square feet, with Fox's 670,000 square-foot lease starting in December 2025 and News Corp.'s 486,000 square-foot lease beginning two years later.
The building's owner, pension fund Caisse de dépôt et placement du Québec, announced that Fox and News Corp. had signed separate long-term leases totaling almost 1.2 million square feet. The second largest tenant at 1211 Sixth, law firm Ropes & Gray, plans to move out altogether in two years, leaving behind more than 300,000 square feet for new offices in Hudson Yards. KBRA said near-term tenant loss would cause 1211 Sixth's occupancy rate to fall to 74% from 94%, though it expects occupancy to stabilize at 88%. The tower's mortgage comes due in August and will have to be refinanced at a higher rate than the current 4.15%, which KBRA said the building's owners could find challenging.
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The Surprising Good News for Mall Owners: Forever 21’s Bankruptcy
Forever 21's bankruptcy is expected to result in the largest closure of its 350 US stores in six years. Mall owners are optimistic about the situation, as it presents an opportunity to attract stronger retailers that pay higher rent and attract more shoppers. High-end malls are nearly fully occupied, and rents are rising. Leasing is even starting to pick up in second-tier properties, as expanding retailers compete for limited available space. The mall industry is in the best shape it's been in probably 20 years, with rent prices looking poised to rise further. Mall values remain far below the peak of 2016, and closing department stores leave large vacancies that are difficult and expensive to fill.
Malls recovered from the pandemic much more slowly than other retail types, and if nervous consumers pull back on spending this year, recent gains could easily come undone. However, survivors' prospects are brightening, in part because no one is building enclosed malls anymore. Forever 21 first filed for bankruptcy in 2019, and its performance and value to its host malls have deteriorated over the past several years. Mall owners will likely be saddled with closing Forever 21 stores unless another group buys it out of bankruptcy.
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A Wall Street analyst has called for the removal of several Paramount Group board members, citing their tendency to award undisclosed perks to the CEO while the company delivers poor results for investors. Green Street Advisors analyst Dylan Burzinski urged investors to take steps to improve management accountability and prioritize shareholder interests. Paramount Group has made millions in undisclosed payments to outside companies owned by CEO Albert Behler over the last three years, including $3 million to his charter-jet company, $1.6 million to his consulting firm, and hundreds of thousands to a design firm owned by his wife.
Paramount Group has not responded to the comments. Paramount owns 13 million square feet of office space in Manhattan and San Francisco, including Paramount Plaza. Some buildings are 25% empty or more, and the stock trades for $4.20 a share, about 70% below its pre-pandemic value. The company has reseated a board member who a majority of investors had voted to remove, Katharina Otto-Bernstein, daughter of Paramount founder Werner Otto, who controls 15% of all shares. Burzinski noted a "misalignment" between management's interests and shareholders, with Paramount shares trading for 20% less than their net asset value.
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Investor aims to sell upper floors of 300 East 42nd Street
David Werner, a prolific investor known for flipping deals, is in talks to sell the office floors at 300 East 42nd Street, just months after signing a $52 million contract. The building, which fronts Second Avenue and has three retail spaces, has a retail portion and office floors above. Werner is in talks with several potential buyers, including a high-net-worth individual from Latin America. The 235,000-square-foot building was bought from Fortress Investment Group earlier this year, which took the property back from Somerset Partners and Meadow Partners in 2023. The previous owners had bought the building in 2019 for $122.5 million, making Werner's contract a nearly 60 percent discount off that price. Werner has been one of the most active buyers in recent years, snapping up buildings at hefty discounts. He has also been working on several office-to-residential conversions, including the largest-ever office-to-residential conversion at 235 East 42nd Street and the 340,000-square-foot office building at 675 Third Avenue
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Office building sales in the U.S. have fallen by 25% in recent years, and Morgan Stanley predicts they will continue to fall due to "well-understood idiosyncratic issues" - a reference to work from home. The bank has about $10 billion in commercial real estate loans on its books, including $3 billion to office buildings and a portion of a $125 million loan to the Helmsley Building, a Park Avenue landmark in foreclosure proceedings. Morgan Stanley said prices for apartment and retail buildings nationwide have "bottomed out" after falling by 20% and 9%, respectively, since 2020. However, for office buildings, there is still "some more room to go," even though they have fallen by nearly 24.7%. The percentage of office loans 30 or more days delinquent nationally has doubled in the past 12 months, to 11.6%. Manhattan's office vacancy rate was 23.3% in the fourth quarter, a bit higher than the previous year's 22.8%. The sheer availability of space has seemingly forced even Class A building owners to grant unusual concessions, such as the Park Avenue Tower at 65 E. 55th St., which carries a $308.5 million mortgage written last year by Morgan Stanley.
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Lender targets Astoria Cigar Factory property in foreclosure lawsuit
Rialto Capital has launched a foreclosure against Daryl Hagler's Cigar Factory creative office building in Astoria, alleging he defaulted on a $20 million loan in October 2024. Hagler, a healthcare entrepreneur, guaranteed the loan. In 2023, Rialto secured a 20% stake in a venture holding Signature's $17 billion commercial real estate loan book, servicing the debt. Since then, Rialto has been relentlessly seeking defaults on property owners who secured loans from Signature Bank. Joseph Cayre of Midtown Equities filed a suit against Rialto alleging the firm is illegally manufacturing defaults.
In one case, Rialto initiated a foreclosure on Watermark Capital's 28-story, 497-unit residential project in Sunset Park last year. Hagler provided a $42.5 million loan to Watermark, which replaced Rialto's loan. Now, Hagler, a co-owner of Centers Health Care and vice chairman of El Al Airlines, is a target of Rialto. Hagler has a growing interest in New York City real estate and has backed Isaac Hager of Cornell Realty. In 2023, the Attorney General sued the partners for using over $83 million in Medicaid and Medicare funds to enrich themselves.
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Geller & Co. trading Third Avenue office for Midtown East tower
Geller & Company has signed a lease for 45,000 square feet at Global Holdings' 99 Park Avenue in Manhattan. The firm will occupy part of the ninth and entire 10th floor of the Midtown property for 11 years. The move comes at a boom time for Park Avenue, where the vacancy rate is down to a seven-year low of 8.9%. A $30 million capital improvement project is underway at the 600,000-square-foot Art Deco tower, which includes an upgraded lobby and amenity spaces. Other tenants include Garan, Lubert-Adler, and Metropolitan Bank. The building is 85 percent leased. Meanwhile, desperate landlords on nearby Third Avenue are offering 75% discounts to attract tenants. However, companies like law firms, real estate companies, insurers, and money managers continue to move to Park Avenue.
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BuzzFeed has signed a lease for 42,000 square feet with Jed Walentas’ Two Trees Management in the Flatiron District, marking a significant downsizing for the digital media company. The move follows a previous downsizing of 110,000 square feet at 224 Park Avenue South and 107,000 square feet at 229 West 43rd Street. BuzzFeed is more than halving its headquarters, having previously occupied 110,000 square feet at 224 Park Avenue South and 107,000 square feet at 229 West 43rd Street.
The multiyear lease duration is not disclosed, but asking rents at 50 West 23rd Street range from $68 to $70 per square foot. Other tenants at Two Trees’ 13-story, 341,000-square-foot building include Instacart, BMF, and Grovo. The building was purchased in 2010 for $129.5 million and underwent $25 million in renovations. Manhattan leasing volume dropped about 13% month over month in February, but leasing velocity grew by 38% year over year, and demand was 19% above the ten-year monthly average.
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Blackstone provides $279M for office condo in landmarked property
The Witkoff Group and Cammeby's International Group have refinanced the office portion of the Woolworth Building in Lower Manhattan, with Blackstone Group providing a $278.9 million loan at 233 Broadway. The debt replaced a previous $256 million issued in 2015, also by Blackstone. The entire debt of the property is $301.6 million. The Woolworth Building was purchased by Steve Witkoff and Ruby Schron in 1998 for $137.5 million. In 2012, an investment group led by Alchemy Properties purchased the top 30 floors for $68 million and proceeded to create luxury condos.
A portion of the office condo's debt was included in a CMBS deal in the fall of 2020, providing a peek at the building's performance. As of July 2020, the office condo was 92% leased to 84 tenants, up from 79% leased in 2015. The largest tenant at the time was New York University, which utilized 94,000 square feet for its School of Professional Studies and administrative offices. A Blackstone-led venture is in the midst of trying to sell commercial debt once held by Signature Bank, at least its third attempt to sell loans from the stake.
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Loans in dispute had original principal of more than $600M
Flagstar Bank has filed its largest commercial pre-foreclosure action against Joel Wiener's Pinnacle Group, involving four summonses against nearly 100 entities owned by Pinnacle. The action is connected to more than half of Pinnacle's multifamily portfolio in New York City, with approximately 5,200 units of the 8,700-unit portfolio involved. The largest of the loans covers a 142-unit building at 25 Hillside Avenue in Manhattan's Washington Heights. The action only involves summonses, not complaints, which is unusual for commercial foreclosure cases in the state. Pinnacle could not be reached for comment by The Real Deal. In 2022, billionaire Wiener was penalized for not properly acknowledging needed capital repairs at a Forest Hills condo conversion. Under a settlement, Wiener paid $330,000 to the reserve fund of The Georgian at 109-20 Queens Boulevard and $150,000 to the HPD. Wiener reached billionaire status in 2017, despite once being a target of tenant complaints and fraud investigations.
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Bryant Park Grill, a restaurant that is set to close in April, has filed a lawsuit accusing landlord Bryant Park Corp. of favoring a new restaurant operator who will pay the park less in rent. The restaurant, which generates $25 million in annual revenue, is being fought by restaurateur Michael Weinstein to keep his 1,000-seat restaurant. Park officials describe the restaurant as "tired" and believe a new operator can produce up to $40 million a year in sales. They recently chose restaurateur Jean-Georges Vongerichten to take over the grill's prime Bryant Park space.
Weinstein claims that Bryant Park executive director Dan Biederman conducted a "sham bidding process" and steered the contract to Jean-Georges, even though it offered at least $1 million less guaranteed rent than the grill proposed. Biederman denies the allegation that he awarded Jean-Georges the contract to benefit his consulting business. Seaport Entertainment Group, which owns the South Street Seaport, has announced plans to sell a parcel of land to focus on the hospitality and entertainment business.
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Extell Development Co., the owner of 33 E. 60th St., is suing Philippe Chow, a 20-year-old Chinese restaurant, for allegedly skipped rent payments and penalties for staying on the property. Chow, a fixture of the restaurant, has been open all week as of Thursday night, serving Beijing-style prawns, chicken, and ribs. Extell, which plans to raze four surrounding properties on the block, is ready to apply maximum financial pressure to get Chow to leave. The suit, filed in Manhattan state Supreme Court, alleged that Merchant Hospitality owes Extell at least $1.4 million, plus attorney's fees.
The company owns a second Manhattan Chow site in Chelsea, three others nationally, plus one overseas, in Kuwait. The company's other holdings include Watermark Bar on Pier 15 in the Seaport neighborhood, Merchants in the West Village, and the Black Hound in Battery Park City. Abraham Merchant, the company owner, said he was prepared to fight back. This is not the first time Merchant has become ensnared in a lease dispute at the address. Last year, the Goldman family sued its tenant over allegedly unpaid rent, a move that came as the family was likely negotiating to sell the building to Barnett.
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