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The office market in New York has seen a strong performance in 2024, with no signs of slowdown in the coming year. Manhattan is on track for its busiest leasing year since 2019, and Midtown is expected to have its busiest leasing year since 2018. Factors such as the national economy and local transportation issues will determine the demand for office landlords in 2025. In 2025, the market may need to see at least a few massive office deals to keep pace with 2024. Three deals this past year accounted for nearly 10% of overall activity: Blackstone expanding to 1 million square feet, Bloomberg extending its lease at 731 Lexington Ave., and Bloomberg expanding to about 925,000 square feet at 919 Third Ave.
Conversions are also expected to play a significant role in the city's post-Covid recovery. Developers are enjoying a full year of tax incentives for office-to-residential conversions included in this year's state budget, and a greater number of neighborhoods and buildings will be eligible for such conversions thanks to housing reforms in the Adams administration's City of Yes package. The number of firms taking on these projects will indicate how helpful conversions will be in tackling the city's office surplus and housing shortage. Major real estate firms like SL Green, Extell Development, and Silverstein Properties have already started work on some conversion projects, and Larry Silverstein, longtime chairman of his company, plans to look for additional conversion projects in the future.
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Company needs to reconfigure properties for more workers’ desks
Amazon is delaying its return-to-office mandate for workers in some cities across the US, including Austin and Dallas. The majority of Amazon's 350,000-strong corporate workforce will have desks at the start of the year, but the delays are more due to reconfiguring properties for more workers than actually needing more office space. Amazon's RTO policy has roiled some of its workforce, who point to other tech companies embracing more flexible arrangements. Amazon CEO Andy Jassy announced a full-time return for office workers in September to improve company culture.
Amazon has required most employees to go into the office three times a week, which has been problematic for workers, who complain of sharing desks and lacking private spaces or conference rooms for confidential meetings. The company is currently in negotiations to lease HSBC's office space at 452 Fifth Avenue when the bank relocates to Tishman Speyer's Spiral next year. Amazon was previously looking to curtail its office holdings and reduce vacancies, with a report from Business Insider claiming it would save approximately $1.3 billion by cutting down on vacancies by not renewing leases, terminating others early, and ending the use of some floors.
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Taconic Partners has sold off the office and retail components of 180 Broome St. and 202 Broome St., two key parts of the mixed-use megaproject Essex Crossing on Manhattan's Lower East Side. Deutsche Bank real estate heads Thomas Vasile and Andrew Mullin signed for the deals, which were published in city property records. The combined price of the office condos and two retail condos was $237M. The buildings also have residential apartments, but those weren't included in the sale. Taconic put together the $1.9B Lower East Side master plan in a joint venture with BFC Partners, L+M Development Partners, The Prusik Group, and the Goldman Sachs Urban Investment Group called Delancey Street Associates.
The newly built office suffered a blow last year when Verizon decided against relocating its employees to 135K SF of the building. Delancey Street Associates built out new prebuilt office spaces and an amenity center to attract long- and short-term tenants. The buildings also offer an indoor connection to the ground-floor shopping center, Essex Market, and Market Line, a three-block-long underground food and fashion market. It is unclear whether Deutsche Bank plans to occupy the office space or lease it out to other tenants.
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The Center for an Urban Future's annual "State of the Chains" report revealed a 1.3% decline in the number of chain stores in the city from 2023 to 2024, the fifth time in the past seven years. The report found 8,039 chain stores across the five boroughs, down 1.3% from the previous year. Dunkin' remained the most common chain with 626 locations, while Starbucks came next with 328 locations. The decline was primarily concentrated among national merchandise retailers, which is a clear impact of growing competition from e-commerce. The retail market remains difficult for national firms despite the strong recovery from the pandemic in the city overall.
On the other hand, the number of food chains rose by 1.6% year over year, and 2024 was the first time they comprised more than half of the total number of chains at 4,036 locations. Eateries that notably expanded included Popeye's, Oakberry Açaí Bowls, and Wingstop. Many grocery stores, beauty shops, and discount retailers expanded, while cell phone stores and pharmacies saw significant losses. Overall, 130 chain retailers reduced their number of stores, while 94 grew them, and 229 saw no change. The number of chains went down in all five boroughs and is 15.4% lower than it was in 2019, before the pandemic hit. Manhattan saw the sharpest drop year over year at 1.8%, or 56 stores.
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SL Green's proposal to open a Times Square casino has sparked divisions among Midtown power players, but no open opposition from the real estate giant's fellow office landlords. Andy Gottesman, principal of The Hippodrome, is joining the coalition working to tank SL Green's proposal, which is led by theater and hospitality interests. The casino would sit a block west of The Hippodrome at 1515 Broadway. Gottesman believes the casino would deter companies from renting space in Class-A office buildings like his. Gottesman is the first office landlord to join the No Times Square Casino coalition, spearheaded by the Broadway League, which represents theater owners and producers. The opposition could matter for SL Green once applications open next year, as every casino proposal must survive binding votes by neighborhood committees.
However, SL Green can counter with its own list of casino supporters, which includes the owners of the nearby Paramount Building and 5 Times Square, and the landlords Moinian Group, Soho Properties, RFR, and Wharton Properties. The warring coalitions have made SL Green's bid one of the most scrutinized among the 11 known casino proposals, any one of which could generate as much as $2 billion in annual revenue if chosen for one of the state's three licenses. The Hippodrome's tenants include Indeed, several law firms, the tech company Quantcast, and BBC America. After months of delays, the state has set a June 27, 2025 deadline for bidders to apply for the three downstate licenses.
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Empire State Building's owner, Empire State Realty Trust, is expected to see occupancy levels at its office towers surpass those of 2019, according to a report from Evercore ISI. Empire State owns 8 million square feet of office space across its tower and eight other buildings in Midtown, which are mostly pre-war and lack modern touches. The firm, controlled by the Malkin family, has spent millions upgrading its properties, charging rents averaging just $65 per square foot, one-third less than space in newer buildings. The lower price point for modernized pre-war spaces is resonating with tenants, with occupancy at Empire State-owned buildings expected to reach 90.6% next year, up from 88.6% for 2019. This year's vacancy is also expected to be 88.6%.
The value part of New York City office is most active, with CEO Tony Malkin highlighting his firm's "unique value proposition" and a "deep well of tenant demand." However, occupancy levels are expected to remain below 2019 for quite some time. Evercore analyst Steve Sakwa forecasts annual occupancy levels through 2028 and doesn't project SL Green to exceed 2019 levels by that year. Office buildings in New York are seeing 86.2% of the traffic experienced in 2019, and the city is one of five markets with office supply expected to decline through 2027 due to residential conversions and rising office employment.
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Taconic Capital Advisors is in talks to sell one of its commercial real estate funds to Axonic Capital. James Jordan, who oversees the business, will leave the hedge fund firm in the first half of next year. He will join Axonic and bring with him the latest vintage of Taconic's CRE fund, which has about $200 million of commitments. In exchange, Taconic will receive a share of revenue from the vehicle: CRE Dislocation Fund IV. The talks are ongoing and could end without a deal, some people said. Both New York-based firms each manage about $6 billion.
Jordan will be a partner at his new firm, and other senior Taconic real estate members will join him at a later date. Taconic has decided to focus on its core investment strategies of merger arbitrage and corporate and structured credit. The commercial-property market has been under pressure, with higher borrowing costs weighing on valuations for office and apartment buildings. Taconic's real estate business made event-driven and relative-value wagers in public and private markets.
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Manhattan's office market is facing a significant challenge as the wealthiest financial companies are bidding for space and driving rents to the stratosphere at the best of the best towers. Many of the most in-demand buildings are on Park Avenue, where Ken Griffin's Citadel has staked its claim to thousands of square feet of offices and JPMorgan Chase is finishing up its new headquarters skyscraper. Nearly 20% of office space is available for rent across the borough, compared to less than 7% on Park Avenue. Tenant preferences for new or recently refurbished trophy skyscrapers close to transit aren't likely to change any time soon, and a supply crunch for that type of space suggests the divide between the most- and least-desirable buildings will only get deeper.
The focus on Grand Central and Park Avenue in Midtown has helped attract tenants, with renovation projects and proximity to Grand Central serving commuters. The neighborhood is still a hotspot for leasing, charging the highest average rents of any submarket in the U.S. As of the third quarter, reports that top-quality, new office space is a different asset class than older buildings. As space runs out at the best Hudson Yards and Midtown buildings, demand may trickle into other areas of Manhattan with relatively affordable rents.
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Lenders are seeking to seize a Midtown property owned by Charles Cohen, who has defaulted on $85 million worth of loans backed by the office tower at 3 E. 54th St. Cohen failed to pay off the mortgages by their July 6 maturity date, causing his total bill to reach $86.4 million. The lenders are considering foreclosing on the postwar property to recoup their debt. Cohen has a few weeks to submit a formal legal response in the case, but Cohen Brothers Realty Corp. is working to address the financial problem at the address, which the firm has targeted for a major revamp.
Cohen has recently been fighting similar legal battles, including a lawsuit against Fortress Investment Group over his alleged default on $534 million in loans. Cohen has also been considering new uses for 3 E. 54th St., which is just 23% leased. The $85 million in mortgages at the heart of the new lawsuit date back to 2017 and include a $35 million issuance from Forethought and a $50 million note from Kookmin Bank.
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Henry Zavriyev’s Leyad makes NYC debut with $62M deal for Ink48 Hotel
Brookfield Property Partners is offloading assets, even at a loss, to sidestep distress. The firm sold the Ink48 Hotel in Hell's Kitchen for $62 million, 25% less than it paid in 2019 and about $5 million more than the building's loan. The deal is unclear if a mortgage maturity spurred the sale. Montreal-based Leyad teamed with New York's Capstone Equities in a 50-50 partnership, marking Leyad's New York City debut. The acquisition is part of a bigger bet that the city's hotels are on the cusp of a "value boom" due to the Airbnb ban, snapback in tourism, and special permits required in 2021 to limit new hotel construction.
New York has also lost 16,000 hotel rooms since 2019 as spaces were converted to migrant housing. Brookfield has been offloading properties in New York and beyond as it struggles with office assets and zombie malls. Some sales are not motivated by immediate distress but rather as a prophylactic measure or a way to drum up liquidity. The firm is looking to sell a luxury apartment complex in Chicago's South Loop and another in San Francisco's SoMa neighborhood, both having strong occupancy in parts of town hit hard by the pandemic. Brookfield is also trying to sell 3333 Broadway for $350 million, a $50 million discount compared to what it last tried and failed to get for the Manhattan apartment building in 2022.
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Robert Moser’s Prime Group Holdings and Empire Capital team up on $50M buy
Self-storage investor Robert Moser is buying a discounted West Chelsea office building, known as the Ironworks, for $50 million. Moser's Prime Group Holdings is in contract to buy the three connected office buildings at 511-541 West 25th Street, known as the Ironworks, for about a third of the $148 million that Artemis Real Estate Partners and L&L Holding paid for the property in 2019. Moser has teamed up with Josh Rahmani and Eli Khalili's Empire Capital Holdings on the deal, planning a mix of self-storage and traditional office space.
The property's steep drop in value is partly due to losing its major tenant, WeWork, which took 60,000 square feet in 2018 and shuttered its Ironworks location last year as part of its bankruptcy restructuring. The building is now completely vacant, as all of the space is listed as available on its website. With office values so depressed, owners are looking to get creative with storage options. Empire Capital has been buying distressed office properties, but not every deal has worked out. In 2022, Rahmani and Khalili led a deal with other investors to buy the 40-story office building at 1330 Sixth Avenue for $320 million.
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Bloomberg leased nearly 2 million square feet of office in 2024
Manhattan's office market experienced an encouraging 2024, with Midtown set to have its busiest leasing year since 2018, according to Colliers. The data shows people prefer working in New York, preferring an office with snacks and spiffy bathrooms over a drafty, dim one-bedroom in Hell's Kitchen. The Manhattan office market's leasing uptick was powered by three mega-deals each totaling close to a million square feet. Office brokers predict that next year will be the year, with fundamentals improving heading into 2025. The five largest office leases in Manhattan in 2024 include Blackstone Group's 969,957-square-foot deal at 345 Park Avenue, which is expanding its office footprint by 30%.
Bloomberg extended its 946,815-square-foot lease at 731 Lexington Avenue until 2040, which is home to Bloomberg's headquarters and 7,000 of its 12,000 New York-based employees. The firm signed a lease to expand its footprint at SL Green's 919 Third Avenue to nearly 925,000 square feet, having leased 749,035 square feet since 2021. Ropes & Gray inked a 535,000-square-foot lease at RXR's 1285 Sixth Avenue, taking space from Paul, Weiss, Rifkind, Wharton & Garrison, which moved to Fisher Brothers' 1345 Sixth Avenue. Apple expanded its lease by 61,000 square feet in Vornado Realty Trust's Penn 11, bringing its total office footprint in the 26-story, Midtown South building to 460,000 square feet.
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Radisson hotel on William St formerly at center of citywide housing battle
Slate Property Group has acquired a 20-story, 289-key Radisson hotel in the Financial District for $95 million, a move that may indicate potential conversion plans. The hotel was previously operated under the business-travel brand Club Quarters and was taken over by Radisson in 2019. Slate is multifamily-focused but has also ventured into rental ownership, including a portfolio of homeless shelters through the early 2020s. The hotel was also a pandemic-era homeless shelter during the pandemic, where it faced resistance from neighbors. In 2022, the city ended its long-term use of the property as a shelter, but Google reviewers claim the hotel is still housing immigrants.
If Slate uses this strategy, there could be upside for ownership, as the city plans to use an additional 14,000 hotel rooms to house migrants through 2025. Slate has two other projects in the works: partnering with RiseBoro Community Partnership in mid-2023 to pursue a hotel-to-affordable housing conversion under the state's Housing Our Neighbors with Dignity Act, purchasing the JFK Hilton Hotel near the Queens airport for less than $70 million. Slate tapped the state program for $48 million to fund the $300-unit, $150 million redevelopment. A year ago, Slate paid $24 million for a shuttered Hampton Inn at 320 Pearl Street in Lower Manhattan.