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Executives are paying attention as major companies including Amazon.com and Dell Technologies tell certain workers to return to the office full-time.
Chipotle Mexican Grill has a remote-work policy, requiring staffers to be in the office four days a week, Monday through Thursday. This policy helps preserve the company's culture and has worked well for Chipotle. However, the company's end-of-the-week flexibility could vanish if productivity slips. Large companies are cracking down on back-to-office policies, which will be in the spotlight again for C-suite leaders in the year ahead. AT&T, Amazon.com, Dell Technologies, Starbucks, and the Department of Government Efficiency advisory group could soon see a push to return to the office under the new Department of Government Efficiency advisory group. Many employers continue to see the benefits of hybrid working schedules, from the ability to attract employees to retaining top talent. However, the degree of flexibility at the workplace is shifting.
A third of U.S. employers mandate that employees be in an office five days a week, down 16% from a year ago. Twenty-five percent of U.S. companies offer fully flexible arrangements, down from 33% a year ago. Hybrid arrangements, when companies require a certain number of days in the office but leave at least one for remote work, are growing in popularity. Some executives are still working out the best policy for their companies, such as Deckers Outdoor, DirecTV, and Yelp. Some companies are sticking with the call made in 2021 to be a remote-first workplace, while others are looking for a remote alternative.
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In 2024, the office market experienced a significant increase in sales volume, with office sales volume jumping 17% from the same period a year earlier. The top deals of the year, such as a stake sale in 1 Vanderbilt and a distressed offloading of Pacific Corporate Towers in California, show how landlords and lenders are grappling with the market's changes. Some of the biggest U.S. single-asset office sales this year through November include 980 Madison Ave., which was sold for $560 million by Bloomberg Philanthropies, and 1 Vanderbilt, which was sold to Mori Building Co. for $4.7 billion.
Leasing rose 11.5% in the third quarter from a year earlier, and the amount of available office space to rent in the U.S. declined for the first time in more than five years. However, vacancies remain high at 19%, particularly in certain cities like San Francisco and Washington. Pacific Corporate Towers in California was converted debt to equity by Beacon Capital Partners and 3Edgewood at a greater than 60% discount. The steep decline in office valuations is put in stark relief when compared with properties' debt. In 2024, the value of 33 troubled commercial mortgage-backed securities tied to offices was cut by more than 51%, with bonds backing premium properties being hit.
701 Brickell in Miami was bought for $443 million by Elliott Investment Management and its partner, with the Brickell area being a hotspot for finance and tech firms seeking to grow their presence since the pandemic. Apollo Global Management converted mezzanine debt into an equity stake in 5 Times Square, a revamped office building offering amenities including two golf simulators. With distress mounting, alternative lenders and investors readied new capital, with Madison Realty Capital closing a debt fund at $2.04 billion inequity commitments and SL Green raising $250 million from Canadian pension Caissede Dépôt et Placement du Québec for a fund that will focus on distressed credit opportunities in New York's office and retail sectors.
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CMBS bondholders at 285 Madison waited just 6 weeks following default
Aby Rosen's lenders have filed for a $219 million CMBS loan tied to his Grand Central office tower 285 Madison Avenue, less than six weeks after the default of Rosen and Michael Fuchs' RFR Holding. The loan had landed in special servicing, a type of limbo where negotiations can buy borrowers months of time. A pre-foreclosure filed so soon after a default can signal a lender's loss of patience with a borrower or low confidence that a workout can be reached. RFR Holding declined to comment, but last month, the firm had said it was committed to the tower and looks forward to working with the special servicer. At 285 Madison, the special servicer gave Rosen second and third chances. The lender first granted an extension in November 2022 that pushed the maturity date until May 2024, then transferred the loan to special servicing after Rosen claimed he could not pay it off by the due date. In October, a New York judge ordered RFR to fork over $18 million to the mezzanine lender on that loan. Late last month, Rosen asked for one more extension on the senior CMBS debt, and weeks later, the foreclosure filing landed.
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Korean owner, seeking high-paying office tenants, applies for M-CORE
The Korea International Trade Association's Hahn Kook Center, located on Billionaires' Row, is set to be redeveloped for $200 million, possibly with city assistance. The 283,000 square-foot building, which also has 30,000 square feet of underground space, is seeking financial assistance as part of the city's new M-CORE program to renovate, expand, furnish, and equip the property. The owner, a subsidiary of the trade association, has been quietly letting leases run out and not adding to the tenant mix. In September, city records showed the owner paid one tenant $1.7 million to vacate. Hahn Kook has applied to the city's Industrial Development Agency for breaks on city and state mortgage recording taxes, sales, and use taxes, as well as requesting payments in lieu of property taxes (PILOTs).
A hearing on the project is scheduled for January 23. Two projects, at 850 Third Avenue and 175 Water Street, were previously approved for M-CORE, which incentivizes office owners to transform their properties into Class A buildings. The 292-foot-tall building sits on 13,557 square feet of land with no height limit. If the structure were set back and restacked, smaller tower floors could end up with Central Park views. The building has a colorful backstory, with its developer being the Davies Company, backed by Marion Cecilia Douras. The unbuilt office building was entirely ground leased in April 1953 by Davies to Melvin Katz’s 460 Park Corporation with a first expiration in 2005.
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Meatpacking office fetches barely half of 2018 price in all-cash deal
Invesco Real Estate Fund has purchased a 100,000-square-foot office building in Manhattan for $85 million, a significant discount from its 2018 leasehold price. The deal, brokered by Eastdil Secured, is priced at $912 per square foot. The deal follows Invesco's previous marketing efforts, which saw offers below the $150 million it paid to the Teachers Insurance and Annuity Association for the property two years before the pandemic. Live Nation is the tenant of the Class A office building, which moved in on a sublease obtained from Palantir Technologies in 2017. Savanna recently acquired 799 Broadway in Greenwich Village for $255 million, or $1,433 per square foot, from Columbia Property Trust. This is the second time Invesco has swallowed a loss on a property transaction, following the purchase of a retail condo at 512 Broadway in October for $26.9 million. The deal follows Invesco's recent office buying binge, which saw the company pay a significant discount on the property.
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Fortinet acquiring 548 West 22nd Street from Atlas Capital Group
Fortinet, a cybersecurity firm worth $70 billion, is in contract to buy a 45,000 square-foot building in West Chelsea for around $50 million. The 45,000 square-foot building, once the home of the DIA Art Foundation, will be used by Fortinet as its offices. The contract price is more than $1,100 per square foot, representing the high prices deep-pocketed users will pay to acquire their own real estate. Fortinet has a market cap of about $73 billion. Atlas Capital, founded in 2006 by former UBS bankers Jeffrey Goldberger and Andrew Cohen, declined to comment. The property was listed with an asking price of $68 million in January. It is unclear exactly when Atlas acquired the building.
Property records show Kevin Maloney’s Property Markets Group bought it in 2014 for about $40 million. The seller, Kilian LLC, had purchased it from DIA for about $1 million less in 2007. Atlas began signing mortgage documents for the property in 2018, indicating it may have been a partner with PMG. In West Chelsea, self-storage investor Robert Moser’s Prime Group Holdings and Empire Capital went into contract to buy the Ironworks buildings at 511-541 West 25th Street for $50 million.
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Team recapped $1.3B in debt on the deal in October
Apollo Global Management, in partnership with RXR and SL Green, has filed plans to convert the 39-story office building at 5 Times Square into a mixed-use building with 942 units. The project is among the largest in New York City, topped by Metro Loft projects and a tax break passed by Albany this year. The 1.1 million square foot 5 Times Square is billed as a triptych — part resi, part retail, and a part that will remain office space. The plans show no updated use for floors 30-39. Other developers have pursued mixed-use in hopes of selling tenants on living near their offices. RXR and former owner David Werner recently injected $200 million into renovating 5 Times Square to include a restaurant, spa, and golf simulator. The conversion will add coworking space, residential amenity space, and a party room. The split use also makes sense for buildings that have retained major tenants with long-term leases. In preparation for the project, the Apollo team recapitalized the building's $1.3 billion debt in late October, with Morgan Stanley, AIG, and Apollo doing the financing in 2022.
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Atlanta-based flooring chain took 129k sf in Sunset Park
In 2024, Atlanta-based flooring company Floor & Decor secured the city's largest retail lease in Brooklyn, taking 129,000 square feet in Sunset Park. Chain stores also secured many of the largest leases in the outer boroughs, with Floor & Decor signing a 129,000-square-foot lease at 850 Third Avenue. The supply of larger spaces in Brooklyn is tightening, and average asking rents are up from a year ago but remain 15 to 30 below per-pandemic levels in most neighborhoods. Chain stores inked four of the year's five largest leases in the outer boroughs. The top five outer borough retail leases through November 2024 are:1. Floor & Decor | Sunset Park | 129,000 square feet2.
Vibe Fitness | Long Island City | 55,000 square feet3. Bedford Stuyvesant New Beginnings Charter School | Williamsburg | 51,000 square feet4. 99 Ranch Market | Flushing | 44,000 square feet5. Guitar Center | Downtown Brooklyn | 19,000 square feetThese deals demonstrate the increasing demand for retail space in the outer boroughs, as rents continue to rise. The supply of larger spaces is tightening in Brooklyn, and average asking rents remain 15 to 30 below per-pandemic levels in most neighborhoods.
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These were the borough’s largest retail leases of 2024
In 2024, international retailers Primark and Hobby Lobby entered the Manhattan market for the first time, signing the borough's two largest leases. Primark's 79,000 square-foot store in Herald Square was the largest new lease, while Hobby Lobby's 71,000-square-foot lease in Tribeca was the second largest. Prices have leveled off after a spike before Covid, and more large spaces have also come on the market in recent years, opening the door for chain stores to grab them at a good price. Landlords are holding their ground on lease terms, but rents remain 20 to 30 percent below pre-pandemic levels. Demand is strong for small and mid-sized storefronts, and larger ones are taking longer to lease. A mix of local and new-to-the-market retailers are driving demand, and there is a great opportunity for companies to get in.
Manhattan's top 10 retail leases of 2024, ranked by square footage, include Primark in Herald Square, Hobby Lobby in Tribeca, Classic Car Club in Hell's Kitchen, Whole Foods in Columbia Circle, Wegmans in Upper West Side, Arte Museum in Chelsea Piers, PATH Entertainment Group in Times Square, Best Buy in Upper East Side, Bonhams in Billionaires' Row, and Uniqlo in the Penn District. Primark secured the largest new lease at Vornado Realty Trust's 150 West 34th Street in Herald Square, with an asking rent of $10 million. Hobby Lobby signed a new lease at 270 Greenwich Street for its first space in Manhattan, taking 70,700 square feet on the second floor of the Edward J. Minskoff Equities building.
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“Million Dollar Listing” star sets new high-end strategy for fashion clan
Josh Flagg, a Los Angeles-based agent, has recently secured a deal in New York's SoHo, buying 170 Mercer Street. The deal, which includes 5,500 square feet of retail space, was closed on Christmas Eve by the privately held Flagg Family Capital in a joint venture with developers Andrew Aryeh and David Elbaz. The property is located next to Dries van Noten fashion shop and is undergoing renovations estimated to be completed by the third quarter. The family has tapped Isaacs and Company's Jeremy Aidan to handle leasing for the property. The acquisition brings the Flagg family back to its fashion roots, starting with the apparel brand Edith Flagg, named after Josh's grandmother.
The family's new strategy for the family business, which began last year when his father turned 80, is focusing on prime locations like Palm Beach, Miami, and downtown New York. Flagg's son, with a penchant for the upscale, is now focusing on bringing the family's real estate footprint into luxury markets. Flagg and business partners Adam Rubin and Andrew Shanfeld of Carolwood LP paid $4.3 million for 4727 North Bay Road in Miami and is now renovating the property to list on the market in April. In Los Angeles, Flagg is also adding his touch to the recently purchased Trousdale Estates home he bought from Charlie Puth for $9 million.
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