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The pandemic has caused a shift in the office environment, with many people returning to their offices. However, Manhattan's office vacancy rate has risen to 23.3% at the end of 2024, compared to 22.8% in 2023. This is half the rate in Roth's buildings, including Bloomberg LP's headquarters and the newly redeveloped Penn 1. The vacancy rate fell by nearly a full percentage point in the fourth quarter to 12%, and rents for new leases were 6% higher than expiring ones. Roth predicts that demand for prime Manhattan office space will only grow, with rents expected to rise significantly next year. Investors have bid up Vornado's shares by 2% to $43 a share, and Roth is one of the few developers likely to build a new tower in the city. He predicts that high construction costs and elevated interest rates will prevent rivals from building new office towers. If Roth is correct, it would be bad news for rivals like BXP and RXR Realty.
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Vornado’s Steve Roth talks office demand, Hotel Penn
During the fourth quarter earnings call of Vornado Realty Trust, CEO Michael Roth emphasized that remote work is not the future and that most people are returning to the office. He emphasized the "better space market" of high-end office space in Manhattan, which has seen a recovery in the city's office market. The office availability rate in Manhattan reached 17.9% in Q4 2024, the lowest level since 2020. However, developers are not clamoring to build more of this space due to high interest rates, lack of available capital, and unknown construction costs from steel tariffs. The future of the Hotel Penn site was discussed, with Roth predicting that the next site to be developed in the Penn District will be the next site to be developed.
The Justice Department has directed prosecutors in Manhattan to drop criminal charges against Mayor Eric Adams, who remained defiant in a live-streamed speech. Billionaire John Catsimatidis was reported to have broken the news to the mayor that the DOJ had ordered prosecutors to drop the criminal case against him. In other news, the Federal Emergency Management Agency fired four employees for "circumventing leadership" to reimburse NYC for "luxury hotels" for migrants. Governor Kathy Hochul will head to Washington next week to make her case that congestion pricing should be kept in place.
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District is now North America’s priciest, beating San Francisco and L.A.’s Century City
Office tenants in Midtown Manhattan are advised to stay away from the area for the foreseeable future, as it is the most expensive in both the US and the continent. The Commercial Observer reported that Midtown Manhattan is the third-most expensive in the world, trailing only London's West End and Hong Kong. Savills' report showed that Midtown Manhattan ranked third with an average net effective cost to tenants of $206.67 per square foot, a 9% increase from the previous quarter. The report was unclear on how Savills defines the district. Midtown Manhattan still has a long way to go before it approaches London's West End, which recorded an average occupier cost of $277.55 per square foot. Hong Kong's average occupier cost of $230.39 was a significant drop from the previous quarter. Savills reported that nearly half of the 35 markets tracked saw net effective costs rise for occupiers due to gross rental growth and rising costs associated with fit-outs.
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The iconic 1211 Sixth Ave. tower, home to Rupert Murdoch's media empire, faces significant challenges, including a $1 billion mortgage due in August and mounting concerns about its refinanceability. Despite cash flowing into offices again, many buildings remain closed, with only one-third of office mortgages being refinanced. The remainder are being managed, with extensions, special servicing, or foreclosures. 1211 Sixth is positioned to avoid worst-case scenarios, with owner Caisse de dépôt et placement du Québec agreeing to sell a 49% stake to RXR, which plans to spend $300 million upgrading it. Banks, insurers, and private equity firms hold $3 trillion worth of commercial real estate loans, with about $1.5 trillion due in the next three years. The Trump administration is urging banks to make risky office loans easier to pass by making stress tests easier to pass. However, outflows from pension plans and non-traded REITs remain a fact, with investors withdrawing nearly $2 billion at the end of last year and as high as $10 billion at the beginning of 2022.
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Ground-up development still doesn’t pencil out, REIT says
Vornado Realty Trust CEO Steve Roth has dismissed the threat of remote work as a "scare" and announced that the Hotel Penn site, also known as Penn 15, is ready to go. However, Roth noted that interest rates remain high, aggressive capital is in short supply, and the price of steel could complicate ground-up development. The company is moving forward with plans for the 1.8 million-square-foot office tower at 350 Park Avenue, which is expected to enter public review next month. The tower is different from the Hotel Penn site, as it already has an anchor tenant, Ken Griffin's Citadel, which is also a 60% partner in the project. If the company views the land at Penn 15 as a sunk cost and rents rise to the high $100s or above $200 a foot, the tower could get off the ground. The company is considering all options, including apartments as part of the project. Roth emphasized that demand for high-end office space was on the rise, as only a handful of major new office projects have broken ground in the past five years. The office availability rate in Manhattan hit 17.9% in the fourth quarter of 2024, the lowest level seen since 2020.
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Manhattan's sublease market is experiencing a decline, with just under 19 million square feet of space available, accounting for 22% of total available office space. However, many leases are expiring without finding new occupants, with less than half of sublets finding replacements. Large occupiers like Google, NYU, and McGraw-Hill Education are also rearrangering their real estate portfolios, increasing availability. Sublease transactions have declined by 46% in Q4, while direct leasing volume reached almost 11 million square feet. Despite sublets being cheaper than direct leases, average rents are nearly 40% less than direct leases. However, signs of brighter days ahead include seven of the top 10 biggest sublease transactions of the past two years occurring in 2024. The sublease market took 19 and 27 quarters to recover after the Dot-Com and Global Financial Crisis, but is now experiencing a sustained reduction in sublease availability.
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New York City is seeking a new future for the Queens site that was once slated to become a corporate headquarters for Amazon. The NYC Economic Development Corp. plans to release a request for expressions of interest for 44-36 Vernon Blvd., a six-story, 672K SF Long Island City property used by the Department of Education as a hub for citywide public school operations. The city is also examining two adjacent parking lots controlled by the city's Departments of Transportation and Small Business Services. The redevelopment of the 44-36 Vernon Boulevard building has the potential to provide Long Island City with additional waterfront access and amenities. The NYC EDC expects to release the RFEI this spring with a deadline of this summer, and it is expecting to receive proposals for commercial, light industrial, and community-serving uses.
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Nonprofit tenants in New York City are facing a shift in the office sector, with the highest-quality buildings filling up and the cheapest being converted to housing or other uses. This has led some tenants to move to Third Avenue, which has fewer transit options and has been among Manhattan's worst-performing office submarkets. Nonprofits need to find office space close to transit, as remote work is often offered as a perk, counteracting lower pay. A supply squeeze is happening as demand spreads down from the office market's best offerings, creating demand for Class-A, A-minus, and B-plus buildings. The shift towards lower-quality space has already started for nonprofits, with 51% of nonprofit leases in 2023 being for Class-A space and around two-thirds of deals signed by nonprofits being for Class-B space.
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Elon Musk's associates at the Department of Government Efficiency are planning to sell at least 500 federally owned buildings as part of a plan to cut government spending. If Musk succeeds in this plan, four buildings in New York may be affected. Of the 10 federally owned buildings in the city listed as "significant" on the General Services Administration's website, six are courthouses, which are considered "core" and won't be sold. The list of buildings targeted by Musk has not been made public.
The GSA is reviewing all options to optimize its footprint and building utilization, working with tenant agencies to assess their space needs and fully optimize the federal footprint. The four federally owned buildings in New York that don't fall within the "core" category are the Jacob K. Javits Federal Building, Ted Weiss Federal Building, 201 Varick St, and Ronald H. Brown U.S. Mission to the United Nations. The GSA sales may affect the city less than other locations because many federal agencies rent their space in Manhattan, such as the Drug Enforcement Administration and the U.S. Postal Service.
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RFR is nearing the refinancing of the Seagram Building, a 25 million square-foot property in Manhattan. The $1.2 billion loan, with a four-year term and an anticipated interest rate of 6.25%, is being finalized by lenders. The Seagram Building, the first tower built with floor-to-ceiling windows, is 96% leased and is part of RFR's 25 million square-foot portfolio. The refi comes after a long period of difficulty for RFR, including being evicted from the Chrysler Building after defaulting on $21 million in rent. The new Seagram mortgage replaces $1.15 billion in maturing debt that was initially due in 2023 but was extended twice. RFR is not taking any cash out of the property as part of the refinancing, and an appraisal by Newmark valued the property at
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Investor snaps up 300 East 42nd Street office for less than half its 2019 price
David Werner, a Manhattan real estate investor, has recently bought a 235,000-square-foot office building at 300 East 42nd Street for $52 million, less than half the $122.5 million the previous owners had paid for the 18-story building in 2019. The building has several long-term leases that may make it difficult to convert to residential. Werner could wait out the leases and decide to convert the building later on or use 300 East 42nd Street as a destination to relocate tenants from other buildings he's converting. The seller is Fortress Investment Group, which took the keys to the building back from Somerset Partners and Meadow Partners in 2023. Werner has been buying up discounted properties, including the Durst Organization's 340,000-square-foot office building at 675 Third Avenue for over $100 million. He was Manhattan's most active buyer in 2014, inking mega deals like the purchase of 5 Times Square for roughly $1.5 billion and the Socony Mobil Building for roughly $900 million.
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Israeli billionaire buys BGO’s 101 Greenwich Street for potential conversion
Israeli billionaire Idan Ofer is making a second acquisition in New York City, with Quantum Pacific agreeing to pay over $100 million for 101 Greenwich Street in the Financial District. BentallGreenOak is selling the 26-story office building, which is also being sold by BentallGreenOak. Quantum Pacific is also exploring partnering with Nathan Berman's Metro Loft Management to convert at least part of the property into residences. The building was acquired in 2016 by Cove Property Group and Multi-Employer Property Trust for $225 million and renovated at a $70 million cost.
Tenants at the 400,000-square-foot building include Independence Point Advisors, Moment Technology, and Pro Shop Holdings. Ofer is already familiar with office-to-residential conversions, having partnered with Berman on an $88 million purchase of 767 Third Avenue in November. Berman is one of the kings of conversions across Manhattan, working on projects such as the redevelopment of the former Pfizer headquarters. Ofer is the brother of Eyal Ofer, whose Global Holdings is well known in New York real estate.
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Citi Group, JPMorgan providing debt for office tower
Fisher Brothers in Midtown has secured $500 million to refinance a 42-story, 1.2-million-square-foot office tower at 299 Park Avenue, a property that is 95% leased. The debt was provided by Citi Group and JPMorgan, and the landlord recently spent $20 million on a capital improvement project. The well-leased property is in good occupancy, making it attractive to investors. Capital One and UBS, which make up 30% of the rentable square footage, are in place through 2031. Lease expirations are minimal for the next few years. Fisher Brothers signed over 60,000 square feet worth of leases last year, including new leases, renewals, and conversions from subtenancy to direct deals. The firm has been a beneficiary of the office market's shift towards quality, having secured two major leases at 1345 Sixth Avenue, inking Intercontinental Exchange to 143,000 square feet and law firm Paul, Weiss, Rifkind, Wharton & Garrison to a 20-year lease for 765,000 square feet.
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Liberated blamed bankruptcy on inflation, interest rates, decline in demand
Billabong, Quiksilver, Volcom, and other brands are set to close due to Liberated Brands filing for Chapter 11 bankruptcy protection. Over 100 apparel stores across Liberated's brand portfolio will close as a result of the voluntary bankruptcy petition. Authentic Brands Group, the parent company of Liberated, will transfer operations of the impacted brands to another operator. Liberated blamed various issues for its bankruptcy, including a volatile global economy, consumer spending changes, rising cost of living, inflationary pressures, interest rates, inflation, supply chain issues, and a decline in customer demand. The company may have grown too quickly at the beginning of the pandemic, as outdoor sports activities like surfing and skating surged in popularity. Liberated's bankruptcy is the third major one to hit the retail industry in the first few weeks of the new year, following Bargain Hunt and Jo-Ann Stores. Coresight Research predicts approximately 15,000 retail stores across the country are expected to close this year, with store closures totaling more than 7,300 last year.
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The loan at 3 Bryant Park was first of almost $5B coming due for investor
Ivanhoé Cambridge has secured a $1.13 billion refi for its office tower, 3 Bryant Park, with Wells Fargo, Bank of America, and Bank of Montreal providing the CMBS loan. The new financing is an encouraging sign for the Canadian investor, which has almost $5 billion worth of loans set to mature in the next year. The real estate arm of Quebec's $300 billion pension fund has invested in top-tier properties in the US over the past decade, including the Bryant Park tower in New York, which was the second most-expensive office purchase ever in the US.
Ivanhoé Cambridge also acquired 1211 Sixth Avenue for $1.8 billion and recently sold a minority stake to RXR. In 2015, it teamed up with the Blackstone Group to buy Stuyvesant Town and Peter Cooper Village for $5.3 billion. The company also bought Goldman Sachs' former headquarters at 85 Broad Street in the Financial District for $650 million in 2017. The tower's $359 million loan matures in June 2027. The company also holds a 49.9% stake in 1411 Broadway, which it acquired in 2012 for over $360 million. The $1 billion loan on 1211 Sixth Avenue building comes due in August, and the $2.7 billion Stuy Town debt matures five months later.
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Firm now suing Diana Boutross, Gus Field and Ron Lo Russo
JRT Realty is doubling down on its lawsuit against Cushman & Wakefield, accusing the firm of defamation and interfering with its business relationship with the city's Department of Citywide Administrative Services. The amended complaint filed late Wednesday added individual brokers, including Diana Boutross, and allegations that the brokerage violated its contract in its lucrative dealings with the city. The city is planning to issue a new request for proposals to hire five brokerages to work on these deals. The lawsuit was filed amid increased scrutiny around Boutross and Jesse Hamilton, who oversee the city's 22 million square feet of office leases at DCAS.
The Manhattan District Attorney's Office seized their phones in September, leading to questions about their influence over city office leases and whether they steered these deals to specific landlords. The amended complaint describes additional drama around Boutross' hiring, including alleged dismissiveness and questioning about DCAS deals. Cushman blamed the city's change in goals for hiring minority- and woman-owned businesses and a deterioration in their relationship with JRT. Cushman's spokesperson said the amended complaint "further perpetuates JRT's inaccurate claims" and that JRT was interfering with its relationship with DCAS, rather than attempting to compete fairly for the new contract.
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Municipal bonds that finance the Ghermezians' mega-mall failed to pay February interest
The municipal bonds that finance the Ghermezian family's American Dream Mall failed to pay their February interest, according to Bloomberg. The bonds, which account for $287 million of the municipal debt used to finance the Triple Five Group project, are tied to sales tax collections and are backed by New Jersey economic development grants. The trustee of the bonds, the New Jersey Economic Development Agency, is responsible for making payments to bondholders. The trustee US Bank stated that the trustee cannot provide assurances of when and in what amounts future grant revenue payments will be made. In August, bondholders received a $26 million distribution in grant revenue from the state, covering a portion of $46 million of interest that was past due. The construction of the East Rutherford mall was partially financed with $287 million worth of municipal bonds. Triple Five has been in a dispute with the town of East Rutherford, arguing that the company overpaid $183 million in taxes to the municipality. The dispute centers around the land upon which the mall sits, which has been assessed at more than $3 billion.
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