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Office leasing proptech firm VTS reported a 25.3% year-over-year growth in the fourth quarter of New York City's office demand index, surpassing the pre-pandemic benchmark. Tenant interest in New York City is stronger than anywhere else in the country, driven primarily by the tech and finance sectors. The report also showed momentum for Manhattan commercial buildings, with last year being the most active since the pandemic began, with a 22.4% increase in leases inked compared to 2023. Total leasing in the fourth quarter was 18.3% higher than the previous quarter and the strongest quarterly volume in Manhattan's office market since Q4 2019.
Demand surged in Q4, up 54.1% from Q3. Interest in office space surged in November after President Donald Trump won the election over then-Vice President Kamala Harris. Nationally, the index closed the year 16.4% higher than a year before and 39.1% higher than two years before. VTS estimates that it would take the country four more years to return to prepandemic leasing levels at the current pace of growth. San Francisco recorded positive Q4 office absorption for the first time since late 2019, driven by robust venture capital action.
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Landlords note pickup in leasing activity as more businesses require workers to return to office
Investors are returning to the US office market after five years of turmoil, buying premium-quality buildings with debt, half-empty towers, and bidding on obsolete office properties for conversion to apartments. The volume of office building sales increased to $63.6 billion in 2024, up 20% from 2023, and brokers expect sales activity to continue to accelerate in 2025. Norwegian sovereign-wealth fund Norges Bank Investment Management recently purchased a 50.1% stake in eight office properties in Boston, San Francisco, and Washington, D.C., valued at $1.9 billion.
The rising demand for remote work and increased interest rates has led to a pickup in leasing activity, with businesses requiring workers to be back in offices more. The office market still faces challenges such as high vacancy rates and loan delinquencies. However, more sellers are finally capitulating, with interest rates expected to fall further this year, boosting commercial property values. New York landlord RXR recently acquired a 49% stake in a Midtown Manhattan tower, which is losing one of its largest tenants and has $1 billion of debt due this year. RXR plans to invest more than $300 million to attract new tenants by adding a new entrance, plaza, and gym.
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Blackstone is in talks to purchase a 50-story skyscraper in Midtown, marking a return to New York office dealmaking for the world's largest real estate investor. The alternative asset manager is betting the worst is over for New York's beleaguered office market, anticipating rents will surge for top-tier space. Deliberations are ongoing and there is no certainty a deal will be concluded. Rating reports for loans secured against the property suggest its valuation has plunged, with S&P Global appraising its value at $896 million in a November 2024 report, down from $1.25 billion when the loan was issued.
New York's office availability rate reached 16.5% at the end of 2024, roughly double its level before the pandemic hit. However, that's the lowest since September 2022 thanks to leasing volumes that reached the highest in five-years during 2024. The elevated vacancy rate also masks a wide variation in the performance of New York's office market, even within small areas like Midtown's Plaza District. Traditional offices account for less than 2% of the firm's real estate holdings, which are now dominated by apartments, warehouses, and data centers. A deal would be the first notable New York office transaction by Blackstone since buying a 49% stake in 1 Manhattan West almost three years ago, valuing the building at $2.85 billion.
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IBM is expanding its office space at One Madison Ave., SL Green's upcoming tower, bringing its total footprint to 362K SF. The expansion builds on the firm's existing 270K SF in the 1.4M SF office tower. Charter Communications' Spectrum Reach is relocating its NYC offices to 56K SF at Rudin's 3 Times Square, while Gardiner & Theobald renews its 27K SF space at The Moinian Group's 535-545 Fifth Ave., S. Rothschild renews 47K SF at Shorenstein Properties' Midtown South office tower, and the Independent Budget Office seeks 19K SF at 1 Battery Park Plaza. Ariela & Associates International is moving into 27K SF at Savitt Partners' 218 W. 40th St. Sunlight Development and NuVerse secured a $99M loan to fund a residential conversion of an office building in Manhattan. The building will be converted into a 65-unit condo. Tyko Capital lent Related Cos. $100M to refinance a multifamily tower. Good Company Hospitality Group and Ben Igoe secured $28.8M refinancing for the Rockaway Hotel. Steven Tannenbaum sold a converted multifamily townhouse for $24M. Pacific Urban Investors acquired the 188-unit Williamsburg apartment building Leonard Pointe for $127.5M.
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Boston-based Boston Properties (BXP) and partner The Moinian Group are seeking funding for a planned new office skyscraper in Hudson Yards, New York. The $80M loan BXP provided to the joint venture has been in maturity default, with a $120M outstanding balance. The loan, which was originated in 2018, has a 12.5% interest rate, likely the default rate. The REIT, the largest publicly traded owner of office buildings in the country, is now seeking third-party financing to keep the project alive. BXP estimates its equity value in the project, a 25% ownership stake, at $114.2M.
The company partnered with Moinian on the planned development of a 53-story Hudson Yards office tower in 2018, replacing a land loan of the same amount from American General Life Insurance Co. Construction began in 2017, but stalled in early 2020. The developers have been marketing the project to prospective tenants but haven't struck any deals yet. BXP and Moinian are asking prospective anchor tenants to pay as much as $200 per SF in office rents, more than twice the Manhattan average. The filing was part of BXP's fourth-quarter and 2024 full-year earnings report.
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A New York state judge has granted a motion by Cooper Union, the landlord of the Chrysler Building, to evict RFR Holding, the operator of the tower, after the firm defaulted on $21 million in rent and other obligations. Cooper Union thanked the court for taking its side in a dispute that began in September when RFR filed a lawsuit to block the prestigious art and engineering school from terminating the developer's lease to operate the landmarked tower. Cooper Union's vice president for finance and administration, John Ruth, said that RFR could never overcome the basic fact that they were in arrears to the tune of $21 million and had not paid rent in months.
Ruth said Cooper Union would assume full management of the property and improve the tenant experience while maximizing the building's value. Rosen's firm acquired the right to operate the Chrysler Building for $151 million in 2019 from Cooper Union, which owns the land underneath. RFR agreed to pay $32 million a year in ground rent and planned to renovate the gem of Manhattan's skyline, developed in 1930. In September, Cooper Union announced it was terminating the lease and demanded RFR vacate the premises. RFR refused to leave and accused the school of mismanagement and driving away tenants.
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SL Green, the largest office landlord in New York, has experienced a significant drop in its stock price after a surge in 2024 due to an influx of tech tenants. The company's stock is one of the most popular names in real estate to sell short, according to a Bank of Montreal survey of institutional investors. The survey was conducted before SL Green reported that 92.5% of its 30 million square feet of commercial property is leased, partly due to IBM taking more space at 1 Madison Ave. SL Green CEO Marc Holliday said that the company's success in the AI industry may be due to their rapidly growing footprint.
However, markets are fickle, and news of a Chinese upstart developing high-performing AI using chips inferior to those produced by Nvidia and other providers caused concern. The Nasdaq Composite Index fell 3.4%, and IBM dropped 1%. SL Green shares were spared, rising by about 1% to $66 each, but heading into today they had fallen nearly 20% since mid-November. SL Green's 59% jump last year was the best of any REIT and six times higher than the return produced by the MSCI U.S. REIT Index. However, short-sellers raced to exit their wrong-way bet and buy the stock. Only 10% of SL Green shares have been sold short, but some bears continue to keep faith that the next move is down.
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Soloviev Group, a property firm, is planning a large project across the street from its office tower at 9 W. 57th St., known for its pricey rents and financial tenants like Apollo Global Management. The company, which previously owned 24 W. 57th St., has already acquired neighboring plots of land, allowing it to expand its ambitions in the area. The area south of Central Park between Fifth and Sixth avenues has become a hot environment for investment, with Soloviev CEO Michael Hershman stating that the block has become a hot environment for developers and companies.
One option for the new acquisition is to demolish the current building and create a new large tower for the company's headquarters, given the strong demand for top-tier office space in that area. Another possibility is to construct a building that includes luxury condos, a boutique hotel, and retail space. The company expects to make a decision by the fourth quarter. The new site would be located in a key corridor of Manhattan, where developers have been pursuing well-situated plots in recent years.
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Telecom giant unloaded dozens of properties to Reign Capital
AT&T has sold 74 properties to real estate development firm Reign Capital, resulting in $850 million in cash proceeds and leasing back much of the space it sold. The deal, which closed two weeks ago, took ownership of over 13 million square feet across the country. AT&T will pay rent over the leases and maintain operational control of the space it needs for access to communications infrastructure. The deal made sense for AT&T because the properties it sold were underutilized, as fiber and wireless networking have taken precedence. The deal also includes provisions for financial participation in the revenues of any redevelopment initiated by Reign, allowing the company to benefit from property value increases and have final approval on the projects to ensure its operational needs are not affected. AT&T entered the deep end with Reign after a similar deal in 2021, where the partners agreed to a similar deal involving 13 properties and over 3 million square feet, netting $300 million in upfront cash.
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Modifications broke records in 2024, Fitch projects more to come in 2025
RFR's 17 State Street office building faced foreclosure after special servicer Rialto Capital Advisors defaulted on its $180 million mortgage. However, RFR remained optimistic and secured a three-year extension on 17 State Street and five more years to pay off a loan tied to 150 East 72nd Street. This is just two examples of extensions lenders and special servicers are doing at record rates nearly three years into the commercial real estate downturn. Modifications of securitized loans hit a fresh high in 2024, topping $19 billion and the previous record of $18.3 billion set in 2020. The extend-and-pretend strategy aims for interest rates to come down and property owners can get a new mortgage. However, the industry has been holding out hope for over a year, and the outlook for rates is hazy at best and gloomy at worst. Markets are pricing in a pause for the Fed's Jan. 29 meeting that some projects will run through spring. In the short-term, many lenders are deciding kicking the can is the better move.
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Resolution comes days ahead of Senate confirmation hearing
Howard Lutnick, the CEO of Cantor Fitzgerald, has settled a lawsuit filed by shareholders of Newmark Group over a $50 million bonus awarded to him. The lawsuit was filed in Delaware court over the company's Nasdaq listing in 2017, when it was spun off from Cantor's BGC Partners. Lutnick argued his financial engineering netted the company $500 million. Shareholders allege that Lutnick didn't earn the bonus because he didn't increase Newmark's value in the Nasdaq deal. The lawsuits were designed for awarded funds to go back to the unit, not individual plaintiffs. Cantor declined to comment on the lawsuit, while Newmark did not return a request for comment from the publication. With the lawsuit behind him, Lutnick can focus on preparing for his confirmation hearing, scheduled for Wednesday. He agreed to step down from his leadership posts at Cantor and Newmark as part of the process for becoming Commerce Secretary. Lutnick is also divesting his interests in Newmark and BGC Group, though money is unlikely to be a major concern for him.
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Landlords note pickup in leasing activity as more businesses require workers to return to office
Investors are returning to the US office market after five years of turmoil, buying premium-quality buildings with debt, half-empty towers, and bidding on obsolete office properties for conversion to apartments. The volume of office building sales increased to $63.6 billion in 2024, up 20% from 2023, and brokers expect sales activity to continue to accelerate in 2025. Norwegian sovereign-wealth fund Norges Bank Investment Management recently purchased a 50.1% stake in eight office properties in Boston, San Francisco, and Washington, D.C., valued at $1.9 billion. The budding buying spree offers more encouraging news after the rise of remote work and increased interest rates greatly depressed office values.
The office market still faces challenges, including high vacancy rates and loan delinquencies. Many investors remain leery about the sector and favor other types of commercial real estate, such as multifamily buildings or warehouses. However, more sellers are finally capitulating, hoping that interest rates will fall further this year, boosting commercial property values. The Federal Reserve indicated that it would likely keep rates steady, convincing more owners to put their properties on the block. Some buyers are even ready to take a chance on buildings in prime locations near transport hubs but are struggling with debt and too much empty space. New York landlord RXR recently acquired a 49% stake in a Midtown Manhattan tower, which is losing one of its largest tenants and has $1 billion of debt coming due this year.
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Cushman & Wakefield is seeking a New York judge to dismiss allegations that it defamed a woman-owned real estate firm and sought to cut the firm out of the New York City government contracts they long held as a partnership. The motion to dismiss, filed with the New York County Supreme Court, claims that JRT Realty's suit's core claim would be laughable if the stakes were not so serious. The suit accuses Cushman & Wakefield of attempting to freeze JRT out of conversations with city officials, leasing commissions, and future deals. JRT's suit also claims that NYC's deputy commissioner for real estate services at the Department of Citywide Administrative Services, Jesse Hamilton, had threatened to take away Cushman's leasing account with the city unless it placed Diana Boutross, who had a personal relationship with Hamilton.
Cushman & Wakefield's lawyers argue that the lawsuit is meritless, frivolous, and should be dismissed. The filing also mentions a spring 2024 change to City Hall's requirements to work with minority-, woman-, or Black-owned businesses, meaning that working solely with JRT was no longer sufficient. Cushman & Wakefield's lawyers argue that the phrase "performance issues" was removed to appease JRT, which is protected under free speech laws and doesn't meet the legal standards for actual malice. The brokerage has asked the judge to dismiss the case and award it compensation for attorney fees.
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Brooklyn's Community Board 13 has voted against a rezoning proposal for Thor Equities' proposed Coney Island casino project, making the developer's path to groundbreaking more difficult. The final tally was 24 votes against the proposal versus 11 votes in favor on January 22, the Brooklyn Paper reported. This vote means the developers don't have the community's backing to rezone their lots for their $3B casino project known as The Coney. The project is expected to feature sky bridges, a 2,500-seat concert venue, a 500-room hotel, a 92K SF convention center, and more than 70K SF of retail space in addition to the gambling facility in the historic South Brooklyn neighborhood.
The developers plan to continue discussions with stakeholders but also push forward, adding that Community Board votes on whether the developers' rezoning proposals should be approved are advisory. The rezoning would mostly affect the planned sky bridges and The Coney's plans to make the surrounding streets more pedestrian-friendly and flood-resistant. The outcome may not have been surprising for Thor and its partners, Saratoga Casino Holdings and the Chickasaw Nation, following a resolution overwhelmingly passed by CB13 in April 2023 to reject plans for the casino.
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