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Firms nab $320M loan to recap, rescue 760K sf property
620 Sixth Avenue, a 760,000-square-foot building in Manhattan, has been acquired and recapitalized by Scott Rechler's RXR and Hudson Bay Capital. The deal, which was secured through a five-year, $320 million loan, was made through a group of lenders including Goldman Sachs and Blackstone. The property's existing debt, three loans totaling $421 million, was consolidated this month. The deal demonstrates that iconic buildings like 620 Avenue of the Americas can thrive in a post-pandemic world.
RXR has a long history with the building, having bought a 55% share in a 2011 deal that valued the building at $500 million. In 2019, the owners secured a $421 million financing package, including a $334 million senior loan from Goldman Sachs, a $14 million building loan, and a $73 million project loan. As occupancy dropped, tenants abandoned dated office buildings, and Rechler placed 620 Sixth into the digital category. The building features large rows of windows and 100,000-square-foot floor plans. Hudson Bay Capital CEO Sander Gerber believes high-quality assets paired with creative capital solutions can drive attractive risk-adjusted returns in real estate markets.
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Developer Gary Barnett picks up Williams Equities’ 655 Madison Avenue
Extell Development has acquired a 200,000-square-foot office property in Williams Equities, priced at nearly $160 million. The property, located between East 60th and East 61st streets, was last renovated in 2005 and charged office rents between $54 and $66 per square foot. The acquisition is being financed by Tyko Capital, backed by Elliott Investment Management. The price of the acquisition suggests that Extell plans to demolish the building and build a larger, residential building, possibly with ground-level retail. Developers typically seek a basis of $200 to $250 per square foot for conversion properties. The 24-story building, built in 1951, was last renovated in 2005 and is a block from Central Park, offering Barnett a chance to build apartments with commanding views.
The deal comes after Vanbarton Group purchased an office building from the Archdiocese of New York for over $100 million. Extell made headlines in the Midtown retail scene this summer when Swedish retail chain Ikea was announced to take space at the developer's new 570 Fifth Avenue tower. Ingka Investment will own 80,000 square feet of retail space and a one-third stake in the remainder of the building, in addition to preferred equity.
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Manhattan District Attorney Alvin Bragg is investigating possible corruption in the administration of New York City Mayor Eric Adams. The investigation involves bribery, money laundering, and other crimes committed by the administration. As part of the investigation, Bragg's office has seized electronic devices belonging to a Cushman & Wakefield broker, Diana Boutross, who represents the city in its office leases and is a longtime friend of Adams' top adviser. Boutross runs the Cushman & Wakefield account for the city agency responsible for leasing government offices to other agencies, the Department of Citywide Administrative Services.
The brokerage also represented city agencies as they signed leases for office space last year, including a 640K SF lease at 110 William St. in June. Reports of investigators seizing devices belonging to Lewis-Martin and Hamilton first surfaced last week. The U.S. attorney's office served Lewis-Martin with a grand jury subpoena for documents related to last month's indictment of Adams at the same time. Adams' deputy mayor of communications, Fabien Levy, said that the searches and any negative connotations associated with them or this preplanned vacation are baseless.
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Bloomberg has secured a 925K SF lease at 919 Third Ave., bringing its total long-term office commitment to nearly 2M SF this year. The financial information and media company, owned by former Mayor Michael Bloomberg, signed an 11-year extension for the 749K SF it already occupies at the Midtown East building and a 176K SF expansion for 15 years. The deal keeps Bloomberg on the second through 18th and 28th through 33rd floors, and the new lease covers part of the 34th floor as well as the entirety of the 35th, 41st, and 42nd floors. SL Green is proud to continue its long-standing relationship with Bloomberg and excited to assist with their ongoing New York City expansion.
The renewal and expansion deal was announced at the same time as the REIT reported its third-quarter financial results. The 925K SF deal exceeds the total leases SL Green signed in Q3, which came to 764K SF. SL Green's 28M SF Manhattan office portfolio was 90.1% occupied at the end of September, but it projects that figure to exceed 92% by the end of the year. The deal at 919 Third Ave. is Bloomberg's second gigantic lease this year, following its May lease extension at 731 Lexington Ave., where it is keeping its 947K SF headquarters.
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Billionaire property scion Charles Cohen is facing cash flow issues at his Manhattan office building, 3 Park Ave., which is tied to a $182M mortgage. A piece of the CMBS loan was transferred to special servicing last month for imminent default due to cash flow issues. The loan covers 640K SF of office space on floors 14 through 41 and 26K SF of retail space in the 41-story tower. Cohen was the non-recourse carveout guarantor for the loan, but an attorney for Cohen denied that he personally guaranteed the loan and said it is completely non-recourse. The Murray Hill property has been bleeding tenants in recent years, with net cash flow being $5.8M at the end of 2023, far below the $16.1M projected in underwriting. Cohen Bros. Realty has poured extra cash into renovations, including the removal of the scaffolding bridge and completing lobby upgrades.
Cohen was current on the loan through September but was late on the October payment, though an attorney for Cohen said that the loan is current. Cohen Bros. Realty had its ground lease at the 41-story office tower terminated, and the collateral as it relates to the ground lease is now worth nothing. Cohen defaulted on the $534M loan package this spring, resulting in Fortress Investment Group pursuing a Uniform Commercial Code foreclosure to seize a nationwide portfolio tied to the debt.
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The owners of a 1.8 million square foot Midtown Manhattan office tower, Worldwide Plaza, are in talks with their lender after falling behind on payments for nearly $1 billion in CMBS debt. SL Green and RXR Realty, sponsors of a $940 million package of CMBS loans, are working with the special servicer to try to modify and extend the debt, which matures in November 2027. The building's operating shortfall in September occurred following the move-out of Cravath, Swaine & Moore, which had a lease for 30% of the tower's office space that expired at the end of August.
The cash flow had been declining due to increased expenses, but Cravath's exit from Worldwide Plaza set off a cash trap that has accrued $22.4 million of tenant improvement reserves. The landlords recently signed M. Shanken Communications to a 38K SF renewal, indicative of Worldwide Plaza's "blue-chip tenant roster." The building is 50.1% owned by New York REIT Liquidating LLC, which was established in 2018 to wind down New York REIT. The building's value dropped to $175M, less than a third of the $605M Blackstone paid to acquire it in 2014, by the time the loan was placed in special servicing. The transaction led to the first loss on a AAA-rated CMBS bond since 2008, triggering alarm that investors who put money into highly rated office debt instruments could face losses.
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Silverstein Properties has been a successful developer in the redevelopment of the World Trade Center site, transforming the desolate location into a campus of skyscrapers. However, the final office tower, 2 World Trade Center, has yet to begin construction after multiple false starts. The project has been a challenge due to the current state of the city's office market, lack of subsidies for construction, and the massive size of the project. The company has invested about $10 billion in the World Trade Center complex so far, with the latest version of 2 World Trade Center estimated at $4 billion.
Credit card giant American Express is in talks to be the anchor of The New York Times, but the rumors are still speculation. Amex is already based in Lower Manhattan and is considering relocating its headquarters. The company's history of anchor hunts, including Citigroup's rejection of Citigroup in 2013 and 21st Century Fox and News Corp's near miss with the new tower, has been a contentious one. The company has not made any decisions yet.
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Empire State Realty Trust has disclosed a "material weakness" in its accounting due to ineffective controls around its computer systems. The owner of the Empire State Building does not expect to revise reported earnings or cash flows due to the problem, according to an amended annual report filed on October 8. Shareholders appear unfazed and have bid up Empire State Realty's stock by 5%, to $11.40 a share, in the past week.
The issues behind the weakness were initially missed by the landlord's accounting firm, Ernst & Young, according to Douglas Carmichael, an accounting professor at Baruch College's Zicklin School of Business. It wasn't until an audit-review team at the Big 4 firm assessed the problem that the problem at Empire State Realty was accurately assessed. The company is expected to report third-quarter results next Tuesday. The observatory atop its landmarked tower is valued at more than $20,000 per square foot by BMO Capital Markets, making it the most valuable real estate in the city.
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Global alternative asset manager Blue Owl Capital is expanding its office space at the iconic Seagram Building in Manhattan, expanding its lease to 238,673 square feet. The firm will occupy the second through sixth floors and the 16th through 19th stories at the Midtown tower. Blue Owl, with over $192 billion in assets under management, signed its first lease at the Seagram Building with landlord RFR in 2022. The firm's space includes two private, 5,000-square-foot outdoor terraces.
The Seagram Building, an iconic New York City building with world-class amenities and a top-notch management team, has been positively received by the team and enhanced the collaborative culture. Manhattan's office market has struggled with high vacancies since the pandemic, but well-located buildings with updated amenities have attracted many tenants looking to attract and retain employees. RFR has invested $25 million in the Seagram Playground, a 34,000-square-foot complex completed in 2022, which is seen as an architectural masterpiece.
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Moises Cosío Espinosa, a Mexican art collector, may have to sell 500 Fifth Ave., a 59-story tower designed by Shreve Lamb & Harmon, which was acquired for $132 million in 2010. The tower, which is owned by Cosío, is currently unleased and has a $200 million mortgage due in December. If Cosío cannot secure a new loan, 500 Fifth could be in default and institutional investors could seize the property. The property's value has fallen in half since 2014 to about $300 million, and Cosío extracted about $75 million in cash from the property when Credit Suisse refinanced its mortgage 10 years ago. The building's value has fallen in half since 2014 to about $300 million.
Cosío bought 500 Fifth Ave. in 1996 from General Electric and a group of Japanese investors who had taken over the property in the bankruptcy of New York investor Joseph Neumann. He invested around $20 million in improvements after acquiring the building, but inspectors from KBRA were not impressed and interiors "vary in quality from average to good." Cosío has produced films, built a pro basketball team in Mexico City, and invested in a Mexican ride-hailing app.
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The vacancy rate in New York's industrial real estate market increased to 5.1% in Q3 2024, the first time since 2020 that it surpassed 5%. However, leasing and the average asking rent in boroughs outside Manhattan remained strong, with firms leasing 2.2 million square feet of space for the first three quarters of the year and asking rent rising to $28.79 per square foot. This is up 18.7% year over year and almost higher than the amount of industrial space leased in all of 2023.
The outer boroughs have 1.9 million square feet of industrial space under construction, with 792,000 square feet hitting the market so far this year. Major industrial leases during Q3 included Otto Environmental Service, FW Webb, and Wholesale Electric Caribe. JLL's industrial report for Q3 also noted that firms leased about 690,000 square feet, with a jump in leases larger than 50,000 square feet. However, supply constraints remain a problem, with only five new construction projects outside of Staten Island expected to be completed by the end of 2026. Tenants have more negotiating power in the short term due to the increased supply level in the market.
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Investment giant’s net income jumps as it reaps rewards on data centers
Blackstone, the world's largest commercial property owner, has invested $22 billion in real estate this year, nearly twice its previous investment. The company's net income reached $780.8 million, or $1.02 a share, up from $552 million in the previous year. This led to a 6% increase in Blackstone's stock to $170.28. The firm's real estate segment's inflows fell to $5.8 billion from $9.1 billion in the previous year, but it deployed nearly $1 billion more capital into real estate in the third quarter, totaling $3.6 billion.
Blackstone believes that the Federal Reserve's decision to lower interest rates will drive more real estate deals. The firm has also made a lucrative bet on logistics and data centers, driven by developments in AI and the need for computing power. Blackstone recently acquired AirTrunk, the largest data center operator in the Asia-Pacific region, in a $24 billion deal. The firm is also considering opportunities to buy higher quality office buildings and investments in logistics and rental apartments.
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Mystery tenant takes 43K sf at 660 12th Avenue, redeveloped by TF Cornerstone
Luxury spa Bay Ridge Auto Group has signed a 23-year lease for a 43,000-square-foot space in Hell's Kitchen, New York. The spa will occupy two floors and a wraparound terrace below the Glasshouses event space and Hell's Kitchen Pickleball Club. The property is also home to Bay Ridge Auto's two-story Lexus and Toyota showroom. The asking rent is $75 per square foot. The building is now 95 percent occupied. In 2013, Bay Ridge Auto bought a commercial condo and leftover air rights for $16.6 million from Tom and Fred Elghanayan's TF Cornerstone. The property was redeveloped in 2019 and occupies most of the block between 11th and 12th avenues. The buildout for the spa could take about a year.
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Drugstore giant reported $14B in operating losses, 105% increase
Walgreens has announced plans to close 1,200 stores in its third-quarter earnings, following announcing in June that it would close an unspecified number of stores. Around 500 of the closures are expected to occur in the current fiscal year, which runs until September 2025. The company will prioritize owned properties with "poor-performing stores" or expiring leases. The chain has over 8,000 stores in the US, but only about 6,000 are profitable. Operating losses so far this year were $14 billion, up about 105% from last year. The company cited inflation, slowed spending, and lower prescription reimbursement as the reasons for its losses. Walgreens is among drugstore giants grappling with the future of their retail footprint, with CVS nearing the end of its three-year plan to close almost 1,000 stores. Rite Aid, which had over 2,000 stores before its bankruptcy filing last year, has since shaved off hundreds.
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Developer to pay $100M for Catholic HQ to continue development tear
Vanbarton Group is set to purchase an office building in Manhattan for around $100 million from the Archdiocese of New York. The 20-story property is located at 1011 First Avenue in the Sutton Place neighborhood. The Archdiocese announced it would leave its headquarters in Sutton Place and lease 142,000 square feet from the Feil Organization. Vanbarton Group has also recently agreed to purchase 77 Water Street in the Financial District for $95 million. The deal is expected to close by the end of the year. The firm plans to convert the 26-story property into up to 600 rental units. Last year, the firm launched sales at Pearl House, a 588-unit conversion with amenities like a bowling alley and a hyperbaric oxygen therapy chamber. In 2017, the firm converted 180 Water Street into a 570-unit building and debuted the 300-unit Hollingsworth in Midtown.
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Bank of America led financing on 13 properties owned by Prime US
Singapore-based Prime US REIT has secured $550 million refinancing for its 13-property office portfolio in the United States, valued at $1.3 billion. The portfolio spans 4.2 million square feet and covers a dozen states. The deal is split between a $400 million term loan and a $150 million revolving credit facility. Portfolio asset manager KBS assisted in securing the debt. Bank of America provided the financing.
The portfolio is approximately 84 percent leased, excluding a mid-renovation property in Maryland. In the first half of the year, there were 269,000 square feet of leases executed across the portfolio, more than doubling deal volume over the same period in 2023. The REIT recently sold the One Town Center office building in Boca Raton, Florida, for $82 million, representing a 17.6 percent discount from its purchase price three years earlier. REITs are on the rise, raising $12.5 billion of corporate debt and $4.1 billion of common and preferred equity in the second quarter.
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