Manhattan Office Q4 2015

Transcription

Manhattan Office Market
4TH Q U A R T E R 2 0 1 5 R E P O R T
A NEWS RECAP AND MARKET SNAPSHOT
Pictured: 17-19 Union Square West
Looking Ahead
NYC Economic Development Corp. Initiatives to Focus on Job Growth
A proposal detailing several initiatives focused on job growth across several industry sectors was recently unveiled by the New York City
Economic Development Corp. The recent proposal reportedly included the:
•
Creation of a 55,000-square-foot advanced manufacturing hub in Sunset Park, Brooklyn. The city has committed $10 million in public
and private funds for the proposed shared workspace and equipment for the companies’ use. The existing industrial building is currently
home to thousands of workers, and it is hoped that a new facility will attract a wider diversity of firms from within the “maker culture”1;
•
Reopening of a 72-acre maritime industrial facility called the South Brooklyn Marine Terminal by the end of 2016. The site offers the
potential to connect cargo ships to rail transit that will open the door for additional shipping options for manufacturers;
•
Development of a trio of biotech centers that includes:
•
–
A further expansion of the east side Alexandria Center for Life Science at 450 East 29th Street.
–
Renovations to increase research capacity of the city’s public-health laboratory at 455 First Avenue.
–
Provide financing assistance to the New York Stem Cell Foundation for their new 40,600-square-foot headquarters in Midtown at
619 West 54th Street. The non-profit applied for $12 million in tax-exempt revenue bonds through Build NYC, along with exemption
from city and state mortgage recording taxes. The estimated $19.23 million project will reportedly bring 62-jobs to the building, and
an additional 18.5 jobs in the next 3-years; and
Redevelopment of 114-124 East 14th Street, currently home to a P.C. Richards & Sons Store. A request for proposal (RFP) was recently
released by the EDC, hoping to attract a developer that will redevelop the property for office use intended to attract technology and
creative tenants that are either startups or at the stage of graduating from incubator and co-working spaces.
Statistics compiled by a reported study commissioned by the EDC projected that the city will need 60 million square feet of additional
commercial space in the next 10-years. About 3 million square feet of that space will be needed for the life-sciences and biotech industries
that have a growing demand for lab space. It is anticipated that outer-borough markets such as Jamaica, Queens, Downtown Brooklyn,
the Lower Concourse in the Bronx, and on the north shore of Staten Island will offer opportunities to develop a significant portion of future
commercial space needs for the city.
1
Maker culture: is a contemporary culture or subculture representing a technology-based extension of DIY culture. Typical interests enjoyed by the maker culture
include engineering-oriented pursuits such as electronics, robotics, 3-D printing, and the use of Computerized numerical control (CNC) tools, as well as more traditional
activities such as metalworking, woodworking, and, mainly, its predecessor, the traditional arts and crafts.
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Looking Ahead (cont’d)
NYS Comptroller’s Office: Review of the Financial Plan of the City of New York
The report released in August noted that while the city’s economy continues to remain strong, having experienced 5-years of job growth,
external events such as the economic developments in Greece and China; and changes in federal monetary policy could impact the
city’s future growth. As a safeguard, the city has increased reserves to hedge against an economic setback during the 4-year financial
plan period submitted in June for fiscal years 2016 through 2019. Other risks to the city’s upward economic recovery include the rise in
interest rates by the Federal Reserve; as well as the U.S.’ strengthening dollar, which could dampen the high volume of tourism that has
significantly helped the city weather the economic downturn.
Budget Gaps projected in the June financial plan are lower than year-over-year projections according to the state report, ranging from
2.5% to 4.5% of city fund revenue which is relatively small, with an annual general reserve of $1 billion set aside if needed that will
otherwise go towards closing projected budget gaps.
Capital Strategy which totals $83.8 billion in the 10-year biennial strategy through 2025 released in May is 56% higher than the $30 billion
designated a year ago. Over 50% of the increase is devoted to housing, transportation and education; and will be financed exclusively through
debt. The magnitude of the capital strategy plan is the largest since FY 2008, which was ultimately sharply curtailed in response to the onset
of the recession. Keeping risk in mind, the city has set aside operation resources to fund a $500 million Capital Stabilization Reserve.
Tax Revenue is projected to decline by 1.8% in 2016 as the city takes a conservative approach for projections, despite expectations of
a strong 7% increase for FY 2015. The city’s conservative projections have proven to be a benefit in recent years, resulting in actual tax
revenue collections surpassing projections and creating surplus funds that have helped balance the following year’s budget.
Expenditures are projected to increase at an average annual rate of 3.9% during the 4-year plan period, a rate which exceeds that of the
projected 2.2% inflation rate during the same period.
Health Insurance Costs funded by the city are projected to generate savings in FY 2016 through FY 2019. Although the city has already
reached the FY 2015 target of $400 million, and nearing the $700 million target for 2016, it has reportedly been acknowledged by the
Commissioner of Labor Relations that targets for NY 2017 and FY 2018 will present greater challenges.
Debt Service is expected to lower over the term of the 4-year plan. The reduction will largely stem from a downward revision in the city’s
interest rate assumption for fixed-rate bonds, and from excess State building aid that will be used to pay debt service on Transitional
Finance Authority (TFA) debt. However the city-funded debt service (adjusted for surplus transfers) is projected to grow by nearly 40%
from the $5.4 billion in FY 2014.
Metropolitan Transportation Agency (MTA) financial plan released in July projects a balanced budget for calendar years 2015 through
2017; and budget gaps in 2018 and 2019. However the agency will face funding challenges for its 2015-2019 capital program without
placing the burden on its riders.
Hudson Yards Infrastructure Corporation (HYIC) created in 2005 to facilitate development on the city’s Far West Side. Upon its creation
was intended to fund debt service from revenues generated by development in the Hudson Yards District, which to date has been
insufficient due to slower than expected progress. As a result the city has funded interest payments on behalf of the HYIC in past years. It
is however anticipated that HYIC will have sufficient resources to fully cover interest payments during FY 2016 and FY 2017; but assumes
the city will resume funding a portion of the interest payments beginning FY 2018.
Sources:
http://www.osc.state.ny.us/osdc/rpt3-2016.pdf
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Looking Ahead (cont’d)
NYC Comptroller’s Office: NYC Quarterly Economic Update 3Q15
The report released in November revealed a slowdown in growth of the city’s economy during the 3rd quarter. Despite continuing to
outperform the nation, the city’s economic growth was less robust in comparison to the quarter-over-quarter rate of the 2nd quarter.
3rd Quarter 2015 - Key Economic Indicators
NYC Compared with U.S. for 2Q15 and 3Q14
Gross City Product (GCP)*
Gross Domestic Product (GDP)*
Payroll-Jobs Growth*
Personal Income Taxes (PIT) Withheld, Growth**
Inflation Rate*
Unemployment Rate***
NYC
U.S.
NYC
U.S.
NYC
U.S.
NYC
U.S.
NYC
U.S.
3Q15
2Q15
3Q14
2.4 %
1.5%
2.4%
1.8%
7.9%
6.3%
0.1%
0.1%
5.4%
5.2%
2.8%
3.9%
2.1%
1.7%
9.1%
5.2%
0.0%
0.0%
6.3%
5.4%
2.7%
4.3%
3.7%
2.2%
8.8%
4.4%
1.3%
1.8%
6.8%
6.1%
*Seasonally adjusted annual rate
**Not seasonally adjusted
*** Seasonally adjusted
Venture Capital Investment (VC) – Totaled about $1.6 billion spread across 122 deals in New York State, up over 6% from the year-overyear figure of $1.5 billion which comprised 111 deals.
President Signs Law Easing Taxes on Foreign Investment in Real Estate
The final weeks of 2015 delivered news of an easing the 35-year-old tax on foreign investment in U.S. real estate as part of the $1.1 trillion
federal government spending measure that was passed to avoid a government shutdown. As a result of the new law foreign pension funds
will be treated the same as their U.S. counterparts with regard to real estate investment, waiving the tax imposed under the 1980 Foreign
Investment in Real Property Tax Act (FIRPTA). In addition, the new law allows foreign pension funds to buy as much as 10% of a U.S.
publicly traded real estate investment trust (REIT), representing an increase of 5% without triggering FIRPTA liability. Amongst the total
$483 billion investment in U.S. property in 2015, foreign investment totaled roughly $78.4 billion, of which foreign pension funds accounted
for about 10% according to reported statistics compiled by Real Capital Analytics Inc. The new law brings a welcomed change for the real
estate industry, and is anticipated to potentially open the door to increased purchases by foreign investors in the nation’s real estate.
Sources:
http://comptroller.nyc.gov/wp-content/uploads/documents/Q_Econ_Update_3Q15.pdf
http://www.bloomberg.com/news/articles/2015-12-18/u-s-poised-to-lift-35-year-old-real-estate-tax-on-foreigners
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East Side Access - Rendering
In the News
East Side Access Project – A Sliver of Light at the End of the Tunnel
The massive project being constructed by the Metropolitan Transit Authority (MTA) continues to make headway as tunneling efforts are
ongoing at a reported cost of $1 million per foot. Currently targeted for a 2022 completion, the new terminal will cover 5-city blocks to a
depth of 14-stories beneath Grand Central Terminal. Upon full completion, an estimated 160,000 passengers will traverse through the new
terminal, which represents about 50% of LIRR commuters. People coming in from Long Island and Queens will now be able to extend
their ride to the city’s east side through a new Queens station in the Sunnyside neighborhood that is linked to the 120-foot tunnel under
Northern Boulevard — part of a 7-mile network of new tunnels.
In order not to interfere with the daily traffic of the Long Island Rail Road (LIRR), Amtrak, and New Jersey Transit, schedules for power
shutdowns are carefully planned. The ground below is carefully frozen to allow the removal of dirt so that steel supports can be installed.
Newly bored tunnels are being filled in with floors, ceilings and walls; as well as ongoing installation of stairways and escalators up to
Grand Central. Upon completed construction, the project will deliver 4-new platforms serving 8-rail road tracks spread over 2-levels, plus a
new 350,000-square-foot retail and dining concourse. Several delays were incurred due to challenges in securing financing for the project,
and the carting away millions of cubic yards of rock and mud from tunnel boring. As a result the timeline for the project was pushed about
10-years forward, ballooning projected costs to over $10 billion — about twice the figure originally estimated.
Lower Platform
East Side Access - Renderings - Upper Platform
Mezzanine
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In the News (cont’d)
Residential Landlords Seek Agreement with Airbnb
A few U.S. residential landlords are reportedly in discussions with the controversial global hub for short-term housing rentals in an effort
to strike an accord that would allow tenants to market their properties in exchange for a share of the revenue. Hoping to establish a
revenue-sharing model with Airbnb, an agreement could expand the website’s access to rental units across the nation; allow tenants to
list without the fear of eviction due to typical lease restrictions that either forbid subleasing, or otherwise require prior permission; and
create improved transparency.
•
Equity Residential – One of the largest publicly traded apartment operators in the U.S. has about 108,000 units;
•
AvalonBay Communities – The equity REIT has about 83,000-units;
•
Camden Property Trust – The REIT has about 59,000-units.
However an agreement could further spark concerns that a significant portion of the country’s housing stock would be used as hotel
rooms, potentially pushing rents higher; while simultaneously becoming an increasing threat to established hotels that are growing
in numbers throughout New York City. Some sources comment that travelers utilizing Airbnb may not affect hotel occupancy due to a
different profile than those seeking hotels; and described as typically young travelers seeking lower prices and amenable to doing more
things on their own such as cooking, rather than take advantage of hotel amenities.
Despite only accounting for about 3% of New York City’s overall-hotel occupancy, Airbnb is able to keep pricing lower since the hiring of
hotels staff is eliminated. In addition scrutiny by lawmakers would likely intensify as the legitimizing of the use of apartments as hotel
rooms is sought. The growing trend gives rise to arguments that it would take units off the market for local long-term residents due to the
potential conversion of units to full-time short-term hotel rooms; and heighten liability concerns since residential buildings don’t adhere to
the same fire and safety codes as hotels, which are more stringent. Other issues of public debate include:
•
The Airbnb system is currently unregulated and does not enforce the rules and regulations typically required of landlords when renting
to tenants, particularly in New York City which is deeply entrenched in a residential regulatory system.
•
Added risk to residents due to strangers entering buildings that have not undergone the same background checks as tenants due to
the full identity of both the host and potential guest not fully published on Airbnb’s website.
•
City and state are reportedly incurring a net loss of revenue since sales tax, hotel tax and occupancy tax assessments that hotel
guests would otherwise pay are not collected.
•
Local laws prohibit renting out a multi-family unit for less than 30 days if the resident isn’t present. The Attorney General’s Office
(AG) released the “Airbnb in the City” report in October 2014, intending to present a snapshot of short-term rentals in the city
from January 1, 2010 through June 2, 2014. The report’s findings concluded that about 72% of Airbnb’s rental units violated the
city’s Multiple Dwelling Act. Due to unit numbers on Airbnb’s website left unpublished, the AG’s Office was unable to quantify the
precise number of units subject to rent-regulations. The majority of listed units during the AG’s review period were concentrated in
the neighborhoods of the Lower East Side, Chinatown, Chelsea, Hell’s Kitchen, Greenwich Village and SoHo.
Despite increased public debate and an inability to win support from some local political officials, tenant groups and rental property
owners, the San Francisco, CA-based company launched in 2008 has continued to grow. The concept has been welcomed by some longterm, fair-market tenants as a way to generate supplemental income for those pushing the threshold of affordability; and a suggestion by
some that landlords could gain a share of the profits as well by simply imposing a fee to tenants for allowing them to rent out their units.
However more serious debate arises in instances where rent-regulated tenants are taking advantage of the profitability of short-term
rentals while receiving benefits from low rent subsidies to ensure permanent housing.
Airbnb currently claims about 322,500 U.S. listings on their website, according to sources — an increase of 80% year-over-year as a
heightened number of home dwellers and travelers embrace the service. According to reported statistics from an April 2015 report
released by Airbnb, rental activity on the website has injected $1.15 billion into New York City’s economy, attracted 767,000 visitors,
generated $301 million for hosts, and $844 million in tourist spending during 2014. The website initially intending to offer travelers a more
informal local experience than traditional hotels has grown to the extent that Airbnb is seeking ways for formalize its business.
Sources:
http://www.wsj.com/articles/big-landlords-airbnb-discuss-partnerships-1450200473 • http://www.ag.ny.gov/pdfs/Airbnb%20report.pdf
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Downtown Comeback
7-Subway Extension
Stuyvesant Town
Peter Cooper Village
Hudson Yards Activity
Co-Working Space
Law Firms Modernize
Bulk Unit Sales
Shifting Gears
China’s Economic
Downturn
Foreign Investment
Foreign
Lending
Investment
TASE
2015 ReCap
The year 2015 has drawn to a close, boasting several notable highlights and milestone advances that further exemplify the positive energy
and determination of New York City — the city that never sleeps.
Some of the year’s news highlights include:
Downtown Makes its Mark on the Economy through its Resurgence – The revitalization of Lower Manhattan brings a
story that is as exhilarating as the energy that fills the neighborhood today. The resiliency of Lower Manhattan has allowed it to emerge
as one of the hottest neighborhoods in the city today, despite major setbacks that included the September 11, 2001 attacks; significant
damage incurred in the aftermath of Hurricane Sandy; and the decentralization of the financial services industry which at one time served
as the economic hub of Lower Manhattan. Activity at the World Trade Center brings the announcement of a possible anchor tenant for 2
World Trade Center, the only tower yet to break ground. A non-binding but detailed letter of intent (LOI) for about 1.3 million square feet
was signed by News Corp. and 21st Century for a possible relocation from their current Midtown locations. Downtown’s recovery is also
projected to make a significant impact on both the city and state’s economy.
7-Avenue Subway Extension Opens – The city’s 469th subway station located at 34th Street and 11th Avenue opened on Sunday,
September 13th. The long awaited extension of the 7-subway line which intersects 18 out of the total 22-lines is the first new station to
open in 25-years. The project which broke ground in 2007 was originally slated for a December 2013 completion. The cost of $2.4 billion
which was funded by the city under the Bloomberg administration had escalated from the original $2.1 billion; but the elimination of
a proposed intermediate subway station at 10th Avenue and 41st Street kept costs from reaching what would have been a reportedly
significantly escalated figure of $2.9 million.
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2015 ReCap (cont’d)
Stuyvesant Town / Peter Cooper Village Residential Complex Sells – The sale announced in October of the 11,247-unit
Stuyvesant Town / Peter Cooper Village complex further substantiates the growing value of residential properties and heightened interest
by investors. The $5.3 billion purchase by the partnership of Blackstone Group and Ivanhoe Cambridge that reportedly closed in December,
was just $100 million below the $5.4 billion figure paid in 2006 when the complex last traded. The sale marks the end of the property’s
longtime state of limbo as it remained in the hands of a special servicer since 2010. A surge in the number condo properties developed
over recent years combined with ballooning land prices that have made rental development financially unfeasible, has reportedly prompted
a growing interest by investors in the acquisition of middle-income rental buildings. As the number of middle-income rentals properties
grow more limited in number the assets’ value is driven upwards, offering higher yields on investment than that of the high-end condo or
rental market.
Hudson Yards Activity Spikes in 2015 – The multi-building project that seemed to get off the ground slower than originally expected
has significantly quickened its pace of construction as lease signings and condo-unit sales for commercial space become more robust, with
only 2-towers that have yet to break ground — 15 Hudson Yards, the only residential tower in Phase 1 will be attached to an event venue
dubbed Culture Shed; and 35 Hudson Yards, a planned 1.1 million-square-foot development to be comprised of hotel, office, residential and
retail space. Amongst the towers that have broken ground:
•
10 Hudson Yards – The 1.7 million office tower which topped out in October currently boasts roughly 90% occupancy with major space
commitments from L’Oreal, Boston Consulting, SAP America, and anchor tenant Coach which is rumored to be the seller of its 40%
condo-interest (737,774 square feet) in the tower that is slated to deliver in June.
•
30 Hudson Yards – The 2.6 million square foot office tower that broke ground this summer is nearly 100% occupied as a result of the
sale of condo-unit interests to law firm Kohlberg Kravis Roberts, Wells Fargo, co-developers Related Companies and Oxford Properties
Group, and anchor tenant Time Warner Inc.
•
Shops at Hudson Yards – The 7-story retail component that is currently under construction between 10- and 30 Hudson Yards will see
high-end department store Nieman Marcus debut in New York City as its anchor tenant.
•
55 Hudson Yards – The 1.3 million-square-foot office tower that broke ground in January 2015, signed its first tenant in June with a
commitment of 83,292 square feet by law firm Boies Schiller & Flexner.
•
50 Hudson Yards – The construction of the final office tower in Phase 1 of the project moved a step forward as another piece of the
assemblage on the northeast corner of the site was acquired this summer. The recent deal brings the final assemblage closer to
completion for the planned 2.3 million-square-foot office development and newly created Hudson Boulevard.
Co-Working Space Providers Incur Heightened Competition – The ongoing popularity of co-working space has flooded the
market with co-working companies. As competition intensifies for market share, some providers have been prompted to market themselves
differently so as to standout amongst the growing numbers. Despite some concerns of over saturation, the sector continues to flourish.
Some sources further predict that in the event of an economic downturn shared office space is unlikely to fade, but instead anticipate that
leasing activity will potentially escalate due to the flexibility of short-term commitments; and staff cuts making shared services typically
offered such as legal, accounting and IT more valuable. Although shared-space has primarily attracting start-ups, established companies
have discovered the advantages of more readily available short-term space as well. While a few smaller co-working space providers have
been unable to make the cut in the light of rising competition, some industry sources point out that there is still room for an enormous
amount of opportunity amongst budget options, premium options and luxury options. WeWork continues to control the city’s market,
increasing 2015 market share in Manhattan and Brooklyn by approximately 717,749 square feet and 149,000 square feet according to
reported deals throughout the year.
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Law Firms Move into the Modern World – Law firms have become the latest sector to take advantage of modern technology and
open floor plans to improve space use efficiency and reduce rent overhead expenses. Square foot per attorney ratios that have typically
averaged around 1,000 square feet 10-years ago, have been declining to today’s more typical average of 550-650 square feet — a ratio
that is expected to continue a further downward trend. The move to economize has prompted some firms to seek buildings that offer
wide-open, column-free floor plates that will allow a more efficient and flexible office layout design. In addition, up-to-date technology with
improved connectivity has become another highly sought after feature as non-essential office components such as physical libraries and
file cabinets are being replaced by digitized archives. Common areas are becoming mixed-use areas that can accommodate both informal
meetings or dining space, while also promoting increased collaboration. Private offices are being downsized and in some cases eliminated
for associates.
Bulk Unit Sales on the Rise – Bulk-unit acquisitions have become a growing trend as it becomes more difficult to find a bargain in the
city’s real estate market. The purchase of a block of multiple units within a single building is increasing in popularity. A nominal portion of
current residential sale activity, it delivers a value-priced option for some creative investors. Although difficult to track, a reported analysis
of the city’s Department of Finance records substantiated rising activity, increasing from 13-transactions totaling $30.4 million in 2003 to
15-transactions totaling $132 million during the first 7-months of 2015. Discounts for buyers have ranged from an atypical high of 35-40%
to as low as 2-3% while offering strong cash flow potential from renting the units. Bulk-unit packages are typically under 10-units, but some
larger packages have sold in recent years. Sellers benefit from significantly reduced transaction costs such as legal and broker fees; and
the time it would take to sell-out the units. Bulk-unit sales tend to diminish in a strong market, a developer having little reason to discount
when units are moving, or can be similarly rented in the interim.
Crowdfunding Shifts Gears – The newer lending option continues to pick up steam as its presence within the real estate industry
swells. A concept that actually dates back about 130 years, today’s crowdfunding has evolved into a more sophisticated online platform since
the JOBS Act of 2012 eased federal restrictions on fundraising for small companies. As competition heightens with the growing number
of crowdfund platforms, several startups that relied on everyday investors to raise funds for crowdfund campaigns are beginning to shift
to institutional investors to propel further growth. A receptive investor, institutional participants are taking advantage of the convenience of
the online technology allowing them to select specific assets, while simultaneously offering a partner base for the city’s developers. Some
platforms are also directing efforts towards partnering with hedge funds, private equity firms, and wealthy individuals according to reports.
The redirection may result in crowdfund platforms functioning more like the traditional financial sector they set out to displace.
Overall investment via crowdfunding platforms reportedly surpassed a $1 billion total in 2014; and was expected to reach $2.5 billion in
2015, as a growing number of companies from start-ups to established investment firms are testing the waters. However looking ahead,
regulators could reportedly raise the dollar value threshold required to become an accredited investor from the current $1 million minimum
to $5 million, which would significantly diminish the pool of investors.
China’s Economic Downturn and the CRE Market – The reported devaluation of China’s renminbi (RMB) this summer, that
diminished the buying power by Chinese investors and led to the country’s stock market crash in late August, has yet to trigger any
slowdown of investment abroad. However looming concerns arise including the potential of the Chinese government tightening restrictions
on overseas investment to keep money within the country; and the strengthening of the U.S. dollar making investment more expensive for
Chinese investors. It is also reportedly anticipated that amidst the volatility of the Shanghai and Shenzhen stock markets, lending practices
by Chinese banks could tighten bringing about higher interest rate requirements, more lower-risk deals sought, and loan-to-value (LTV) ratio
requirements becoming more conservative.
Furthermore China’s continued softening of its property market gives rise to concerns that some of New York City’s highly leveraged
Chinese investors could be vulnerable. Chinese firms whose primary business is real estate development will continue to be affected
by the rise and fall of the country’s property market, while others that are more diversified are less vulnerable. The impact of the China’s
economic downturn has yet to reveal its effect on New York City’s real estate market. Currently Chinese buyers continue to generate record
purchases, wanting to put to work profits generated by other businesses they have.
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Foreign Investment – Investment activity in New York City by foreign investors remains vigorous, many attracted to the federal
government’s EB-5 Foreign Investor Program. While China and Canada continue to lead the way, other countries have begun to develop a
growing interest — particularly amongst the emerging markets. It has been anticipated that Brazil and Venezuela will become frontrunners
since they don’t have treaties of commerce with the U.S., and therefore their citizens are not eligible for any other type of investor visas.
The growing roster of countries having filed EB-5 applications includes South Korea, United Arab Emirates, Vietnam, Russia, Nigeria and
Egypt. In addition countries such as India, which is focusing efforts to overcome decades of poverty and economic stagnation; and Middle
East investors seeking to further diversify portfolios due to lowering oil prices, are expected to see a shifting of investment dollars towards
the U.S. and the city.
The EB-5 program significantly grew in popularity following the economic downturn when financing from traditional lenders tightened.
Currently undergoing review, some proposed bipartisan legislation has recommended modifications that have met with strong opposition.
If the bill is adopted, the EB-5 program that was due to expire in September and extended unchanged through September 30, 2016, will
continue for another 5-years. However, simultaneously to concerns rising about the future of the EB-5 foreign investment program, the
lending marketplace is adding a number of new players offering creative borrowing structures and aggressive pricing. Private equity funds,
debt funds, and other non-traditional lenders including insurance companies, sovereign wealth funds, and pension funds, which need to
generate yields in order to meet their own fiscal obligations, are becoming key players as they redirect capital away from low yielding U.S.
Treasury bonds, money market funds, and the stock market. As the strength of the real estate market holds steady, it has become an
essential component of a well-diversified portfolio.
Lending – Interest rates which have remained at an all-time low since 2008 with expected rate hikes reprieved in mid-September amid a
continued low inflation rate, uncertain outlook for global growth, and recent unsettled financial-market. However confidence in jobs growth
has reportedly overweighted earlier concerns of the slowing Chinese economy and devaluation of the renminbi (RMB), slumping oil prices,
and jarring downturns in the global stock markets. On December 16 at the conclusion of the 2-day session, the Federal Open Market
Committee which sets the target rate, announced the moderate rate increase that has been expected since March. It will be difficult to
determine effects on the city’s real estate market since the National Council of Real Estate Investment Fiduciaries’ (NCREIF) National
Property Index (NPI), the benchmark for commercial real estate yields, is an imperfect measure of prices; and long-term bond yields, which
matter most to real estate, don’t always respond in the same way to rises in short-term rates according to sources.
In the meantime, the city’s tight real estate market and soaring property prices has given rise to some new entrants in the lending market.
As mezzanine loans become a lucrative business, a few of the city’s developers have been prompted to consider entering the subordinate
debt market. In addition to the attraction of current double digit interest rates on commercial properties, lenders also have the advantage
of being first in line to take control of a real estate asset at a discounted rate in the event of a foreclosure.
The Commercial Mortgage-Backed Securities (CMBS) market has recovered since the economic downturn, when new issues reportedly
fell to $1.1 billion after the market came to a halt in 2009. Factors that have been contributing to CMBS issuance growth are the desire
to lock in low rates ahead of the rise in U.S. interest rates that finally came in December; a large number of loans from the boom years
maturing; and rising confidence in the real estate market according to some research analysts. However despite rebounding to near 2007
levels with an impressive $11.54 billion issuance in the first-half of 2015, CMBS activity has fallen short of the 2015 estimated $125 billion
projected earlier this year; and more recent modified projections now reduce the total to $96.5 billion.
Tel Aviv Stock Exchange Attracts Growing Number of the City’s Developers – A growing number of development projects
in the city are being financed in part by funds raised through the Tel Aviv Stock Exchange (TASE). The Israeli capital market offers one of
the few markets that is accessible to companies seeking project financing that are not structured as a real estate investment trust (REIT).
Companies are allowed to make debt-based public offerings, but the requirement to become a public company in Israeli has discouraged
some New York developers not wanting to expose business activities to a large audience. TASE also offers the flexibility for developers to
base debt offerings upon an entire portfolio or a large piece of it, increasing the amount of money that can be raised while simultaneously
spreading out the risk; versus in the U.S. where financing is typically arranged on a project-by-project basis. U.S. real estate industry debt
issuance through TASE in 2014 totaled an estimated $700 million; and was predicted to reach about $2 billion in 2015 according to industry
sources. As of July, New York-based real estate firms had reportedly been responsible for all debt offerings among U.S. real estate firms
in Israel.
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Market Snapshot: Class A & B
New York City’s Unemployment
•
According to the New York State Department of Labor’s figures, the city’s
unemployment rate rose moderately to 5% (not seasonally adjusted) at the end
of November; in comparison to 4.8% at the end of the 3rd quarter. Year-over-year
figures resulted in a roughly 24% improvement from the 6.6% of last November.
Rental Rate
Net Absorption
NYC Unemploy Rate
US Unemploy Rate
11.0%
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
Nov2015
4Q2010
4Q2009
4Q2008
4Q2007
4Q2006
4Q2005
4Q2004
4Q2014
Employment activity in New York City’s private sector resulted in the gain of
95,200 jobs for the 3 month period between August 2015 and November 2015.
Year-over-year figures resulted in a 2.8% gain of 103,100 jobs; in comparison
to 2.3% and 2.2% year-over-year growth for New York State and the nation
respectively. Educational and Health Services continued to lead the way, followed
by Professional and Business Services. Job numbers rose slightly more robustly
in comparison to that of the previous year’s 2.7% improvement.
Vacancy
4Q2013
•
Class B
4Q2012
Unemployment on the National level fell to 4.7% at the end of November,
decreasing 2.08% from the 3rd quarter figure of 4.8%. Year-over-year figures
resulted in a 9.62% improvement from the 5.2% rate of November 2014.
Class A
4Q2011
•
Total
4Q 2015
Weekly Wages
Overall weekly wages in New York City averaged $1,842 at the end of the 2nd quarter
2015, representing a positive 6.4% improvement year-over-year according the recent
report released by the U.S. Department of Labor. The Financial sector boasted a
5.3% increase year-over-year at the high, in contrast to the Information sector where
wages fell 1.15%.
Nov 2015 Job#'s
2Q2015 Weekly Wage
1,000,000
$4,000
900,000
$3,500
800,000
$3,000
700,000
600,000
$2,500
500,000
$2,000
400,000
$1,500
300,000
186,500
187,200
432,600
416,000
449,100
462,800
702,900
0
$1,000
682,200
100,000
873,800
200,000
903,900
Vacancy for Class A & B office space shrank 3.88% over 3rd quarter’s 7.96% figure,
resulting in an 7.65% vacancy at the end of the 4th quarter. Midtown South accounted
for the strongest quarter-over-quarter improvement, rebounding from the previous
quarter with an 11.13% reduction resulting in a vacancy of 4.33% — the low for 2015.
Downtown followed with a 10.22% decline and a vacancy of 9.13%. Only Midtown
incurred a slight reversal of a downward trend over the past 3-quarters, increasing
0.47% to 7.79% quarter-over-quarter due to a 15.84% rise in Class B vacancy that
significantly offset the 2.17% shrinkage within Class A buildings.
Nov 2014 Job#'s
2Q2014 Weekly Wage
NYC Yr-over-Yr Job Statistics
$500
$0
Source: NYS Department of Labor
and US Department of Labor, Bureau of Labor Statistics
Absorption closed the 4th quarter at positive 1,358,699 square feet, representing
a significant improvement over 3rd quarter’s more moderate climb of positive 176,282 square feet. Both Midtown South and Downtown’s
positive absorption of 325,651- and 1,132,645 square feet respectively was able to offset Midtown’s negative 99,597-square-foot figure.
Rental Rates fell for the first time in 2015. The overall weighted average asking rent for Class A & B office space of $60.22 per square foot
represented a 1.54% decrease over the previous quarter. Midtown South incurred for the sharpest decline of $2.24%, followed by a 1.66% and
0.42% decline in Midtown and Downtown respectively. Class B weighted average asking rents of $56.14 per square foot quarter-over-quarter
accounted for the more significant decrease of 2.81%, while Class A asking rents of $61.52 per square foot saw a lessor 1.21% decline.
Sources:
http://www.bls.gov/schedule/archives/all_nr.htm
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Class A & B Statistics At A Glance
4th Quarter 2015
Vacancy
WTD Average Asking Lease Rent
Downtown
Midtown South
4.39%
10.65%
1.55%
5.23%
0.00%
$0.00
5.00% 10.00% 15.00%
90
236
389
488
Midtown
$50.00
ClassA
178
Midtown South
$66.96
$51.77
Midtown
955
Downtown
$81.47
$69.70
Midtown South
8.10%
6.56%
Midtown
$57.20
$44.12
Downtown
Net Absorption
$100.00
Thousands (1,000)
0
1,000
2,000
ClassB
Quarter-over-Quarter
Lease & Sublease Sq. Ftge
Class A
Class B
Sublease SF Class AB
Lease Rent AB
Sublease Rent AB
4Q15
2,000
1,500
1,000
(75)
3Q15
Net Absorption Class B
(383)
560
2Q15
(90)
3,031
1Q15
54
(582)
505
118
30,628
0
2,979
0.00%
$45.00
500
0
500
$40.00
4Q14
4Q15
32,038
10,000
$50.00
3,210
3.00%
$55.00
31,984
5.57%
3Q15
20,000
3,312
5.27%
2Q15
$60.00
30,000
3,384
32,642
5.20%
1Q15
5.63%
5.24%
4Q14
6.00%
$65.00
33,242
8.47%
8.92%
9.10%
9.58%
9.39%
9.00%
Thousands
40,000
Net Absorption Class A
1,433
Lease SF Class AB
1,450
12.00%
Net Absorption
1,000
4Q14
1Q15
2Q15
3Q15
4Q15
Quarter-over-Quarter Inventory Changes
Downtown
Removed
Midtown South
Removed
Added
Midtown
Added
Removed
4Q2015
4Q2015
4Q2015
3Q2015
3Q2015
3Q2015
2Q2015
2Q2015
2Q2015
1Q2015
1Q2015
1Q2015
4Q2014
4Q2014
4Q2014
Thousands
Thousands
Thousands
*Buildings 75,000 SF and larger; vacancy and absorption calculations based upon move-in date versus deal signing date
Added
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Thousands
Vacancy
Submarket Statistics Overview: Class A & B Office
Manhattan
Inventory
Submarkets
Districts
Total
RBA*
Downtown
Vacant Sq. Ftge.
Direct
Sq. Ftge.
Sublet Sq.
Ftge.
Vacancy Rate
Total
Sq. Ftge.
Direct
Vacancy
Sublet
Vacancy
Overall
Vacancy
WTD Avg
Rent PSF
Net
Absorption
Direct
Asking
Year-to-Date
Sq. Ftge
108,939,457
9,549,882
401,068
9,950,950
8.77%
0.37%
9.13%
$55.66
1,604,332
14,327,021
952,215
360
952,575
6.65%
0%
6.65%
$46.46
-120,273
Financial District
41,586,410
3,559,869
306,073
3,865,942
8.56%
0.74%
9.30%
$47.32
143,874
Insurance District
12,046,306
333,439
0
333,439
2.77%
0%
2.77%
$47.80
198,169
City Hall
TriBeCa
6,522,455
193,997
4,377
198,374
2.97%
0.07%
3.04%
N/A
7,199
34,457,265
4,510,362
90,258
4,600,620
13.09%
0.26%
13.35%
$66.32
1,375,363
Midtown South
60,047,539
2,225,728
373,576
2,599,304
3.71%
0.62%
4.33%
$70.97
310,531
Chelsea
10,555,320
276,477
77,457
353,934
2.62%
0.73%
3.35%
$65.00
-140,652
Flatiron
21,589,773
609,632
213,916
823,548
2.82%
0.99%
3.81%
$72.53
431,453
Gramercy Park
World Trade Center
10,212,834
683,270
21,856
705,126
6.69%
0.21%
6.90%
$69.80
137,555
Greenwich Village
4,353,399
61,858
3,000
64,858
1.42%
0.07%
1.49%
$57.68
126,193
Hudson Square
9,393,521
480,747
22,272
503,019
5.12%
0.24%
5.35%
$73.31
-192,559
3,942,692
113,744
35,075
148,819
2.88%
0.89%
3.77%
$80.25
-51,459
2,256,002 21,108,564
6.96%
0.83%
7.79%
$63.54
452,479
SoHo
Midtown
270,863,991 18,852,562
Columbus Circle
31,893,601
1,912,672
213,558
2,126,230
6.00%
0.67%
6.67%
$58.35
-694,324
Grand Central
52,323,745
4,670,291
289,885
4,960,176
8.93%
0.55%
9.48%
$63.83
627,746
Murray Hill
11,144,764
552,647
67,368
620,015
4.96%
0.60%
5.56%
$53.53
-71,516
Penn Plaza/Garment
46,974,585
3,148,337
662,841
3,811,178
6.70%
1.41%
8.11%
$56.28
-817,779
Plaza District
80,641,592
5,294,516
680,334
5,974,850
6.57%
0.84%
7.41%
$65.85
498,184
Times Square
44,323,129
3,246,911
342,016
3,588,927
7.33%
0.77%
8.10%
$73.42
217,190
3,562,575
27,188
0
27,188
0.76%
0%
0.76%
$65.00
-3,164
3,030,646 33,658,818
6.96%
0.69%
7.65%
$60.22
2,367,342
U.N Plaza
Grand Total
439,850,987 30,628,172
*Buildings 75,000 SF and larger; vacancy and absorption calculations based upon move-in date versus deal signing date
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Leasing Activity
2015 Office Leasing - A Brief Retrospection
Leasing activity throughout the year continued to blur the lines between Manhattan’s submarkets as several big-block moves by a diversified
mix of companies distributed throughout the city, no longer creating concentrated industries within one submarket as in the past. Activity
at Downtown’s World Trade Center and the Far West Side’s Hudson Yards continued to claim the spot light as both neighborhoods attract
an impressive roster of tenants from a mix of both FIRE (financial, insurance, real estate) and TAMI (technology, advertising, media,
information) sectors. Heightened activity at Related Companies and Oxford Properties Group’s Hudson Yards project has resulted in 10
Hudson Yards achieving a roughly 90% occupancy; and a first tenant signing at 55 Hudson Yards. Across the street Brookfield Property
Partner’s claimed title to the 2nd largest lease deal in 2015 as a result of the 550,000-square-foot signing that will see law firm Skadden
Arp Slate Meagher & Flom shift west from 4 Times Square, further cementing the Far West Side’s potential to attract corporate tenants.
As larger companies shift west and south to newer construction, it is anticipated that some of the large vacancies left behind in Midtown’s
older office stock will allow landlords to take advantage of the opportunity to start repositioning their properties beyond spruced up lobbies
and new elevators. Looking ahead while some industry sources are concerned about the impact of rising interest rates and a possible
slowdown in leasing activity spurred by a somewhat less robust 2015, many remain optimistic with predictions of another strong year of
real estate activity for New York City in 2016.
2015 Office Leasing - The Year’s Big-Ticket Deals
Tenant
Address
Submarket/District
Sq. Ftge.
Transaction Type
Term
Est. Lease Value
Starting Rent
Kirkland & Ellis
601 Lexington Avenue
Midtown / Plaza
403,000
Extension
(20 Yrs)
$1.1 BN
(High $90s)
Skadden Arps Slate et. al.
1 Manhattan West
400 West 33rd Street
Midtown / Penn Plz
550,000
Relocation
(20 yrs)
$915 MM
(Mid $70s)
Publicis Groupe
1675 Broadway
Midtown / Columbus Cir
580,000
Renewal/Expansion
(15 yrs)
$611 MM
(Mid $60s)
Citadel
425 Park Avenue
Midtown / Plaza
200,000
Relocation
(15 yrs)
$494 MM
(Mid $170s)
Chanel
9 West 57th Street
Midtown / Plaza
230,000
Expansion
(15 yrs)
$415 MM
(Mid $110s)
Boston Consulting Group
10 Hudson Yards
Midtown / Hudson Yards
193,295
Relocation
(15 yrs)
$255 MM
(High $80s)
WeWork
8 Times Square
1460 Broadway
Midtown / Times Square
180,000
New
(20 yrs)
$223 MM
(Mid $50s)
Bloomberg LP
919 Third Avenue
Midtown / Plaza
254,556
Expansion
(15 yrs)
$220 MM
(High $50s)
Associated Press (AP)
Brookfield Place
200 Liberty Street
Downtown / World Trade Ctr
172,000
Relocation
(20 yrs)
$202 MM
(Mid $50s)
J. Walter Thompson
237 Park Avenue
Midtown / Grand Central
270,000
Renewal
(10 yrs)
$192 MM
(High $60s)
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Leasing Activity (cont’d)
A New Trend on the Horizon Brings the Concept of Space Staging to Office Space Design
High-end home furnishings retailer Restoration Hardware, which has offered a hotel and retail design business for some time, has now
added office staging to the company’s growing roster of businesses. A recent opportunity opened the door to an office tenant seeking to
create a look similar to Restoration Hardware’s retail store, ultimately leading to the creation of a few design concepts for some Chelsea
neighborhood buildings. The idea was enthusiastically met by the buildings’ landlord, noting that tenants are frequently unable to visualize
the space furnished. The idea of creating models similar to what is typically done in residential developments, along with the offering of
free consultation, customizing, and furniture discounts is anticipated to be a welcomed convenience for new tenants.
Big Block Tenants in the Market
UBS AG – The Zurich-based global bank is reportedly seeking 700,000 - 900,000 square feet in an effort to downsize its footprint in the
city. The relocation has been prompted by denied renewal of leases for current offices at both 787 Seventh Avenue and 1285 Sixth Avenue
which are being sold. It was previously reported that UBS occupies about 120,000 square feet at 787 Seventh Avenue (Columbus Circle)
as a result of a relocation/consolidation deal in 2013; and about 700,000 square feet as UBS’ main business center at 1285 Sixth Avenue
(Columbus Circle) which expires in 2020 due to an early 5-year renewal in 2012. UBS also has offices at 299 Park Avenue (Plaza) totaling
about 130,000 square feet spread across 5-floors, having reduced their footprint in 2013 by 382,000 square feet through a sublease
offering. The majority of the sublease space was shortly after absorbed by Capital One in a direct deal for 250,000 square feet that extended
the sublease term expiring in 2018 for an additional 10-years.
Formal requests for proposal are expected to be released by UBS upon preliminary viewing of current locations being considered that include:
•
4 Times Square – The Durst Organization 1.8 million square-foot tower will be almost totally vacant due to the relocation of Condé Nast
earlier this year to One World Trade Center, and Skadden Arps’ upcoming relocation to 1 Manhattan West, 400 West 33rd Street in
2020;
•
Time Warner Center, 60 Columbus Circle – The Related Companies tower will be seeing a large vacancy upon Time Warner, Inc.
relocating to 30 Hudson Yards in 2019;
•
One Vanderbilt – The SL Green 1.3 million-square-foot development that recently broke ground with an expected delivery in 2020
•
1 Manhattan West, 400 West 33rd Street – The Brookfield Office Properties planned 1.6 million-square-foot office tower with an
expected delivery in 2020.
Kramer Levin Naftalis & Frankel – The international law firm is reportedly considering a possible relocation from their current headquarters
of 11-years at 1177 Sixth Avenue (Times Square). The lease for their current 325,000-square-foot office will be up for extension in 2020.
Modern technology has changed space planning requirements for several industries, prompting companies to re-evaluate size requirements
and space layouts. While in early stages of the process, it is likely that Kramer Levin will follow in the footsteps of some other law firms
that have been able to downsize into more efficiently designed space and reduce costly rent expense. The trend has been exemplified by
Skadden Arps Slate Meagher & Flom, which will downsize by about 15% from the law firm’s current 644,671-square-foot office when they
relocate to 400 West 33rd Street in 2020.
National Hockey League (NHL) – The sports organization is reportedly evaluating options, currently headquartered in a 5-level
133,000-square-foot space at 1185 Sixth Avenue (Times Square). The space has served as the sport organization’s home since 2008, upon
relocating there from an 80,000-square-foot office at nearby 1251 Sixth Avenue. In addition, the NHL has a nearly 7,000-square-foot store
at the base of the 42-story tower on the corner of West 47th Street. While the exploration is in preliminary stages, the NHL is leaving all
options wide-open that could result in a decision to renew at their current location; or relocate to one of several buildings including the
World Trade Center, the Rockefeller Center complex, 4 Times Square; as well as the Hudson Yards and Manhattan West which are located
near Madison Square Garden.
Estée Lauder – The cosmetics company is reportedly exploring options to determine whether they should remain at their longtime corporate
headquarters at the GM Building, 767 Fifth Avenue, or relocate. Currently housed in nearly 300,000 square feet spread across floors 37-43,
45 and 46 at the tower in a lease that expires in about 5-years according to sources.
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Large Vacancy on the Horizon
34 East 51st Street (Plaza) – The newly constructed 20-story, 75,000-square-foot office building developed by Turkish developer Sedesco
will be making its debut into the high-end boutique office market. The property is hoping to attract financial tenants, such as private equity
funds and wealth management firms, willing to pay asking rents anticipated to range from $120 - $130 per square foot. The $60 million
development located between Madison- and Park Avenues will feature a number of amenities including a golf simulator — the only in a
New York City office building, a gym, community space with concierge service and an outdoor terrace. Floors range from about 2,7005,000 square feet of which Sedesco will be occupying the entire 4,800 square feet on the 6th floor, planning to relocate from nearby 444
Madison Avenue.
EMI Records Group N.A. / 150 Fifth Avenue (Flatiron) – The music label occupied nearly the entire building as a result of a 16-year deal for
155,700 square feet. The lease came shortly after L&L Holdings’ acquisition of the 11-story building in partnership with the Carlyle Fund for
$38 million in 2000. EMI’s assets were acquired by Universal Music Group in 2012, and a downsizing of the label’s footprint at the tower
ensued with most of the space ultimately subleased to several tenants. In 2018 EMI’s original lease will expire, but this time instead of
seeking a single tenant for the almost 200,000 square feet to be vacated, ownership will consider divisions to house up to 3-tenants. The
building is currently debt-free and has proven to be a prudent investment, L&L Holdings successfully profiting by a 3-time recapitalization
with different partners.
Large Blocks of Space that became Vacant in the 4th Quarter
1633 Broadway (Columbus Circle) – 212,133 square feet was vacated by advisory and consulting firm Deloitte upon relocating to a
426,139-square-foot office at 30 Rockefeller Plaza, 1250 Sixth Avenue (Plaza) in a move to consolidate New York city offices. The city offered
$10.6 million as an incentive to remain in the city and add 2,100 jobs over the course of the 18-year lease.
463 Seventh Avenue (Penn Plaza) – 120,000 square feet vacated by the online apparel retail OSP Group upon relocation to a 157,210-squarefoot office at Lower Manhattan’s 1 New York Plaza (FiDi). As a result of the 15-year deal announced in early 2015, OSP consolidated (2)
Manhattan offices that also included 462-468 Seventh Avenue.
Woolworth Building, 233 Broadway (City Hall) – 109,640 square feet was vacated by the U.S. Probation Office / U.S. Pretrial Services
Office under a lease that expired the end of October, relocating to Daniel P. Moynihan U.S. Courthouse at 770 Broadway (Greenwich Village).
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Notable Move-ins During the 4th Quarter
919 Third Avenue (Plaza) – 254,556 square feet spanning 8-floors was absorbed as a result of a 15-year lease that will see Bloomberg LP
expand into the building that is conveniently located near the data and media company’s headquarters at 731 Lexington Avenue. The deal
that had an asking rent in the high-$50s had a reported value of $220 million; and required the shifting of existing tenants to create the
large block of space.
Empire State Building, 350 Fifth Avenue (Penn Plaza) – 124,125 square feet was absorbed as a result of the move-in by Mountain ViewCA-based LinkedIn. The expansion deal increases the social networking site’s presence at the iconic tower to roughly 280,000 square feet.
Asking rent for the space was reportedly in the low to mid-$60s.
5 Manhattan West formerly 450 West 33rd Street (Penn Plaza) – 173,000 square feet spread across the entire 12th floor and a portion of
the 11th floor was absorbed as a result of the Interpublic Group of Co subsidiary R/GA Media relocating from nearby 350 West 39th Street.
The move by the digital advertising firm was prompted by the sale of its former location to hotel developer McSam Hotel Group in 2014 for
future redevelopment. Asking rents at the building reportedly range $78-$80 per square foot, a figure that is above market for the area due
to major renovations currently underway at the Far West Side tower.
395 Hudson Street (Hudson Square) – 152,670 square feet was absorbed as a result of the sublease signed by WebMD. The space
formerly occupied by sublandlord test preparation company Kaplan had 9-years remaining on the lease term; and included (1) 5-year option
for a direct lease with landlord NY District of Carpenters. The online health information and news provider reportedly paid above the original
asking rent in the low-$50s in exchange for Kaplan providing tenant improvement (TI) funds for a state-of-the-art buildout. WebMD relocated
from Google’s 111 Eighth Avenue (Chelsea/MePA), having struck a buyout of their remaining term that ran through November 30, 2015.
225 Liberty Street (World Trade Center) – 727,529 square feet was absorbed as a result of Time Inc. relocating to the Brookfield Place
complex. The move represented a downsizing by the publisher that was spun-off from Time Warner Inc. in 2014, vacating its roughly
1.1 million-square-foot headquarters occupied since 1959 at 1271 Sixth Avenue (Columbus Circle). A $10 million incentive package was
awarded by New York State. According to sources the asking rent was reportedly near $60 per square foot, but Time will have a starting
rent in the low-$50s for the 15-year lease that was valued at $506 million.
One World Trade Center (World Trade Center) – 273,004 square feet was absorbed as a result of the move-in by the U.S. General Services
Administration (GSA). The lease that spans entire floors 50-55 runs 20-years plus renewal options for an approximate deal value of reportedly
$351 million. The Port Authority of NY & NJ (PANYNJ) had authorized $42.5 million in tenant improvements (TI) as part of the signing
according to sources.
1 New York Plaza (FiDi) – 157,162 square feet was absorbed as a result of OSP Group relocating and consolidating former offices at 463and 462-468 Seventh Avenue (Penn Plaza). The online apparel retailer was awarded a $1.8 million grant from the Empire State Development
& Economic Development Corp. for the creation of 150 new jobs. OSP reportedly invested $20 million in the move.
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Submarket ReCap: Midtown
Affordability Along the 3rd Avenue Corridor Draws Tenants
The 3rd Avenue corridor between East 39th- and 57th Streets has seen a significant uptick in
leasing activity over the last 2-years as an influx of tenants are lured by its affordability. At a
time when a tremendous volume of new development throughout the city is adding new office
inventory at high prices, the Midtown East neighborhood has become an ideal option that along
with lower rents reportedly offers amenity-loaded buildings that are still close to transportation.
Available space within the corridor diminished by about 50% from almost 4 million square feet
between the end of 2013 through the 3rd quarter of 2015 according to reports, establishing a
diversified mix of industries. Some notable deals over the last 2-years include:
Midtown
Class A and B
Vacancy
7.79%
Rental Rate
$63.26 per sq. ft.
Net Absorption
99,597 sq. ft.
•
Schulte Roth & Zabel / 919 Third Avenue – A 15-year renewal of 283,894 square feet by the law firm in 2014;
•
Bloomberg LP / 919 Third Avenue – A 15-year lease/expansion for 254,556 square feet that spread across 8-floors at the tower by the media/research
conglomerate in 2015;
•
EisnerAmper / 750 Third Avenue – An 8-year renewal/expansion for a total of 150,000 square feet by the accounting firm in 2013;
•
Grant Thornton / 757 Third Avenue – A 15-year relocation deal for 130,357 square feet by the independent tax advisory firm in 2014, vacating about
103,486 square feet at nearby 666 Third Avenue;
•
Interpublic Group (IPG) / 909 Third Avenue – A 12-year sublease for 112,300 square feet by the advertising company in 2015, previously occupied by
Forest Laboratories;
•
NYC Empire State Development / 633 Third Avenue – A 10-year renewal of 104,200 square feet by the New York State agency in 2013;
•
Troutman Sanders / 875 Third Avenue – A 15-year relocation deal for 87,126 square feet by the law firm in 2014.
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Submarket ReCap: Midtown (cont’d)
Times Square’s Big Block Vacancies Offer Ideal Property Upgrade Opportunity
Despite over 2 million square feet of vacant office space within the district, area landlords are reportedly not overly worried about filling the big blocks of space
resulting from recent and upcoming relocations; and instead taking advantage of the opportunity to upgrade properties to better compete with newer construction.
A prime example is at 4 Times Square where Condé Nast vacated about 800,000 square feet earlier this year upon relocating to One World Trade Center. As
part of the deal, the Port Authority of NY & NJ agreed in 2010 to take over the remaining 4-years in rent of the publisher’s lease, valued at about $200 million.
In addition Skadden Arps Slate Meagher & Flom will be vacating 644,671 square feet at the Times Square tower in 2020 when the law firm relocates to 1
Manhattan West, 400 West 33rd Street. Landlord The Durst Organization plans to invest $80-$100 million to renovate the building, also planning to convert
Condé Nast’s 4th floor 20,000-square-foot cafeteria into a food court; utilizing the remaining 25,000 square feet on the floor for a conference center with access
to a 20,000-square-foot outdoor space.
However some sources monitoring activity in Times Square are keeping a steady eye on renewal discussions by Morgan Stanley at 750 Seventh Avenue. Should
negotiations fail to keep the financial firm in their over 400,000 square feet, a relocation would significantly impact vacancy in the district. Furthermore, sizeable
leases along bordering 6th Avenue are reportedly nearing expiration in 2018 and 2019; and should large blocks be introduced to the market, would create direct
competition for landlords of Times Square buildings.
Currently News Corp. & 21st Century are considering vacating roughly 1.2 million square feet at 1185- and 1211 Sixth Avenue, having signed a non-binding
letter of intent (LOI) to relocate to 2 World Trade Center upon lease expiration in 2020. Other nearing lease expirations include Home Box Office’s (HBO) lease
for 350,000 square feet at 1100 Sixth Avenue (aka 51 West 42nd Street) that was renewed in 1999 with a 2018 expiration; and accounting firm RSM McGladrey,
Inc’s 2008 renewal/expansion of their 164,771 square feet office that will also expire in 2018.
2015 Highlights - Lease Deals over 140,000 square feet
Tenant
Address
District
Sq. Ftge.
Type/Term
Industry
Publicis Groupe
1675 Broadway
Columbus Circle
580,000
Renewal/Expansion
(16 yrs)
Advertising
Skadden Arps Slate et. al.
(1 Manhattan West)
Penn Plaza
550,000
Relocation (20 yrs)
Law
MetLife
200 Park Avenue
Grand Central
495,551
Relocation (12 yrs)
Insurance
Kirkland & Ellis
Plaza
403,000
Extension (20 Yrs)
Law
Morgan Stanley
750 Seventh Avenue
Times Square
400,000
Renewal
Finance
Interpublic Group (IPG)
(5 Manhattan West)
Penn Plaza
278,037
Renewal/Expansion
(15 yrs)
Advertising
Bloomberg LP
919 Third Avenue
Plaza
254,556
Expansion (15 yrs)
Media
J. Walter Thompson
237 Park Avenue
Grand Central
270,000
Renewal (10 yrs)
Marketing
Chanel
9 West 57th Street
Plaza
230,000
Expansion (15 yrs)
Fashion
Fortress Investment Group
1345 Sixth Avenue
Columbus Circle
200,000
Renewal/Expansion
Finance
Citadel
425 Park Avenue
Plaza
200,000
Relocation (15 yrs)
Finance
10 Hudson Yards
Hudson Yards
193,295
Relocation (15 yrs)
Consultants
WeWork
1460 Broadway
(8 Times Sq)
Times Square
180,000
New (20 yrs)
Co-work
Nike
855 Sixth Avenue
Penn Plaza
147,000
Relocation (11 yrs)
Footwear
Foot Locker
330 West 34th Street
Penn Plaza
145,000
Area Relocation
(10 yrs)
Footwear
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Hudson Yards Leasing Activity Update
Activity at the multi-building Far West Side project being constructed by Related Companies and Oxford Properties Group has picked up speed in recent months,
October bringing the topping-out celebration of 10 Hudson Yards. Upon full completion, the 28-acre site will deliver an estimated 17 million square feet of new
mixed-use space. Currently there are 3-buildings plus a 7-story retail component that are in different phases of construction amongst the 6-buildings and nearly
10 million square feet of new mixed-used space that will eventually rise in the Eastern Yard as part of Phase 1 of the massive project. Phase 2 of the project
located on the Western Yard will be roughly half the size of Phase 1 and scheduled for a 2024 completion. Tentative plans reveal 8-buildings — 7-residential
buildings, 1-office tower approximately 2 million square feet, and a 750-seat school.
The project which has been successful in attracting some notable large block tenants will face increased competition as other large projects on the Far West
Side take shape, such as Brookfield Property Partner’s multi-building Manhattan West totaling roughly 5.4 million square feet; Tishman Speyer’s planned 2.9
million square-foot project at 435 Tenth Avenue; and Moinian Group’s planned 1.8 million-square-foot development at 555 West 34th Street dubbed 3 Hudson
Boulevard.
10 Hudson Yards aka 501 West 30th Street
The first tower to break ground at the multi-building project with an expected delivery in June, currently boasting a roughly 90% occupancy. The 52-story, 1.7
million-square-foot building will house office space beginning on the 8th floor, plus a retail component that will include a 46,000-square-foot Food Hall to be
operated by restaurateur Danny Meyer according to a pending deal announced earlier this year. Large lease signings during the 4th quarter include:
Boston Consulting (BCG) – The Boston, MA-based global consulting firm has leased 193,295 square feet spread across entire floors 42-47 in a 15-year deal
at the tower. BCG is currently headquartered in a roughly 96,500-square-foot office at 430 Park Avenue (Plaza) where they have been a tenant since 2002; and
another 50,342 square feet they are reportedly subleasing from Credit Suisse that expires April 2017. BCG will be relocating 500 employees in the fall of 2016,
joining anchor tenant Coach in a 740,000-square-foot condo interest acquired in 2013 as well as SAP America, L’Oreal and VaynerMedia.
Designs for the new space will be eclectic, with a non-corporate feel and flexible space to support different work styles and uses while supporting wellness and
sustainability for employees. A central hub for clients and employees to interact will be surrounded by an “immersion room” that facilitates real-time sharing
with multiple, interactive display screens to allow virtual editing; and hexagonal-shaped “venture rooms” with touch-screen monitors for accelerating the design
and incubation of new business. Technology through BCG’s new office will enable work anywhere and anytime.
As a result of the recent deal the tower will be over 90% leased, paving the way for a potential partial sale that would allow developers Related Companies and
Oxford Properties Group to capitalize on the value they created and provide cash to help finance further construction at the multi-building project.
10 Hudson Yards Tenant Roster Snapshot
Company
Sq. Ftge.
Floors
Industry
Coach
737,774
E9-23, P24
Leather Goods
Condo unit acquired in 2013 for $750 million ($1,034 per square foot)
VaynerMedia
88,000
P24, E25
Digital Marketing
L’Oreal
466,032
E27-36
Cosmetics
193,295
E42-47
Consulting
SAP America
144,066
E48-52
Technology
55 Hudson Yards aka 550-570 West 34th Street
The 51-story, 1.3 million square foot tower broke ground in January. The building is being constructed along with Japan-based Mitsui Fudosan America, as a
result of a $258.8 million investment purchase for a 90% stake announced in early 2015.
Company
Sq. Ftge.
Floors
Industry
Boies Schiller & Flexner
83,292
E14-16
Law
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Lease Deals to Watch For
GEMS Education / 111 East 59th Street aka 110 East 60th Street (Plaza) – The Dubai, U.A.E-based operator of K-12 schools is reportedly in talks to lease
the entire office component of the 200,000-square-foot tower also known as the Sol and Lillian Goldman building. If the deal moves forward, the roughly
174,000-square-foot space will house a private school. GEMS currently runs over 70 schools in over 12 countries; and has a corporate office at Midtown East’s
555 Madison Avenue. Rumors of the deal come just over 1-year following a failed net lease by the school operator for a planned school at the Upper East Side’s
1802-1810 Second Avenue and 303-305 East 93rd Street due to GEMS’ inability to fund its security deposit.
Lease Deal Highlights - 4th Quarter 2015
WeWork / 300 Park Avenue (Plaza) – The co-working space provider that appears to be taking over the city has added 109,631 square feet to the company’s
continually growing footprint in Manhattan. We Work is expected to occupy the new space spanning entire floors 12-14 next spring. The space was subleased
from the building’s anchor tenant Colgate-Palmolive; and has a remaining term that reportedly runs to June 2023. Colgate-Palmolive had reportedly secured the
15-floor, 537,000-square-foot deal at the peak of the market in early 2008 for $100+ per square foot, returning space on the 16th – and 15th floor in 2010 and
2011 respectively. In 2013 when the household products giant introduced the sublease to the market, industry sources anticipated it would attract a deal in the
$85-$90 per square foot range depending upon landlord contributions.
WeWork is currently seeking a $750 million credit facility, having approached both JPMorgan Chase and Deutsche Bank with the intention to use the funds to
restructure operations and further expand its footprint, which reportedly totals over 1 million square feet in the city. The company’s latest signing is one amongst
4-other sizable deals reported this year:
•
85 Broad Street (FiDi) – 240,000 square feet;
•
1460 Broadway (Times Square) – 180,000 square feet;
•
315 West 36th Street (Penn Plaza/Garment) – 136,118 square feet;
•
88 University Place (Union Square) – 82,000 square feet, expected to eventually occupy the entire building’s 94,000 square feet.
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Indeed / 1120 Sixth Avenue (Times Square) – The job search engine will be moving 11-blocks south, having signed a 7-year lease for 125,000 square feet
spanning entire floors 9, 11-13, and 16 at the 21-story tower. The company which has more than doubled its employee count since 2012, growing from 112 to a
current 250 people, will relocate from their current 55,000-square-foot office at 125 West 55th Street (Columbus Circle) in January.
Fir Tree / 55 West 46th Street (Times Square) – The hedge fund signed a 10-year deal for 31,126 square feet at the building known as Tower 46 at a reported
asking rent of $100 per square foot. The lease signing is the first since SL Green Realty acquired the office component at the end of last year, which is situated
on the “other side” of Extell’s International Gem Tower in the Diamond District corridor. The 319,000-square-foot office rental component spans floors 22-34
as well as the 2nd floor; and is an entirely separate building within the tower developed by Extell. The remaining floors in the tower go by the address 50 West
47th Street; and are condo units dedicated to the gem industry.
Gensler / 1700 Broadway (Columbus Circle) – The architectural design firm has reportedly leased 119,414 square feet spread across floors 2-6 at the 42-story
tower at a reported asking rent of $59 per square foot. The space appears to have been part of the 118,789 square feet vacated earlier this year by DC
Entertainment’s DC Comic division. As a result of the 12-year deal the company will be relocating next spring from 1230 Sixth Avenue, where they have been
a tenant since 2010. The move will result in an expansion from their current 55,650-square-foot office on the 15th- and 16th floors of the Plaza district tower.
Morgan Stanley / 1633 Broadway (Columbus Circle) – The finance firm will be expanding their presence at the 48-story tower, having reportedly leased
260,829 square feet spread across entire floors 26, 27, 29, 30 and 33. Currently housed in 60,000 square feet, the company will assume the new space in early
May. The 15-year deal reportedly had an asking rent in the low- to mid-$70s per square foot.
1301 Sixth Avenue (Columbus Circle) – Leasing activity along the Sixth Avenue corridor continues to rebound, exemplified by the recent run of lease deals at
Paramount Group’s 46-story tower.
•
Susman Godfrey – The law firm will be relocating to a 31,000-square-foot office spread across the entire 32nd floor from 560 Lexington Avenue (Plaza).
•
Oak Tree Capital Management – The finance firm will increase their footprint to 63,000 square feet, combining the addition of the 33rd floor to their existing
space on the 34th floor for which their lease was extended.
•
Key Bank – The Cleveland, OH-based bank signed a relocation deal to occupy 73,000 square feet spread across entire floors 36-37 and a portion of the
35th floor upon moving from 575 Fifth Avenue (Grand Central).
In addition the building’s landlord Paramount Group has leased approximately 167,000 square feet which they plan to renovate. Currently located at nearby 1633
Broadway, the REIT made headlines in 2014 following the $2.6 billion raised in an initial public offering (IPO), opting to go public versus earlier considerations of
a private sale.
L-3 Communications / 600 Third Avenue (Grand Central) – The contractor of aerospace systems and national security solutions has reportedly renewed their
lease at the tower. A tenant in the 42-story building for a few decades, the company will remain in its 100,000-square-foot headquarters for another 15-years,
spreading across portions of the 18th, 26th, and 28th floors as well as entire floors 32-35 and 38 in the tower.
The Social Edge / 1001 Sixth Avenue (Penn Plaza/Bryant Park) – The social-media marketing and content management firm leased 12,000 square feet on the
14th floor at the 25-story tower. The relocation deal had a reported asking rent in the mid-$50s; and as a result of the signing announced in October, will relocate
the company’s offices a few blocks north of their existing location at 1350 Broadway (Penn Plaza).
Sources:
https://www.reit.com/news/reit-magazine/november-december-2015/paramount-groups-well-honed-growth-strategy
http://www.bdcnetwork.com/gensler-moves-new-new-york-office
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Submarket ReCap: Midtown South
Union Square Partnership: 2015 Commercial Report
According to a report released in May by the BID, the area around Union Square Park between
14th and 17th Streets continues to enjoy strong office leasing activity, particularly amongst
technology, advertising, media and information (TAMI) businesses. The neighborhood’s creative
vibe, 24/7 environment; and proximity to 8-subway lines, over 10-bus lines, New Jersey’s PATH
train, and 12 Citi Bike docking stations has been successful in attracting new economic drivers
such as Buzzfeed. The digital media company’s move-in this summer to their 194,000-square-foot
office at 225 Park Avenue South is expected to bring over 500 jobs to the area.
Midtown South
Class A and B
Vacancy
4.33%
Rental Rate
$70.46 per sq. ft.
Net Absorption
325,651 sq. ft.
The neighborhood offers diversity and a well-balanced mix of residential, office, retail, and leisure components.
Union Square District Profile
Demographics
Total Population
74,897
Housing Units
43,741
Total Businesses
9,787
Total Employees
153,861
Top Firms by Number of Employees
Con Edison
4,278
Mount Sinai Beth Israel
4,000
J. Crew
3,800
The New School
3,023
Tory Burch
1,800
NYU Administration
1,600
NYU Hospital for Joint Disease
1,087
New York Eye & Ear Infirmary
800
Barnes & Noble
700
ABC Carpet & Home
525
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Submarket ReCap: Midtown South (cont’d)
Flatiron 23rd Street Partnership: Fall 2015 Statistics
According to the release in November of the BID’s “Synergies of Real Estate & Co-working Culture” report, the Flatiron district is currently home to 26 coworking and incubator office spaces totaling over 680,000 square feet. A significant surge in co-working space resulted in total square footage throughout the
district increasing by over 340,000 square feet. WeWork is currently the largest tenant within the neighborhood, accounting for about 33% of co-working space
in and around the BID, spread across 3-locations with a combined total of 226,300 square feet — 401 Park Avenue South, 79 Madison Avenue, and 120 East
23rd Street. Other co-working space providers include:
Flatiron Roster of Co-working Space Providers
qLabs
500 Start Ups
Select Office Suites
TurnToTech
Virgo
The Yard (2 locations)
42West24
Micro Office Solutions/Coalitions
Regus (2 locations)
Sovvos
In Good Company
NeueHouse
Grind
Rise New York
Cowork|rs
Tenant
Address
District
Sq. Ftge.
Type/Term
Industry
Google
Pier 57 “Superpier”
Chelsea
250,000
New (15 yrs)
Technology
WebMD
395 Hudson Street
Hudson Square
147,670
Relocation
(9 yr-sublet)
Healthcare
Estée Lauder
28-40 West 23rd Street
Flatiron
100,000
Expansion
Cosmetics
PayPal
95 Morton Street
Hudson Square
95,000
Relocation (12 yrs)
Technology
Anheuser-Busch InBev
119-125 West 24th Street Chelsea
83,686
New (11 yrs)
Food/Beverage
Facebook
770 Broadway
Greenwich Vil.
79,998
Expansion (9 yrs)
Technology
Ralph Lauren/Club Monaco
601 W 26th Street
Chelsea
60,000
Expansion
Fashion
WeWork
88 University Place
Union Square
52,000
New
Co-work
One Kings Lane
315 Hudson Street
Hudson Square
51,576
Area relocation
Homeware
Bed Bath & Beyond
503-511 Broadway
SoHo
47,550
Renewal (10 yrs)
Homeware
Law360
112-118 W 20th Street
Chelsea
46,000
Relocation (10 yrs)
Media
SoundCloud
50 West 23rd Street
Flatiron
43,669
Area Relocation
(5 yrs)
Media
FanDuel
300 Park Avenue South
Flatiron
41,000
Relocation
Technology
Criteo
387 Park Avenue South
Flatiron
40,238
Relocation (10 yrs)
Technology
Sources:
http://unionsquarenyc.org/wp-content/uploads/2013/07/FinalCMR2015.pdf
http://www.flatirondistrict.nyc/uploaded/files/Where%20Then%20Meets%20Now/Where_Then_Meets_Now_FINAL_11415.pdf
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Submarket ReCap: Midtown South (cont’d)
Google / Pier 57 “Superpier” (Chelsea) – The Mountain View, CA-based technology company continues to expand its footprint in the city,
recently signing a 15-year lease for 250,000 square feet at the pier that will be redeveloped by the team of Youngwoo & Associates and
RXR Realty. The deal comes about 7-months after the announced signing by the company of a letter of intent (LOI) to take a large block of
space at the former Marine and Aviation building. As a result of the late December deal, only 50,000 square feet of the 300,000-squarefoot office component remains, as part of the planned 560,000-square-foot office/retail redevelopment. The deal will be contingent upon
the board of the park’s overseer Hudson River Park Trust (HRPT) voting to approve the lease.
WeWork / 88 University Place (Union Square) – The co-working space provider reportedly leased 82,000 square feet at the 11-story
building. Ownership will be renovating the building in anticipation of WeWork’s occupancy, including new lobby entryways, new elevator
cabs, mechanical and HVAC upgrades, as well as common area improvements. The new outpost will initially spread across 8-floors, but
WeWork is ultimately expected to expand into the building’s entire 94,000 square feet.
Eli Lilly & Co. / Alexandria Center for Life Sciences, 430 East 29th Street (Kips Bay) – The Indiana-based global pharmaceutical
company signed a 30,000-square-foot expansion that upon the 2016 occupancy will be expanding from the
90,000-square-foot the company leased in 2010. As a result of the 10-year deal, Eli Lilly will be adding 50
new jobs and expand its biotech center. Other pharmaceutical companies at the 2-building campus that sits
alongside the FDR Drive include Pfizer, Roche Holding AG, and New York University Neuroscience Institute.
Delos Living / 860 Washington Street (MePa) – The New York-based development company that focuses
on WELL Building Standard designed buildings expanded its presence in the city as a result of the 10year, 21,979-square-foot lease announced in October. The company will be expanding from their current
5,000-square-foot office at nearby 22 Little West 12th Street upon tentatively relocating before the end of
the year. Delos is the first tenant to lease space at the 12-story, 125,000-square-foot mixed-use development
currently under construction by co-developers Property Group Partners and Romanoff Equities. The new
office that features a 4th floor terrace will spread across the entire 4th- and 5th floors at reported asking
rents of $160- and $140 per square foot respectively.
860 Washington Street - Rendering
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Submarket ReCap: Downtown
Downtown Alliance: 3rd Quarter 2015 Report
The market overview released in November by the Downtown BID reveals that
although the trend of financial firms leaving the Financial District has been more
prominent since the economic downturn, Lower Manhattan’s tax incentive programs
have been effective in attracting some new large-block financial firms from across
the Hudson. The summer announcement of Knight Capital Group’s (KCG Holding)
relocation deal for 168,876 square feet at the NY Mercantile Exchange, 1 North End
Avenue (aka 300 Vesey Street) reportedly represented one of the largest signings in
the Downtown area.
Downtown
Class A and B
Vacancy
9.13%
Rental Rate
$54.85 per sq. ft.
Net Absorption
1,132,645 sq. ft.
Leasing activity from TAMI (technology, advertising, media, information) and Apparel & Retail Trade tenants regained momentum in the
3rd quarter as the industry profile for the submarket continues to reflect a more diversified mix of industries, despite the FIRE (Finance,
Insurance, Real Estate) sectors retaining the largest footprint in the submarket. However some recent lease signing, as well as a few large
pending deals should they materialize, could increase the TAMI industries’ market share Downtown such as:
Associated Press (AP) / 200 Liberty Street – A planned relocation that will see the media company move into 172,000 square feet in
2017; and
News Corp. and 21 Century Fox / 2 World Trade Center – A potential lease for about 1.3 million square feet at the tower that may break
ground next year.
Tourism continues to be a significant economic driver for the neighborhood; and through the end of September 2015 reportedly welcomed
3.9 million visitors to the Statue of Liberty, with expectations of exceeding 2014 numbers; One World Observatory which opened in May
2015 celebrated its 1 millionth visitor on September 24th.
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Submarket ReCap: Downtown (cont’d)
Downtown Alliance: Lower Manhattan Surging Ahead
According to the report released in November by the Downtown Alliance, Lower Manhattan’s economic revival will not only impact the
Downtown neighborhood, but will also serve as an engine for economic growth for both New York City and New York State. During 2015,
the Downtown neighborhood below Chambers Street began seeing a swell of new tenants moving into the area as billions of dollars of
capital projects began coming online towards the end of 2014 delivering new state-of-the-art office buildings, additional retail, hotels and
residential buildings. Lower Manhattan’s resurgence has sparked the most significant and sustained period of job growth seen in the
area in the last 30-years; and will exceed rates of job growth and Gross Domestic Product (GDP) expansion that is expected to outpace
citywide estimates for the years ahead, establishing the neighborhood as one of the most important centers of economic activity in the
city and state.
Some significant factors contributing to Downtown’s employment growth is:
•
An extensive transportation network that provides convenient citywide access to Lower Manhattan;
•
24 adult/continuing and degree-granting institutions of higher education;
•
23 not-for-profit agencies focused on workforce development issues; and
•
6 city, state and federal agencies aimed at assisting businesses and promoting workforce development.
As of the 4th quarter of 2014:
•
227,069 – The approximate number of private sector employment which reflected a post-September 11 peak;
•
3,436 – The average number of people per neighborhood in New York City that commute to work in Lower Manhattan;
•
100,000 – The approximated number of people working in occupations that do not require a 4-year college degree due to the area’s
diverse private sector economy that provides work opportunities of varying levels of skill and education.
Significant developments projected in Lower Manhattan during the period of January 2015 through the end of 2019 include:
•
4.3 million square feet of space occupied by major office tenants relocating to the area, including companies seeking room to expand;
•
2.5 million square feet of additional new state-of-the-art office space will come online with the opening of 3 World Trade Center;
•
3,941 additional hotel rooms spread across 23 new hotels are expected to be delivered, increasing Lower Manhattan’s hotel
inventory by 80%;
•
15 million unique annual visitors are estimated in comparison to the over 2.6 million number since 2014;
•
5,227 additional housing units spread across 31 new residential buildings representing an 18% increase in inventory;
•
2.3 million square feet of new retail space representing a 53% increase from 2014;
•
40,000 new private sector payroll jobs anticipated as employment in the area is expected to grow by an annual average rate of 2.4%
during the 5-year period, with a median wage for a majority of the new jobs estimated at over $100,000 annually;
•
$858 million is the estimated increase in city tax revenue contribution projected; and an expected $810 million rise in state tax
revenues, representing a 35% and 34% increase by 2019 respectively.
Sources:
http://www.downtownny.com/sites/default/files/research/Lower%20Manhattan%20Surging%20Ahead%20112015.pdf
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Tenant
Address
District
Sq. Ftge.
Type/Term
Industry
WeWork
85 Broad Street
FiDi
240,000
New
Co-Work
Associated Press (AP)
200 Liberty Street
(Brookfield Pl)
World Trade Center
172,000
Relocation (20 yrs)
Media
Knight Capital Group (KCG)
1 N End Avenue
(300 Vesey St)
World Trade Center
168,876
Relocation - NJ (15 yrs)
Finance
OSP Group
1 New York Plaza
FiDi
157,210
Relocation (15 yrs)
E-Commerce
Ironshore Insurance
28 Liberty Street
FiDi
101,958
Area Relocation (15 yrs)
Insurance
Gucci
195 Broadway
World Trade Center
83,964
Relocation (15 yrs)
Fashion
SportsNet New York (SNY)
4 World Trade Center
World Trade Center
83,000
Relocation/Expansion
Media
Ambac Financial Group, Inc
1 State Street Plaza
FiDi
79,740
Renewal
Finance
Moody's
World Trade Center
76,001
Area Expansion
Credit Rating
Services
Sandbox Studio
55 Water Street
FiDi
67,706
Relocation (16 yrs)
Media
Planned Parenthood
123 William Street
Insurance
65,000
Relocations (15 yrs)
Non-profit
Port Authority of NY & NJ
115 Broadway
World Trade Center
62,000
Renewal
Gov't Agency
Sources:
http://www.downtownny.com/sites/default/files/research/Q3%202015%20Final.pdf
http://www.ap.org/Content/AP-In-The-News/2015/The-Associated-Press-to-move-to-new-NYC-headquarters-in-2017
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Lease Deals to Watch For
McGraw-Hill Financial / 55 Water Street (FiDi) – The financial information provider is reportedly nearing a deal that was expected to be
completed before the end of 2015 to renew their 1.1 million-square-foot lease at the Lower Manhattan tower that expires in 2020. The
space originally leased to the company’s Standard & Poor’s Ratings Services division in 1999 is now shared by the parent company due
to last year’s relocation. McGraw Hill negotiated an early lease buyout for $60 million, vacating its 413,000-square-foot headquarters of
43-years at 1221 Sixth Avenue prior to its 2020 expiration. The company continues to reposition their focus, selling off its publishing and
textbook businesses in recent years; and reportedly more recently considering the sale of global market research business J.D. Power.
85 Broad Street (FiDi) – The 30-story tower served as Goldman Sach’s headquarters for 30-years prior to relocating to their new building
at 200 West Street (World Trade Center) in 2009.
•
Vox Media – The Washington, D.C.-based online publisher is reportedly in advanced discussions to lease over 70,000 square feet
spread across 2-floors. If the deal moves forward, the company will relocate from an over 21,000-square-foot office in Midtown at 104
West 40th Street (Penn Plaza/Garment).
•
Engine – The San Francisco-based non-profit that is a political advocacy group for public policies that encourage growth of technology
startups is reportedly rumored to be in late-stage negotiations to lease 50,000 square feet at the tower.
GroupM / 3 World Trade Center (World Trade Center) – The London-based media buying and planning division of WPP, PLC will be
increasing its presence to 686,000 square feet at the tower that is currently under construction and expected to deliver in 2018. News
came during the first week of January that the company signed an expansion deal for 170,000 square feet spread across entire floors 3235. The deal represents a significant expansion on top of the 20-year lease for 516,000 square feet spanning entire floors 11-16 and 28-31
made in 2013; and brings the 2.5 million-square-foot tower up to 28% occupancy — a good start for a speculative development. GroupM
will be consolidating its current office at 498 Seventh Avenue (Penn Plaza) and a few other uptown locations.
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Lease Deal Highlights (cont’d)
xAd / 1 World Trade Center (World Trade Center) – The mobile advertising firm has doubled their footprint at the tower. Their office will now
spread across 2-floors at the tower as a result of the amendment to the original lease. The recent deal for the entire 61st floor announced
in November will result in the company’s office space increasing to a total of 87,483 square feet. xAd had initially leased the entire 60th
floor last year, for which they were awarded $3.4 million from the NYS Empire State Development Excelsior Jobs Program in exchange for
retaining 76 jobs and creating 350 more over lease term. The company is currently headquartered at 401 Park Avenue South, and reportedly
intends to retain the space.
SportsNet New York (SNY) / 4 World Trade Center (World Trade Center) – The sports broadcasting network controlled by New York Metsowner Fred Wilpon leased 83,000 square feet for a new headquarters in a 17-year deal announced mid-November. The new office/studio
space spread across the tower’s 49th and 50th floors will be shared by real estate firm Sterling Equities, which is currently located at
75 Rockefeller Plaza (Plaza) — also controlled by Wilpon; as well as house SNY’s broadcast studios which are currently located in 39,000
square feet at the base of the Time & Life Building, 1271 Sixth Avenue (Columbus Circle). As a result of the lease signing, the 72-story
tower that opened in November 2013 is now 65% leased.
Namely / 195 Broadway (World Trade Center) – The human resources software developer has expanded their footprint at the 29-story
tower, adding the entire 11th floor for a total square footage of 83,919 square feet. The 10-year deal had a reported asking rent of around
$58.00 per square foot. The company plans to consolidate both a Midtown and Brooklyn office into a single office, having initially leased
41,982 square feet spread across the entire 15th floor at the Lower Manhattan location earlier this year. The company intends to move into
the new space by the middle of 2016.
Cambridge University Press / 1 Liberty Plaza (World Trade Center) – The publishing company that dates back to the 16th century will be
heading further south, having recently leased 39,771 square feet at the Lower Manhattan tower. The 15-year signing will see the publisher
relocate from their current Manhattan headquarters at 32 Sixth Avenue (TriBeCa). The deal further exemplifies the growing trend of media
companies shifting Downtown, as Cambridge joins other major publishers Condé Nast, Time Inc., HarperCollins, and Macmillan Science
& Education.
Teachers’ Retirement System of the City of New York / 55 Water Street (FiDi) – The U.S. pension system will be expanding their
presence at the Lower Manhattan tower as a result of the 20-year early renewal deal announced in December. The Teachers’ fund will be
grow from its current space of 160,000 square feet under a lease that was due to expire in 2019, to a total of 200,000 square feet at a
reported asking rent of $58 per square foot.
Sources:
http://www.wsj.com/articles/whats-the-deal-1449455542
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Stuyvesant Town / Peter Cooper Village Sale
The deal that reportedly closed in December further exemplifies the city’s strong real estate market. Stuyvesant Town / Peter Cooper
Village rebounded from a reported low value of less than $2 billion in 2010, to the peak-market price of $5.4 billion in 2006 when acquired
by Tishman Speyer and BlackRock. Some sources point-out that the impressive rebound was partially attributed to the return of investors
that vanished during the economic downturn, now hungry to grab a piece of the “Big Apple” — particularly amongst foreign pension and
sovereign-wealth funds. Residential rental properties are seeing an uptick in investor interest as average monthly rents rise pushing the
asset’s value higher. The upward momentum of rents has been partially driven by the increasing demand of the city’s surging population; as
well as the high cost of land and construction labor favoring the influx of high-end condominium developments that are quickly overtaking
Manhattan’s rental property inventory. The sale of the property located east of 1st Avenue between 14th and 23rd Streets had been
expected to fetch between $5 and $6 billion; and was a looming concern for Mayor de Blasio who has made the preservation of affordable
housing the centerpiece of his administration
Timeline Snapshot - 2015
October 2015
Blackstone Group in partnership with Ivanhoe Cambridge, the real estate subsidiary of Quebec’s public pension-fund manager La Caisse
de Depot et Placement du Quebec, was the winning bidder to acquire the 80-acre complex. The sale of the complex comprised of roughly
12 million square feet, including about 140,000 square feet of retail space, resulted in a roughly $5.45 billion purchase from special servicer
CWCapital Asset Management — $4,111,111,767 for Stuyvesant Town and $1,345,485,020 for Peter Cooper Village. Each partner is
reportedly investing $1.3 billion in equity. Wells Fargo’s multifamily division is originating the acquisition financing that will reportedly carry
a roughly 50% loan-to-value (LTV) ratio; and be backed by agency debt through Fannie Mae with a $2.7 billion credit guarantee. Fannie Mae
intends to sell off the 10-year debt to investors in the form of commercial mortgage-backed securities (CMBS) stamped with its repayment
guarantee backing the $5.3 billion acquisition by the U.S. Federal Government, on top of New York City’s $225 million subsidy package
for the buyers. In contrast to the 2006 acquisition, the deal will take on little debt with intentions for steady returns versus quick profits.
Contracts for what will be a long-term investment were signed on October 20th, with both financing and the acquisition closing
simultaneously in December. Earlier threats of a lawsuit by the older ownership’s lenders against special servicer CWCapital that could
have delayed the yearend closing were put to rest, the plaintiffs withdrawing their suit mid-December. An approximately $3 billion in CMBS
debt from the previous ownership spread across (5) 2007 deals will likely be paid off as a result of the sale according to reported info
from real estate and financial data firm Trepp. Fortress Investment Group’s CWCapital is expected to collect a 0.25%-fee on the total debt
yield plus a fee when the sale closes, which some sources estimate could reach as high as $615 million — $45 million from the standard
servicing fees, a $15 million liquidation fee, and $555 million from the value of the property that has significantly risen beyond the $3 billion
1st mortgage debt.
.
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Stuy-Town (cont’d)
Certain concessions were included in the deal to help retain partial affordability amongst the 11,247-units:
•
4,500-Units would be reserved for middle-income families for a term of 20-years
•
500-Units would be dedicated to low-income families
•
Conversion to condominiums will not be pursued
Currently about 55% of the units are reportedly already market-rate; and the complex’ current annual operating income has risen to $200
million versus the $112 million figure in 2006. Market-rate rents will reportedly be phased-in over 5-years for an additional 1,200 apartments
when certain tax benefits wear off in 2020. In exchange for these concessions, the city agreed to waive $77 million in mortgage recording
taxes; and provided the purchasers a roughly $143.719 million low-interest loan through the Housing Development Corporation (HDC).
The 20-year HDC Subordinate Loan will reportedly carry a 0% interest rate throughout the term, “with the principal amount of the HDC
Subordinate Loan being forgiven annually at a rate of $7,185,937.50 per annum” according to the deal’s term sheet. It has been speculated
that the loan was structured in this way to give the city more leverage. Should new ownership not adhere to the affordable-housing
agreement, they would then be required to pay back the HDC loan. The subsidy that has been estimated by the city’s Deputy Mayor to be
about $28,000 per unit, turned out to be a less costly subsidy than the long-term property tax exemption the city had considered last year.
To sweeten the deal the city “agreed to support” Blackstone’s efforts to sell unused development rights to “appropriate receiving
area(s). It has been estimated that the air rights could be worth in the neighborhood of $625 million; and potentially open the door to the
development of as many as 1,000 residential rental units, but the value will rely heavily upon where exactly approved receiving sites will be
located. The majority of the air rights — roughly 1 million square feet will reportedly be transferred elsewhere within the city through a new
entity. The remaining 250,000 square feet of air rights will remain within a Stuyvesant Town associated LLC; and can provide for 200,000
square feet for a community facility, 25,000 square feet each for residential and commercial use, although Blackstone has reaffirmed its
promise not to build anything else on the site according to sources. The added perk awarded by the city reflected the city’s commitment
to work with new ownership according to reported comments by a spokesperson from the Mayor’s office; along with the agreement that
no new development of existing open spaces within the complex would be initiated.
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2015 (cont’d)
September 2015
Litigation that had held up a sale of the complex was finally settled, clearing the way for CWCapital to begin sale efforts which some
sources anticipated would potentially face challenges in the shadow of Tishman Speyer’s failure; and the heated political and legal backlash
of the complex’s takeover in 2006 from MetLife. As a result an off-market sale was decided as the best approach to seeking a new buyer
versus an open-bidding process. Potential buyers were reportedly required to sign confidentiality agreements in order to view financials,
and put down a $10 million deposit.
2014
June 5: It was reported that attorneys representing an unidentified company told CWCapital the previous week that it planned to exercise
a right to buy a critical loan on the complex. CWCapital anticipated that the move might be a 1st step to seize control of the entire complex
and force it into bankruptcy, enabling the new owner to try to purchase the complex for a low price; and thereby thwart the special
servicer’s plan to sell to the highest bidder at a figure that might reach $5 billion.
To protect itself and reportedly provide the most stability to residents, CWCapital canceled the tentatively scheduled June 13 auction
and took title of Stuyvesant Town-Peter Cooper Village via a deed-in-lieu of a foreclosure, transferring the title from the entity that was
once owned by Tishman Speyer — but now controlled by CWCapital, to another entity affiliated with CWCapital thereby avoiding a court
foreclosure process. Even though the auction was canceled it remained possible for an outside buyer to still acquire Stuyvesant Town in
the 2nd half 2014, CWCapital reportedly continuing to evaluate disposition alternatives.
The bond holders represented by CWCapital Asset Management who own Stuyvesant Town and Peter Cooper Village transferred the
ownership of each group of buildings from one entity to an affiliated entity.
The ownership transfer that some industry sources anticipated would give rise to lawsuits, took place on Tuesday, June 3rd, but was
recorded in city records Thursday, June 5th; and valued the 80-acre complex located between 14th and 23rd Streets, comprised of 11,247
residential units in 56 buildings at just over $4.4 billion — Stuyvesant Town at $3.3 billion and Peter Cooper Village at $1.1 billion.
All told, CWCapital paid $134 million in transfer taxes. The city took the lion’s share at $116.5 million — $87.4 million Stuyvesant Town and
$29.1 million for Peter Cooper Village; and the state collected $17.7 million — $13.3 million Stuyvesant Town and $4.4 million for Peter
Cooper Village, according to reported details of the filings.
The transfer costs were borne by the five CMBS trusts: Wachovia Bank Commercial Mortgage Trust, 2007-C30; ML-CFC Commercial
Mortgage Trust, 2007-5; Cobalt CMBS Commercial Mortgage Trust, 2007-C2; Wachovia Bank Commercial Mortgage Trust, 2007-C31; and
ML-CFC Commercial Mortgage Trust, 2007-6.
May 28: CWCapital announced that it would foreclose on the property on June 13, 2014 and conduct a sale in late 2014 or early 2015.
CWCapital pushed hard to raise revenues at the complex, routinely renovating apartments as they became vacant allowing substantial
rent hikes. Under state laws governing rent-regulated housing, a landlord who spends $120,000 renovating an apartment, as the company
did, can raise the legal rent by $2,000 a month. At this point, half the units in the complex had been renovated, with rents now at or near
market rate.
In 2013, net operating income at Stuyvesant Town-Peter Cooper Village climbed to $177.5 million, up 33.6% from 2-years ago, according to
reported information compiled by Trepp, an analytics firm that tracks real estate lending. Analysts expected another big jump in 2014, with
net income topping $195 million — figures reflecting significantly improved financial performance that CWCapital hoped would catch the
eyes of potential buyers.
The prospect of a sale had already drawn interest from real estate companies and hedge funds, including Blackstone, Related Companies,
Extell Development, Centerbridge Partners, and the LeFrak real estate family — one of the bidders on the property back in 2006; some
reportedly contacted Singapore’s sovereign investment fund, the provider of a $575 million loan for Tishman Speyer’s Stuyvesant Town
deal back in 2006 — also investing $189.4 million, but had reportedly sold the loan to another party. Yet Fortress Investments planned bid
of $4.7 billion may have deterred investor interest because CWCapital, as the special servicer for the property is entitled to $424.6 million
in interest related to the mortgage default, giving Fortress an advantage over rival bidders.
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2014 (cont’d)
May 14: Fortress Investment Group, which owns CWCapital, announced that it would make a $4.7 billion offer for the apartment complex;
but still looking for cash financing from equity partners. Critics amongst the complex’ Tenant Association debated whether a purchase by
Fortress Investment represented a conflict of interest as parent company of special servicer CWCapital which is currently managing the
complex on behalf of its bondholders.
May 13: CWCapital announced it would begin foreclosure proceedings on a chunk of the mezzanine debt that’s reportedly worth $300
million and set a sale for June 13, 2014; and by doing so will be able to take over the property, at least temporarily.
2011
The Tenants Association of Stuyvesant Town-Peter Cooper Village announced its own intention to bid on the property in partnership with
Brookfield Asset Management, but a purchase figure was never attached.
January 2010
Tishman Speyer hands over the complex to its lenders to avoid a foreclosure proceeding, unable to increase revenue fast enough to cover
the $4.4 billion in loans secured for the acquisition which resulted in a total loss for the pension funds. Bethesda-based CWCapital takes
over as special servicer, representing a series of trusts holding a $3 billion 1st mortgage.
November 2006
Tishman Speyer and BlackRock led a partnership that purchased the complex near the peak of the last boom for $5.4 billion from insurance
company MetLife who had built the complex in 1947 for returning veterans. MetLife had maintained low rents reportedly in exchange for a
large property tax break and the city’s power of condemnation. New ownership reportedly spent a total of $6.3 billion on the transaction,
using $4.4 billion in loans, $1.9 billion from investors — mostly pension funds, and little of their own money; although an additional
investment of nearly $30 million in capital improvements had been made. At the time, annual operating income for the complex was
reportedly $112 million, about 50% of the revenue required to cover the annual mortgage payment. Efforts to raise operating income by
raising rents through the conversion of a large number of the, at the time, 71% rent-regulated units to market-rate ultimately led to legal
action by tenants.
Sources:
http://www.wsj.com/articles/the-stuyvesant-town-deal-sweetener-1445554680 • http://www.wsj.com/articles/stuyvesant-sale-typifies-boom-in-real-estate-1445388300
http://www.crenews.com/general_news/general/cwcapital-takes-over-stuytown-complex-pays-%241342mln-in-transfer-taxes.html
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http://www.rew-online.com/2014/05/28/stuy-town-tenants-warn-of-trouble-ahead/
Sale Activity
Monetary policymakers in China reportedly plan capital markets reforms that could
facilitate Chinese citizens investing in New York real estate, despite a recent rise in
capital outflow from China that would typically trigger tighter controls. As a result,
residents of a Shanghai free-trade zone may soon be allowed to purchase overseas
assets directly. The reforms may be a trial run for the rest of China, and a broader
effort to loosen capital controls according to sources. It is further anticipated that the
move would open up Yuan-denominated bonds to foreign markets as well.
Quarter-over-Quarter Sale Statistics
Downtown
Japanese Pension Fund to Increase Real Estate Investment
$750
$600
1,500
$450
1,000
$300
500
$150
0
$0
4Q2014 1Q2015 2Q2015 3Q2015 4Q2015
Midtown South
TTL Sq. Ftge.
WTD Price PSF
$1,250
3,500
3,000
Thousands
Japan’s Government Pension Investment Fund (GPIF), reportedly the world’s largest
pension fund, is anticipated to allocate 5% of the fund’s roughly $1.2 trillion in assets
to “alternative investments” including real estate. Potentially investment in overseas
real estate markets could reach $1.8 billion over the coming years. Currently one of
the largest individual players in the global market, GPIF is twice the size of Norway’s
Sovereign Wealth Fund. The country’s ongoing economic recovery has attributed to
Japan’s interest in overseas real estate assets, with the U.S. the recipient of much
of that investment. In 2014 Japan invested $1.3 billion, or 75% of total overseas
investment in U.S. real estate with a focus primarily on office product. New York City
claimed title to the highest sale volume reaching $488 million by Japanese investors,
followed by Honolulu’s total of $288 million. Recent transactions include:
TTL Sq. Ftge.
WTD Price PSF
2,000
Thousands
China’s Central Bank Loosens Capital Controls
$1,000
2,500
2,000
$750
1,500
$500
1,000
$250
500
370 Lexington Avenue (Grand Central) – Acquired the 261,000-square foot tower
for $247 million ($946 per square foot) in October;
•
321 West 44th Street (Hell’s Kitchen) – Acquired the 227,949-square-foot building
for $165 million ($724 per square foot) earlier this year;
•
•
24-30- and 40 West 25th Street (Chelsea) – Acquired the 208,384-square-foot
building for $210 million ($1,008 per square foot) earlier this year.
440 Ninth Avenue (Penn Plaza) – Acquired the 398,800-square-foot building for
$211.5 million ($530 per square foot) in late 2013.
4Q2014 1Q2015 2Q2015 3Q2015 4Q2015
Midtown
Thousands
•
$0
0
Unizo, formerly Jowa Holdings
TTL Sq. Ftge.
WTD Price PSF
6,000
$1,500
5,000
$1,250
4,000
$1,000
3,000
$750
2,000
$500
1,000
$250
$0
0
Mitsui Fudosan
•
55 Hudson Yards – acquired a 90% stake for $258.8 million ($221 per square
foot) in the 1.3 million-square-foot Hudson Yards Tower that broke ground in midJanuary late 2014.
4Q2014 1Q2015 2Q2015 3Q2015 4Q2015
Data reflects a sample of sold buildings over
100,000-square-feet
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Sale Activity (cont’d)
2015 Sale Highlights
Sale activity of Manhattan’s office properties during 2015 boasted 5-deals that fetched 10-digit figures. The list below reflects sales that
have reportedly closed but may not yet appear on city records.
Address
Buyer
Seller
Price
District
11 Madison Avenue
SL Green Realty
Sapir Organization
CIM Group
$2.6 BN
($1,101 psf)
Flatiron
3 Bryant Park
1095 Sixth Avenue
Ivanhoé Cambridge
Callahan Capital Partners
Blackstone Group
$2.3 BN
($1,875 psf)
Times Square
6-Building Office Portfolio**
Blackstone Group
RXR Realty
$2.0 BN
Multiple
**Includes Starrett-Lehigh Building, 601 West 26th St., 620 Sixth Ave., 1330 Sixth Ave., 340 Madison Ave.
Crown Building
730 Fifth Avenue
Wharton Properties
General Growth Properties
Winter family
Spitzer Enterprises
$1.8 BN
($4,861 psf)
Plaza
Helmsley Building
230 Park Avenue
RXR Realty
Blackstone Group
Monday Properties
Invesco
South Korea’s National Pension Fund
$1.2 BN
($927 psf)
Grand Central
Olympic Tower
641 Fifth Avenue*
Crown Acquisitions
Oxford Properties Group
Onassis Foundation (related entities)
$651.6 MM
($2,593 psf)
Midtown East
7 Bryant Park
Bank of China
Hines Development
JPMorgan Chase
$596.9 MM
($1,260 psf)
Penn Plaza
Angelo Gordon & Co
Normandy Real Estate
NY Life Insurance
$510.0 MM
($689 psf)
Plaza
180 Maiden Lane
Murray Hill Properties
Clarion Partners on behalf
of CalSTRS
SL Green Realty
Moinian Group
$470.0 MM
($431 psf)
FiDi
717 Fifth Avenue
Anbang Insurance Group
Blackstone Group
$415.0 MM
($1,186 psf)
Plaza
Tower 45
Kamber Management
SL Green Realty
$365.0 MM
($822 psf)
Times Square
* Remaining 50.13% stake in the commercial condo unit at the base of the mixed-use tower
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New York City Sale Activity – The Big Picture
Taking a broad look at sale activity throughout New York City continues to reveal a continued robust market. According to reported statistics,
sale volume for properties ranging from $1 million upwards totaled $55.43 billion at the end of the 3rd quarter. The current pace is on track
to lead to an annualized volume of $73.9 billion, about 27.9% above last year’s $57.9 billion total. Although the number of properties sold is
less than in 2014, escalating property values have offset the somewhat diminished number in total dollar volume.
Manhattan sale volume has totaled $42.13 billion at the end of the 3rd quarter, slightly higher than 2014’s annualized figure of $42.12 billion;
and on track to reach $52.5 billion by the end of the year. Cap rates in Manhattan have averaged 3.82% thus far across all product types
for the first time ever, as a growing number of investors seek yield; and have reportedly compressed by 210 basis points from a peak of
5.93%. Office property claimed the highest cap rate range at 3.99%, with elevator residential buildings at the average 3.62% low.
Rising Corporate Bond Yields Hover over CRE Market’s Cloudy Outlook
Rising yields on corporate bonds has cast another threatening shadow over the future direction of the global commercial real estate market,
as short term interest rates begin to gradually rise due to the announced decision by the Federal Reserve in December. According to
sources the yields on corporate debt hit a 3-year high in November, making cap rates less attractive. Due to the roughly 9-year span of low
rate loans; the desire for greater yield; and a flood of investment dollars coming from foreign buyers, real estate values have significantly
risen since 2010. Some of the most desirable office properties reportedly commanding prices 57% higher than the previous market peak.
It has been speculated by some that the commercial real estate market which has benefitted from lower corporate debt yields over the
last few years, may now lose some of its luster as yields begin to rise. Reported statistics compiled by CA-based Green Street Advisors
which tracks unleveraged U.S. commercial property values revealed that the 10% increase in property prices in 2015 was equivalent to last
year, giving rise to signs that property values may be leveling. Other indicators such as property value appreciation slowing; and reports in
September revealing that REITs were trading at nearly 15% discount to what investors would pay for buildings individually, has prompted
some sources to conclude that the peak of this real estate market cycle lies very close on the horizon.
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Developing Alerts Point to Nearing Real Estate Cycle Peak
Despite strong sale volume in 2015, sources call attention to the values per square foot at the end of the 3rd quarter which remained
unchanged quarter-over-quarter for the first-time in 19-quarters; while simultaneously capitalization rates rose, prompting some concern.
Although a single quarter does not establish a trend, it may suggest a need to monitor future activity more closely. If the trend continues,
it may imply that prices have reached an apex for the present cycle.
Now 5-years into the current cycle that began in 2010; and as prices start to show some signs of leveling off, real estate experts begin to
try to determine when the inevitable turn of the current cycle will come — a very difficult timeline to forecast. Key factors that are closely
watched include current momentum, activity on current transactions, investor sentiment. Past market turns are also used for a comparative
reference. The growing number of industry sources that forecast the turning of the current cycle is closer on the horizon, reportedly backup their projections with:
•
Apparent softening of the land market for sites in the secondary and tertiary neighborhoods;
•
The hotel market which is typically the most resilient during market changes, now facing challenges;
•
Condo market showing increasing signs of a slowdown in sales;
•
Value metrics demonstrating signs that their course in changing;
•
Meeting sellers’ price expectations becoming more challenging;
•
Gross domestic product (GDP) growth is sluggish, only 2.2% versus a 3.8% average in past recoveries;
•
Overall corporate earnings continue to remain disappointing, with the exception of a few large tech firms;
•
The U.S. national debt of $18.6 trillion is larger than it has ever been, while the GDP is $18.1 trillion giving rise to a debt-to-GDP ratio
over 100% for the first time;
•
The country’s unfunded liabilities are over $100 trillion and assets are $118 trillion.
The more optimistic bring attention to:
•
The substantial amount of capital that has targeted real estate investment;
•
A growing number of financing options;
•
Continued extremely low interest rates;
•
Demand for real estate remaining higher than supply;
•
Low gas and oil prices leaving consumers with more expendable income which will further stimulate the economy;
•
Current environment is virtually void of inflation;
•
The national housing market has grown 6% in real terms;
•
A GDP growth rate that is favorable;
•
The cyclically low unemployment rate of 5%;
•
The 13.5 million jobs created since the economic recovery began, representing a growth of 5 million jobs in addition to the 8.4 million
jobs lost during the recession that have been recovered;
•
Underlying fundamentals of the commercial real estate market continue to remain favorable.
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Residential Market Downturn Strategies Begin to Surface
Although the timeline for the next real estate market peak for residential condominium development has drawn mixed opinion, some New
York City developers and investors have begun contemplating strategies as the potential of a less favorable market climate looms, signaling
the need to shift gears. While some are taking advantage of current high property values and selling their buildings, others are considering
a more conservative direction.
The velocity of sales in the high-end market has slowed as new inventory hits the market intensifying competition in the luxury segment
of the market. As new options are introduced to the market, the number of wealthy buyers in the $10 million price point range and above
is diminishing. Some sources anticipate that buildings which have been on the market for over a year and have seen several initial offering
price increases will feel the effects of slower sale activity sooner. According to reported statistics, as of mid-November there were 18
buildings on the market with prices averaging in excess of $3,000 per square foot, a number expected to increase as projects such as
Vornado Realty Trust’s 220 Central Park South; and Zeckendorf Development’s 520 Park Avenue begin to rise.
Mezzanine Debt and Preferred Equity Investment
Some smaller lenders are also changing directions, opting to partner with larger development companies on mezzanine debt and preferred
equity investments rather than ground-up residential development projects; hopefully reducing financial liability in a downturn. Despite
both lending instruments having the same financial function, it has been pointed out that preferred equity investment allows the investor
to take control of a property; avoiding the controversy incurred by the property foreclosure process required with a mezzanine debt. In
addition mezzanine-debt and preferred equity alternatives allows investors to diversify their holdings and place their money lower in their
capital stacks — “giving up potential upside, but the risk-adjusted return is safer.”
However, mezzanine debt still bears the risk related to its reliance on short-term interest rates. Some sources note that as interest rates
rise, a higher potential for defaults could result amongst owners that may become overleveraged. Along with companies such as Silverstein
Properties and Rudin Management Company that are considering providing mezzanine debt, others are already testing the waters include:
•
ATCO Properties – The real estate investment and ownership platform, which since 2009 has actively invested as a general partner
in office and retail properties, recently launched a mezzanine-debt and preferred-equity program. Last summer the company provided
$12.7 million in preferred equity financing for the $33 million acquisition of the former Lincoln Savings Bank at 525-555 Broadway in
Brooklyn’s Williamsburg neighborhood. The building was purchased by Blesso Properties for a planned redevelopment project.
•
RXR Realty – The Long Island-based developer and Texas-based REIT Northstar recently raised a $2 billion investment fund, and intend
to dedicate a portion of its activities to making mezzanine loans in the city.
•
Clarion Partners – The real estate investment manager closed on an over $10 million mezzanine loan in April on behalf of an undisclosed
investor for the 35-story, 401-key Hilton Garden Inn at 237 West 54th Street that opened last year.
Syndication
A growing number of residential condo developers are reportedly offering so-called syndication purchases to investors by pre-selling
inventory to inside buyers. While the concept is not new, its frequency has been increasing. Interests in the “syndication” — which is
the entity developing the project, are sold to investors; and upon the condo offering plan approval, the investor can either cash-out on the
investment or convert their share into a condo at the project. As a result of the syndication, the developer benefits from the advantage
of the project’s inventory being essentially 5-15% pre-sold when seeking financing; and the investor is able to buy real estate at a belowmarket rate.
“Nest-Egg” Positioning
Some companies are focusing their efforts on raising cash to hold for the future purchase of distressed or foreclosed properties that has
led to the refinancing of properties, even before loan maturity, to help build funds for future investment when prices drop. In 2009, the
partnership of Crown Acquisitions, Lloyd Goldman, and the Feil Organization reportedly acquired the roughly 24,700-square-foot retail
condo at the St. Regis Hotel for $117 million, ultimately selling the unit in 2012 for $380 million.
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Sovereign Wealth Funds – The Big Players in New York City
Investment in U.S. real estate by the nation-backed sovereign wealth funds continues to increase, reaching over $22.6 billion in 2015 at the
end of November, more than double the $9.8 billion figure of 2014 The world’s sovereign wealth funds have a total of $7.2 trillion in assets as of
June 2015, spread across 73 sovereign wealth funds worldwide — a number that has grown 18% since 2010 according to reported statistics
from research firms Real Capital Analytics, Preqin, and the Sovereign Wealth Fund Institute. A majority of the new funds are in countries
with emerging economies, intending to create a stable flow of capital for their governments. More established and larger funds that have
passed the need to establish stability for the central budget have shifted to real estate investment and securities as a logical choice for further
diversification of assets that will also provide a good cash flow over an extended period of time. The shift has been further prompted by the
increasing volatility of oil and natural gas commodities which back about 60% of sovereign wealth funds according to sources.
Although an exact compilation of a list of sovereign wealth funds’ holdings is not readily available, below is a reported overview of a few
that have a significant presence in New York City.
Norges Bank Investment Management has an estimated $1.03 trillion in assets under management. According to the 3rd quarter
2015 report released by the Norwegian government, the fund established in 1990 had about 3% of its portfolio invested in real estate
— equating to roughly $30.8 billion; and plans to increase the percentage to 10%, but can only take minority stakes. Perhaps the most
transparent amongst sovereign wealth funds, Norges debuted in the U.S. in 2013 with a reported 49.9% stake buy in a portfolio of office
buildings owned by TIAA-CREF that are located in New York, Washington, D.C. and Boston. New York City real estate holdings total roughly
$4.37 billion with notable deals including:
•
11-building Hudson Square Portfolio – The recently signed binding contract for a 44% stake in the Trinity Real Estate portfolio for $1.56
billion was expected to close before the end of 2015;
•
11 Times Square – A 45% stake acquisition for $401.9 million from SJP Properties and Prudential in early 2015;
•
601 Lexington Ave – A 45% stake interest for $1.5 billion as part of a 3-building portfolio owned by Boston Properties that also included
100 Federal St and Atlantic Wharf Office Building located in Boston, MA.
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Sovereign Wealth Funds (cont’d)
Abu Dhabi Investment Authority (ADIA) has $773 billion in assets under management. The fund located in the Middle East reportedly
aims to invest 5-10% of its cash in real estate. Currently focused on hotel properties in England and Australia, as well as some U.S.
locations, the fund’s New York City holdings currently total approximately $850 million. Investments in the city include:
•
400 West 61st Street aka 40 Riverside Boulevard – The $410.8 million acquisition in partnership with Boston, MA-based GID
Development for the development site located within the multi-building Riverside Center project;
•
60 Columbus Circle – The ADIA along with Singapore’s Government of Singapore (GIC) reportedly agreed to provide over 80% of the
financing of the $1.31 billion sale-leaseback deal in a joint venture with Related Companies for the 1.1 million condo unit that Time
Warner Inc. is expected to vacate upon relocation to 30 Hudson Yards;
•
New York EDITION Hotel, 5 Madison Avenue – A $336.744 million acquisition was transacted in 2015 for the 273-key hotel operated by
the Marriott brand;
•
London NYC, 151 West 54th Street – A $351 million acquisition of the 564-key hotel.
Kuwait Investment Authority has a total of $592 billion in assets under management. Reportedly the world’s oldest sovereign wealth
fund established in 1953, Kuwait has a total of roughly $485 million in New York City real estate holdings. In addition to a stake interest in
the office building at 540 Madison Avenue and a $485 million acquisition of 750 Seventh Avenue in 2011, the fund more recently acquired
an undisclosed stake in 10 Hudson Yards according to sources.
Government of Singapore Investment Corporation (GIC) has $344 billion in assets under management, but the total investment figure
of the fund’s current New York City real estate holdings is unknown. GIC shifted from their typical pattern of making relatively small
investments in a large number of assets in 2006 when they invested along with Tishman Speyer and BlackRock in the $5.4 billion purchase
of Stuyvesant Town and Peter Cooper Village, in part providing $575 million in mezzanine financing. In addition the fund invested $400
million in 2014 as part of a joint venture with Abu Dhabi Investment Authority (ADIA) and Related Companies for the sale/leaseback of the
Time Warner Inc. 1.1 million-square-foot condo unit at 60 Columbus Circle. A more conservative long-term investor, the fund which was
established in 1981 is reportedly mandated by the government of Singapore to make 20-year investments.
Qatar Investment Authority has $256 billion in assets under management which includes a total of $3.7 billion in New York City real
estate holdings. The fund made recent headlines with the announcement of a 44% stake acquisition of Brookfield Property Partner’s
5-building Manhattan West project for $8.6 billion. Other past activity reportedly included a partnership with Boston Properties and the
Kuwait Investment Authority for the purchase of the GM Building at 767 Fifth Avenue in 2008, ultimately selling their stake in 2013.
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New to Market
1745 Broadway (Columbus Circle) – SL Green Realty Corp and Ivanhoe Cambridge have introduced the roughly 685,000-square-foot office
condo within the 50-story, 930,000-square-foot tower to the market. The co-owners are hoping a sale will fetch in excess of $700 million
($1,022 per square foot). The unit that spans floors 2-25 is leased in its entirety to publishing company Random House. Some sources
speculate that the sale prompted by SL Green as the controlling owner with a 56.9% majority interest, may be to further help finance the
REIT’s recent acquisition of 11 Madison Avenue that closed in August. New ownership will potentially have the opportunity to increase
rents for the space, sources anticipating that Random House will exercise a clause in its lease allowing the publisher to vacate almost 50%
of the space spread across floors 14-25 in 2018; leaving the remainder set to expire in 2023.
The building which occupies the entire block between West 55th- and 56th Streets was partitioned in the early 2000s, with the upper floors
of the tower converted into residential condominiums that have since been sold. Recent sale activity nearby resulted in the $600.9 million
($969 per square foot) acquisition of 1740 Broadway by the Blackstone Group’s core-plus real estate fund last year.
1140 Sixth Avenue (Times Square) – The Blackstone Group has introduced the sale of the leasehold for the 237,115-square-foot tower,
having taken control of it in 2011 upon acquiring a non-performing note on the asset for reportedly close to $100 million. Former leaseholders
Rockpoint Group and Stellar Management had defaulted on the roughly $116 million loan during the economic downturn that was provided
in 2006 by Lehman Brothers. The estate of Sol Goldman currently owns the land beneath the building.
10 Hudson Yards (Hudson Yards) – A 40% stake in the 52-story, 1.7 million-square-foot tower was introduced to the market in November
which is rumored to be the condo-interest acquired by anchor tenant Coach. Now that the building is stabilized with an over 90%
commitment, the tower’s sovereign wealth investors have their first opportunity to recapitalize on their investment and generate a profit
from the early investment in the property. Coach had acquired a 737,774-square-foot condo interest which spreads across entire floors
9-24 for reportedly $530-$750 million ($718-$1,017 per square foot) in 2013; and reportedly plans to lease-back its offices through a longterm deal as part of the sale offering. Rumors of a potential sale had initially been reported last year, sources speculating that the sale
was further sparked by softening sales which despite improvement quarter-over-quarter, continue to remain below expectations. A deal
is reportedly expected to be in place by the beginning of 2016, with a June 2016 closing when the new tower is slated to be delivered.
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New to Market (cont’d)
23-Building Portfolio – New York REIT’s portfolio offering about 4 million square feet in gross leasable area spread across a mix of primarily
office and retail properties in Manhattan, Brooklyn, and (1) in Queens has been introduced to the market. The sale announced sometime in
October sought final offers by the end of November as the REIT’s shares reportedly surged 18.5% since August 25. Rumors that SL Green
Realty was nearing the finalization of negotiations to acquire New York REIT were recently retracted.
# Address
Gross Leasble
Area
Type
81,082
Office
9,767
Hotel
1
306 East 61st Street
2
Viceroy Hotel
120 W 57th St
3
Centurion Parking Garage
33 W 56th St
12,856
Garage
4
1440 Broadway
747,854
Office
5
Worldwide Plaza
825 Eighth Ave
2,055,579
Office
6
350 W 42nd St (4 units)
42,774
Retail Condo
7
256 W 38th Street
117,043
Office
8
229 W 36th St
149,231
Office
9
333 W 34th St
346,728
Office
10 218 W 18th St
165,670
Office
11 245-249 W 17th St
281,294
Office
792
Retail Condo
13 382-384 Bleecker St
4,206
Retail Condo
14 367-369 Bleecker St
4,726
Retail Condo
15 350 Bleecker St
14,511
Retail Co-op
One Jackson Sq,
122 Greenwich Ave
8,392
Retail Condo
17 416 Washington St
9,001
Retail Condo
158,573
Office
6,118
Retail
1623 Kings Highway,
Brooklyn
19,960
Retail
1100 Kings Highway,
Brooklyn
61,318
Retail
163 Washington Ave,
Brooklyn
41,613
Residential
Cross Bay Boulevard,
Queens
9,767
Retail
Part of 240-key, 129,000-square-foot hotel
12 387 Bleecker St
16
18 50 Varick St
2061-2063 86th St,
Brooklyn
Source:
http://www.nyrt.com/property-map.html)
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Sale Deals to Watch For
SL Green Double Play
Sale deals are racking up as the REIT continues to focus efforts on funding the August acquisition of 11 Madison Avenue for $2.585 billion.
•
Lipstick Building, 885 Third Avenue (Plaza) – The partnership of Ceruzzi Properties and Shanghai Municipal Investment USA are
reportedly in contract to acquire the ground lease beneath the 34-story, 646,081-square-foot tower for $453 million ($701 per square
foot) from SL Green Realty. The leasehold that has a remaining term of 67-years sits beneath the building primarily owned by Argentina’s
IRSA Inversiones Y Representaciones S.A. and the Marciano Investment Group since 2010. SL Green had acquired the leased fee
interest in a joint venture with Gramercy Capital for $317 million in 2007, subsequently fully consolidating its position in 2010 at a gross
asset valuation of $352 million. The pending transaction that is expected to close in the 4th quarter 2015 has a capitalization rate of
3.8%, generating approximately $45 million in net proceeds according to press released by SL Green.
•
Pace University Residence Hall, 33 Beekman Place (FiDi) – The 772-room, 139,534-square-foot dormitory co-developed by SL
Green and the Naftali Group is reportedly in contract for $196 million ($1,405 per square foot) to an undisclosed buyer. The sale that is
expected to close in the first-half of 2016 has a 3.9% capitalization rate, generating approximately $64 million in net proceeds.
Midtown
685 Fifth Avenue (Plaza) – Michael Shvo is reportedly in contract to acquire the entire office component of the approximately 115,300-square
foot tower located at the corner of East 54th Street from co-owners Thor Equities and General Growth Properties. Shvo will be paying
around $110.017 million ($1,225 per square foot) for the 89,810 square feet of office space in a deal the is expected to close by the end of
2015. The sellers will retain the 25,490 square feet of multi-level retail space at the base, having acquired the entire building from fashion
company Gucci for $460 million ($3,990 per square foot) in 2012. Gucci will be relocating to an 83,964-square-foot office at 195 Broadway
in Lower Manhattan next year per the lease deal announced last summer.
787 Seventh Avenue / 1285 Sixth Avenue (Columbus Circle) – The sale of the 2-building portfolio that AXA Financial introduced to the
market in August will reportedly be split and sold to separate buyers. The adjacent properties cover an entire city block bound by 6th- and
7th Avenues to the east and west, and West 52nd- and 51st Streets to the north and south. UBS AG is a major tenant in both 39-story
buildings, having leased 120,000 square feet at 787 Seventh Avenue in 2013; and 700,000 square feet as anchor tenant at 1285 Sixth
Avenue, renewing their lease in 2012 for 5-years. However the imminent sale of the building has prompted the Zurich-based bank to
explore relocation options in an effort to consolidate and downsize its footprint in the city, having been notified in October that their leases
would not be renewed. Contracts for both sales are reportedly undergoing negotiations for anticipated signings before the end of 2015;
and expected closings in the 1st quarter of 2016.
•
787 Seventh Avenue is 100% owned by AXA. California public employees pension fund CalPERS has reportedly agreed to purchase
the 1.743 million-square-foot tower for $1.9 billion ($1,090 per square foot). The property last traded in 2009 for $1.76 million ($1,029
per square foot).
•
1285 Sixth Avenue is 50% owned by AXA, paying $587.5 million in 2012, with JPMorgan Chase controlling the other half. RXR Realty
is reportedly purchasing the 1.710 million-square-foot for $1.7 billion ($994 per square foot).
Sources:
http://investor.shareholder.com/slg/releasedetail.cfm?ReleaseID=937517
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Sale Deals to Watch For (cont’d)
Midtown (cont’d)
30 Hudson Yards aka 500 West 33rd Street (Hudson Yards) – The 90-story, 2.6 million-square-foot tower broke ground this past summer
following reported news of the executed deal with Time Warner Inc. as anchor tenant. The development is expected to deliver in 2019;
and will be the tallest tower within the project when it reaches its full height of 1,296-feet. Looking ahead, while Related reportedly plans
to hold onto both 10- and 30 Hudson Yards office towers, 4.3 million square feet within the buildings will be sold off to tenants as condo
units. The decision to sell off blocks of space in both towers rather than leasing has allowed the developer to raise working capital that can
be reinvested in further development at the 28-acre Hudson Yards site. The recent deals with Kohlberg Kravis Roberts and Wells Fargo will
bring 30 Hudson Yards to almost full occupancy. Construction of the tower is expected to be completed in 2019.
•
Related Companies – The developer plans to create a 270,000-square-foot office condo for itself spanning 6-floors at the tower that
is currently under construction, with plans to relocate from their current location at the Time Warner Center. Related will join anchor
tenant Time Warner Inc. in 2019 upon delivery. Time Warner will be buying a 1.6 million-square-foot condo, relocating from their current
1 million-square-foot headquarters at Time Warner Center’s 60 Columbus Circle. Related had acquired the media company’s unit for
$1.31 billion ($1,310 per square foot) in January 2014 as part of the relocation deal.
•
Oxford Properties – The project’s co-developer will occupy an entire floor totaling 45,000 square feet.
•
Kohlberg Kravis Roberts (KKR & Co. L.P.) – The private equity firm has reportedly agreed to acquire a 343,000-square-foot office
condo for an undisclosed price. The deal will include a private elevator bank for the firm to access the space that will span the top
10-floors of the 90-story tower; and boast river-to-river panoramic views with an outdoor terrace. Rumors of KKR considering the
move were first reported back in May, more firms opting to buy into the newly emerging Far West Side market. Currently located in a
161,000-square-foot office that the firm has occupied for close to 20-years at 9 West 57th Street (Plaza), the move would represent a
significant increase in the company’s footprint in the city. In addition, sources noted that at a likely current rent in the neighborhood of
$180 per square foot, an acquisition of the larger space would probably not represent a financial stretch for the firm. KKR is expected
to relocate in 2020.
•
Wells Fargo Securities – The investment banking and capital markets arm of the San Francisco-based bank will reportedly be purchasing
a roughly 500,000-square-foot condo-unit at the tower per the December press release on Related’s website confirming November
reports. Although details of the pending deal were not released, the space will be divided between 2-sections within the tower. Wells
Fargo is currently located in 372,236 square feet at the former Socony-Mobil Building, 150 East 42nd Street (Grand Central) through a
current lease expiring in 2019, about the same time 30 Hudson Yards is slated to deliver.
Company
Sq. Ftge.
Floors
Industry
Time Warner Inc.
1.6 MM
E14-51
Media
Condo unit purchase, price not disclosed
Oxford Properties Group
45,000
E66
Co-Developer
Related Companies
270,000
E67-72
Co-Developer
Kohlberg Kravis Roberts
343,000
Top 10 Floors
Finance
Wells Fargo Securities
500,000
N/A
Finance
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Midtown South
11-Building Hudson Square Portfolio (Hudson Square) – Norway’s sovereign wealth fund reportedly signed a binding contract in November
that will make Norges Bank Investment Management a partner in the Trinity Real Estate portfolio as a result of the pending 44% stake
acquisition. The $1.56 billion deal that is expected to close before the end of 2015 values the portfolio at $3.55 billion. Norway’s $830 billion
sovereign-wealth fund is reportedly the biggest in the world, and has been expanding investments in real estate.
Originally comprised a 4-buildings when introduced to the market as a 99-year ground lease opportunity in March; the offering increased
in June to an 11-building, 5 million-square-foot offering of up to a 49% stake on 75-year leaseholds on the properties. The bidding deadline
was August 6th, and the list of other respondent bidders was rumored to include SL Green Realty Corp., Ivanhoe Cambridge through
Callahan Capital, Brookfield Property Partners, and Vornado Realty Trust.
Snapshot of the properties included in the offering as of August 2015
Address
Size
Occupancy
Key Office Tenants
Retail Tenants
100 Sixth Avenue
381,461 SF
17-Stories
98%
Two Sigma Investments
114,815 SF
Elite Gymnastics
155 Sixth Avenue
225,692 SF
15-Stories
88%
Salesforce
30,960 SF
Mototainment LLC
1 Hudson Square
(75 Varick Street
1.2 MM SF
17-Stories
85%
Horizon Media
158,315 SF
Metro Bicycles
SoHo Made Soups
10 Hudson Square
(160-170 Varick Street)
349,720 SF
12-Stories
94%
Kirschenbaum Bond et. al. / 98,000 SF
WNYC
Hudson Square Market
200 Hudson Street
386,820 SF
12-Stories
99%
Havas North America
225,474 SF
Arrojo Studio
205 Hudson Street
400,996 SF
12-Stories
99%
City University of NY (CUNY)
94,376 SF
TriBeCa Rooftop
345 Hudson Street
984,432 SF
17-Stories
99%
Viacom
398,314 SF
Chase Bank / Starbucks
Children’s Museum of the Arts
Hudson Square Pharmacy
350 Hudson Street
335,066 SF
9-Stories
97%
Medidata Solutions
137,535 SF
Dig Inn / Gateway News
Gregorys Coffee
Hale & Hearty Soups
Jacques Torres / Pret a Manger
435 Hudson Street
291,064 SF
9-Stories
99%
@radical.media LLC
27,000 SF
EN Japanese Brasserie
225 Varick Street
376,749 SF
12-Stories
85%
Workman Publishing
63,000 SF
Getting Hungry / HSBC
New York Sports Club (NYSC)
16 Vestry Street
60,800 SF
7-Stories
72%
Stella Maris
8,260 SF
N/A
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Midtown South (cont’d)
430 West 15th Street (Chelsea/MePa) – Teachers retirement fund TIAA-CREF is reportedly in contract
to purchase the recently redeveloped former garage for $140 million ($1,406 per square foot) from Atlas
Capital Group and the Rockpoint Group. The sellers had secured the long term leasehold for the property
in 2014 for $16.8 million, initially considering a hotel conversion; but ultimately shifting plans to an office
conversion with projections that the property could command asking rents of $80-$100 per square foot.
The project included a 4-story vertical expansion of the existing 6-story structure, featuring floor-to-ceiling
glass windows, terraces, and a roof deck. In addition, slabs were removed from every other floor to create
20-foot ceiling heights on floors 2-4 with exposed brick interiors. The office component spans floors
2-7; and is entirely leased to Palantir Technologies, whose client roster includes the Central Intelligence
Agency (CIA), The Palo Alto, CA-based analytics company signed a 15-year lease for over 77,000 square
feet in 2014 at a reported asking rent of $90-$100 per square foot. The reconstructed building’s ground
level includes 16,275 square feet of retail space boasting 88-feet of frontage.
430 West 15th Street - Rendering
The pending acquisition represents one of several the teachers’ retirement fund has secured in recent years. Other buys in the Meatpacking
District include:
•
837 Washington Street – Acquired in January for roughly $190 million ($3,010 per square foot). The office/retail building is entirely
leased to technology firm Samsung Electronics in a 10-year deal with (2) 5-year renewal options;.
•
401-403 West 14th Street – A 42% stake acquired in 2014 valued the property at about $168 million ($2615 per square foot). The
64,226-square-foot building is primarily occupied by technology giant Apple in 46,000 square feet through a 15-year lease with a 10year extension option. Taconic Investment Partners holds the controlling 58% interest.
488-492 Broadway aka 440 Broome Street (SoHo) – Ponte Gadea, the real estate investment company controlled by Amancia Ortega,
which also owns retailer Zara’s parent company Inditex, is reportedly in contract to acquire the 5-story, 35,000-square-foot building for $145
million ($4,143 per square foot) from Broadway Landmark Corporation. The landmarked cast-iron building that dates back to 1857 housed
the first Otis hydraulic elevator; and last traded in 2009 for an undisclosed price.
Downtown
61 Broadway (World Trade Center) – An undisclosed offshore buyer has reportedly agreed to acquire a 49% stake in the 33-story,
780,000-square-foot tower from RXR Realty. The sale values the property at $440 million, about $10 million below what the sale had hoped
to fetch. The deal comes just 3-months after news of the sale was announced, reportedly prompted by rising office rents in the Lower
Manhattan neighborhood that are pushing area asset values higher. RXR had acquired the building in May 2014 for $330 million ($423 per
square foot) from Broad Street Development, previously trading for $130 million ($167 per square foot) in 2004.
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Sale Highlights
RXR Realty 6-Building Portfolio Stake - Blackstone Group LP, through its core-plus real estate fund has acquired a roughly 50% stake in
the office properties for $2 billion. The deal reportedly closed in several installments throughout the year. RXR Realty has been acquiring
the portfolio since the Uniondale, Long Island-based company’s 2009 debut into the Manhattan market. RXR’s purchases predominantly
represented deals at sharp discounts for properties where prices were significantly lower than pre-recession values, ultimately improving
cash flows for future re-sale to investors seeking steady and less-risky returns. As a result, Blackstone will benefit from the future potential
to increase its company’s cash flow with the addition of the portfolio that is currently about 90% leased with some tenants paying belowmarket rents. The sale reportedly values the 5.3 million square feet of commercial space at a combined total of $4 billion; and proceeds
from the sale will return almost all of the investors’ equity, reportedly generating an annual return of 25% on their money.
Included amongst the 6-buildings within the stake offering are:
•
Starrett-Lehigh Building, 601 West 26th Street (Chelsea) – Purchased in 2011 for $920 million;
•
340 Madison Avenue (Grand Central) – Purchased a 49% interest in the office component for $237.265 million in cash in 2010 plus the
replacement of unassumable financing with a new $310 million mortgage that valued the deal at a total of $547 million;
•
620 Sixth Avenue (Flatiron) – Acquired an approximately 55% interest in the building for $255.528 million in 2011, exercising an option
to acquire the remaining 45% for $225 million in 2012 for a total acquisition price of $480.528 million;
•
1330 Sixth Avenue (Plaza) – Acquired the building for $400 million in 2010.
Midtown
645 Madison Avenue (Plaza) – The joint venture of Nightingale Properties and Friedland Properties has
acquired the long-term leasehold for $76 million ($462 per square foot) from TF Cornerstone, planning to
invest further capital into the building. The office space within the 164,515 square foot building is currently
fully leased, but the 36,000 square feet of vacant retail space at the property located on the corner of East
60th Street offers a potential upside. Canada-based Hudson’s Bay Company is the long-time fee-owner.
Manhattan West (Penn Plaza) – Brookfield Property Partners has taken on a partner for the 5-building
project on the Far West Side. Sovereign wealth fund Qatar Investment Authority (QIA) has acquired a
44% stake in the mixed-used development for $8.6 billion. Currently (2) of the new towers are under
construction — 67-story One Manhattan West, and 62-story, 844-unit 3 Manhattan West, as well as
ongoing renovation work at existing 5 Manhattan West (formerly 450 West 33rd Street). The deal follows
the announcement last month by the QIA of plans to invest $35 billion in the U.S. over the next five years.
Manhattan West - Rendering
311 West 43rd Street (Clinton/Hell’s Kitchen) – The partnership of William Macklowe Company and a subsidiary of Iowa-based Principal
Financial Group have acquired the 14-story, 185,000-square-foot building for $107 million ($578 per square foot) from Atlas Capital. The
property best known as the former headquarters of publisher Charles Scribner’s Sons has traded 3-times in the last 5-years, Atlas paying
$62.4 million ($337 per square foot) in 2013 upon acquiring the building from Zuberry Associates who had paid $40 million ($216 per
square foot) in 2010. New ownership is reportedly planning capital improvements, including the upgrade and expansion of the lobby and
the addition of a roof deck and amenities rooms.
250 West 39th Street (Penn Plaza/Garment) – The Qatari real estate investment firm Alduwaliya Asset Management that is headquartered
in London acquired the 17-story, 207,865-square-foot building for $123.5 million ($594 per square foot) from Lincoln Property Company. The
deal reportedly marks the Middle Eastern investor’s debut into the New York City real estate market. Lincoln Property had introduced the
property to the market in October, having acquired the asset in 2007 for $93.5 million ($450 per square foot). The nearly 100% occupied
building secured a price that was just shy of the $125 million figure anticipated by some sources.
22-24 West 38th Street (Penn Plaza/Garment) – Chelsea-based Dalan Management has purchased the 60,000-square-foot building for
$43.5 million ($725 per square foot) from longtime owners, an affiliate of Alvin Jacobsen Realty. New ownership plans to reposition and
modernize the building to attract TAMI sector tenants.
Source:
http://www.bloomberg.com/news/articles/2015-10-28/brookfield-joins-with-qatar-for-8-6-billion-manhattan-project
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Midtown South
114 Fifth Avenue (Union Square/Flatiron) – Allianz Real Estate acquired the 95% stake in the leasehold of the 330,000-square-foot tower
for $210 million ($670 per square foot) from Lubert-Adler along with L&L Holding. The 99-year leasehold last traded in 2013 for $165
million (500 per square foot). L&L Holding which will retain its minority stake and remain as the operating partner. The building underwent
a major capital improvement program including an overhaul of the lobby and elevators, and new infrastructure systems. Recent notable
lease deals include First Look Media’s relocation to 58,206 square feet; Gawker Media’s relocation to 57,978 square feet; and Mastercard
International’s signing for 57,978 square feet.
51 Astor Place (Greenwich Village) – The Korean Teacher’s Credit Union has acquired a 49% stake in the fully leased 12-story, 400,000-squarefoot tower developed by Edward J. Minskoff Equities. The Seoul-based credit union’s $113 million purchase reportedly values the property
at $600 million. Major tenants include IBM’s Watson Group and St. John’s University.
Downtown
20 Broad Street (FiDi) – Metro Loft’s founder Nathan Berman has reportedly acquired the controlling leasehold for the 473,000-square-foot
building from Vornado Realty Trust for $185 million ($391 per square foot), with plans for a residential rental conversion that the REIT was
previously considering but now apparently deciding to abandon. Although details not released, Deutsche Bank was the lender in the deal
and the Vanbarton Group provided preferred equity. As a result of the transaction, Vornado will generate an income of approximately $157
million comprised of $142 million from the gain on sale, and $15 million of lease termination income.
Long time tenant New York Stock Exchange (NYSE) will be vacating the building in August 2016, deciding to forfeit their option to extend
their sublease of close to 400,000 square feet until 2041. The fee-owner Atlanta, GA-based IntercontinentalExchange Group (ICE) acquired
the property as part of the acquisition of the NYSE for $8.2 billion in 2013. Upon expiration of the leasehold that runs to 2081, ICE will
have the option to take back control or cash-in on the land that the exchange has owned since 1928. Per previously reports a residential
conversion will face some challenges due to the layout of the building’s lower floors which are larger than the spaces at the top of the tiered
property; and would likely cost in the tens of millions to re-purpose. However another option would be to demolish the existing structure
and build a new residential tower in its place.
40 Exchange Place aka 25-29 William Street (FiDi) – The partnership of Northwind Group and Newmark Holdings acquired the
237,000-square-foot building for $115 million ($485 per square foot) from Brooklyn-based Weiss Realty, a figure that was below the $140
million some sources had expected the sale to fetch. Although being marketed as a potential hotel or residential condominium conversion,
new ownership plans to retain office use, but initiate renovations to the lobby, elevators, common spaces and building systems; as well as
installation of a new retail storefront on the ground floor next year. The partnership secured a $65 million acquisition loan to close the deal,
and a separate $16.5 million project loan to partially finance renovations from lender Natixis Real Estate Capital.
86 Trinity Place (World Trade Center) – Clarion Partners has acquired a 70% stake in the former American Stock Exchange Building (Amex)
for $105 million ($825 per square foot) from GHC Development. The 182,000-square-foot Art Deco building that dates back to 1921 has
remained vacant since the end of 2008. Trading for the Amex was relocated to a floor at the New York Stock Exchange (NYSE), having been
acquired by NYSE which was ultimately rebranded NYSE Euronext. The sellers had reportedly planned to lease out the lower floors of the
building to retailers, while converting the remainder of the building into a 174-room boutique hotel. The building last traded in 2011 for $17
million ($93 per square foot).
Source:
http://www.nytimes.com/2008/01/17/business/apee-nyse.html
http://www.vno.com/press-release/1catklicg8/vornado-completes-sale-of-20-broad-street-for-200-million-aggregate-consideration
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Federal Reserve Announces Rate Hike
The longtime expected rise in short-term interest rates arrived in December delivering news of the Federal Reserve’s decision to increase
its benchmark interest rate that took effect on December 17. by 0.25 percentage points. The increase which signals growing confidence
in the country’s economy is the first in nearly a decade. Fed officials reportedly emphasized that rate hikes would be gradual and only
if economic growth continues, currently intending to raise short-term rates by about 1-percentage point per year over the next 3-years.
Interest rates on mortgages and other types of loans, savings accounts, and other kinds of investments are likely to remain low for some
time according to news reports.
The Feds will be required to do a balancing act and raise rates at a pace that will improve its defenses against future risks including higher
inflation or other economic downturn, while not creating market volatility that would undermine the current economic recovery which has
been sluggish and still showing signs of uncertainty. Further challenges are expected to arise since domestic rates will be increasing in
contrast to other central banks that will be holding rates down.
Borrowers - It has been predicted that seasoned and long-term borrowers will not be significantly affected. In contrast, shorter-term
borrowers seeking immediate gains and less established sponsors and major corporate real estate investment trusts that often buy, sell
and refinance real estate in bulk at a rapid pace are likely to experience a bigger impact; including those seeking construction and bridge
loans. Additionally, small borrowers buying on a low capitalization rate will lose some positive leverage — something to look out for in 2016
according to sources. Higher leveraged loans which have tighter margins when it comes to meeting debt payments will also add risk to
borrowers since they have a narrower leeway in terms of rate increases.
Lenders – It is anticipated that the increase is unlikely to deter borrowers from buying and refinancing. It is anticipated that the recent hike
will actually give a small boost to debt yields, and slightly increase earnings on floating rates as they re-price quicker than deposits. Some
lenders in preparation for the expected rise in interest rates have already accounted for the changing debt yields in their underwriting, so
that when the loan exists 10 years from now there will be a high probability that the borrower can refinance. Looking ahead however, as
rates continue to climb, borrowing volume could begin to decline driving loan costs higher.
Commercial Mortgage-Backed Securities (CMBS) – Activity already falling short of issuance projections for 2015, the CMBS market
is likely to be harder hit by the rate hike. The anticipated nearing of long-term interest rates starting to increase as well could trigger an
increase in default risk for loans supporting future CMBS for seasoned deals, due to rising cap rates that will ultimately make it more
difficult for borrowers to qualify for refinancing — giving rise to concern with a large number of CMBS maturing in the next 2-years.
Overall CRE Market – Responding to the Fed’s decision, some real estate sources reportedly commented that they do not anticipate the
December hike to significantly impact commercial real estate markets, particularly since the Fed’s decision has been anticipated for some
time. While the U.S. middle market comprised of the secondary and tertiary markets is currently in strong demand and likely to remain
unchanged, some markets outside the gateway cities may be more vulnerable. It has been further projected that there is likely more room
for additional interest rate raises before inflicting real pressure on cap rates, noting that pre-recession rates where up to 7 or 8% and the
market remained healthy. Looking at the broader picture, economic health and increased consumer wealth will more strongly impact the
real estate market.
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Lending - 2015 Loan Highlights
Address
Loan Amount
Lenders
Loan Type
$5 BN
Deutsche Bank
Bank of China
Crédit Agricole
Industrial and Commercial Bank of China
Bank of Nova Scotia (ICBC)
Construction
Stuyvesant Town / Peter Cooper Village
$2.7 BN
Fannie Mae via Wells Fargo
Acquisition
Metlife Building, 200 Park Avenue
$1.4 BN
Wells Fargo & Co.
Bank of America
Refinancing
Crown Building, 730 Fifth Avenue
$1.25 BN
Deutsche Bank
Morgan Stanley
Goldman Sachs
Citigroup
Acquisition
3 Bryant Park aka 1095 Sixth Avenue
$1.125 BN
German American Capital Corporation
Refinance
11 Madison Avenue
$1.075 BN
Deutsche Bank
Acquisition
1211 Sixth Avenue
$1.035 BN
Morgan Stanley
Citibank + others
Refinancing
$1 BN+
JPMorgan Chase
Black Rock
SL Green
Acquisition
$850 MM*
Children’s Investment Funds
Construction
30 Hudson Yards / Shops at Hudson Yards
(500 West 33rd Street)
501-515 West 17th Street
(113-127 Tenth Avenue)
15 Hudson Yards
(553 West 30th Street)
*Part of a total $1.3 billion financing package secured
220 Central Park South
$750 MM
JPMorgan Securities
Merrill Lynch, Pierce, Fenner & Smith Inc.
Construction
$725 MM
AIG / ARI
Construction
Commercial Mortgages – New York City’s Most Active Lenders
Lending activity rose slightly in August according to an analysis of commercial mortgages filed with the New York Department of Finance.
The number of filings increased 1.2% month-over-month from the 1,317 filed in July. Refinances rose slightly, while the number of
purchases with finance activity dropped. Hotel properties accounted for the sharpest month-over-month rise to a total of 15, a figure that
more than doubled that of the 7 filings recorded in July. Commercial condo financing followed with the 77 filings, nearly doubling the 38
filed in the previous month. In contrast, multi-family properties saw a reduction month-over-month as the number of filings that totaled
595 in August represented an 8.7% drop over the 652 filed in July. Mixed-use retail and office loans increased nominally from 310 to 331
and 64 to 69 respectively.
Below is a snapshot of the city’s top lenders in August according to reported statistics compiled by New Jersey-based mortgage tracking
service Actovia.
Bank
# Loans
Bank
# Loans
New York Community Bank
135
Cathay Bank
25
Signature Bank
111
Wells Fargo
24
JPMorgan Chase
58
Capital One
23
Dime Savings Bank of Williamsburgh
55
Maspeth Federal Savings
22
Investors Bank
35
M&T Bank
22
Flushing Bank
32
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Mixed Income 50/30/20 Projects Deliver Financing Hurdles for Developers
The 50/30/20 housing program which launched under the NYC Housing Development Corporation (HDC) in 2003 was intended to encourage
the development of middle- and mixed-income housing. While the program seems to promote the creation of social, economic, racial and
ethnic diversity during development planning, financing of such projects may become more challenging versus the more popular 80/20
housing program.
The HDC 50/30/20 program has reportedly received mixed response from developers due to increasing land and construction costs that
challenge the financial feasibility. According to HDC documentation, to be eligible under the program:
•
20% of the units in a new or rehabilitated development must be reserved for low-income households earning less than 50% of the
New York City Area Median Income (AMI), with at least 15% of these low-income units set aside for very low-income families earning
less than 40% AMI.
•
A minimum of 30% of the units be set aside for middle-income households earning at or below 130% AMI.
•
A maximum of 50% of the units would be set at market rates for households without regard to incomes.
50/30/20 Program - Maximum Monthly Rents*
Unit Type
40% AMI
50% AMI
100% AMI
130% AMI
Studio
$519
$670
$1,255
$1,643
1 BR
$558
$720
$1,579
$1,065
2 BR
$676
$870
$1,900
$2,483
3 BR
$775
$1,000
$2,190
$2,863
*Rent levels are calculated as gross rents less an electricity allowance at 80%, 100% and 130% AMI respectively
Financing of 50/30/20 projects under the HDC program combines a first mortgage, funded with proceeds from the sale of variable or fixed
rate tax-exempt bonds, with a 2nd mortgage funded with HDC corporate reserves. The combined 1st and 2nd mortgage cannot exceed
95% of the loan-to-value (LTV), or exceed 90% of the loan-to-cost.
In contrast, the 80/20 program requires:
•
At least 20% of the units are set aside for low-income households with incomes at 50% of less of the local AMI. Alternatively, in New
York City, 25% or more of a project’s units must be affordable to households whose income is 60% or less than the local AMI. For
specific periods of times, 20% of the project’s units must remain affordable to low-income households and these units are subject
to a Regulatory Agreement between the owner and the NYS Housing Finance Agency (HFA). The remaining units in an 80/20 project
can be rented at market rates.
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50/30/20 Projects (cont’d)
Financing by the HFA provides the developer with tax-exempt financing for multi-family rental developments under the program. According
to the HFA’s website, the tax-exempt bond financing generates 4% “as of right” Low Income Housing Tax Credits (LIHTC), which can either
be syndicated to generate part of the required equity a borrower must contribute to the financing, or be utilized to offset the borrower’s tax
payments. All bonds or bond financed mortgages, including those financed under the 80/20 Program, must be credit enhanced.
NYC – 2015 Area Median Income
HH Size
50% AMI
60% AMI
100%
130%*
1
$30,250
$36,300
$60,500
$78,650
2
$34,550
$41,600
$69,100
$89,830
3
$38,850
$46,620
$77,700
$101,010
4
$43,150
$51,780
$86,300
$112,190
*Estimated
Program Comparisons according to some industry sources:
80/20:
•
More black and white with regard to finance underwriting, equity required by the developer, and the city’s 421a abatement.
•
Typically has true equity which is provided by the developer, generally covering roughly 30-35% of development costs.
•
Provides more leverage for underwriting since the developer has more income to show.
50/30/20:
•
Requires more negotiation between stakeholders due to variables driven by the particular neighborhood where the project site is located,
and where the market-rate rents are in that neighborhood.
•
Receives equity from a bank in the form of low-incoming housing tax credits.
Source:
http://www.nychdc.com/content/pdf/Developers/HDC_Mixed_Income_Termsheet.pdf
http://www.nyshcr.org/Topics/Developers/MultifamilyDevelopment/8020HousingProgram.htm
http://www.newdestinyhousing.org/get-help/area-median-income-ami-chart
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Tel Aviv Stock Exchange (TASE): Debt Issuances Continue to Climb
News of other real estate firms with New York City holdings entering Israel’s Tel Aviv Stock Exchange (TASE) continues to flow. Total funds
raised and the interest rates on the bond issuance significantly rely upon the credit rating established by the Israeli rating agencies of the
portfolio backing the debt offering.
The latest additions to the growing roster of firms seeking to raise project funding by tapping into TASE include:
•
Delshah Capital – The East Village-based firm recently raised roughly $102 million comprised of $81.5 million through the first phase
institutional tender; and an additional $20.5 million upon final closing of the deal’s public tender in mid-January. The debt offering
was backed by both commercial and mixed-use properties. The portfolio’s cash flows from the assets’ long term leases successfully
attracted Israeli investor interest. One series of unsecured bonds were reportedly issued at a 6.9% interest rate, maturing in September
2021; and a secured bond series at a 4.6% interest rate, maturing September 2023. Proceeds generated from the bond offering are
expected to repay senior debt on 4-Manhattan properties; and further grow the company’s portfolio.
•
KBS Strategic Opportunity REIT – The REIT is seeking to raise up to $200 million through a corporate-grade debt offering as the first
American real estate investment trust to tap into TASE. The offering will be backed by a portfolio valued at $1.35 billion before debt,
consisting primarily of office properties across the nation. Properties amongst its New York City holdings include a 60% stake in the
Lower Manhattan 110 William Street, and controlling interest in the Brooklyn building at 424 Bedford Avenue. The fund’s status as a
public, non-traded REIT could reportedly work both in and against its favor. If the offering moves forward, proceeds are expected to
go to REIT investors rather than to fund further acquisitions or developments.
•
Klein Group – The Florham Park, NJ-based retail landlord was seeking to raise $60 million, backing the debt offering by a portfolio of
retail assets appraised at around $250 million comprised of no less than 22 properties in Manhattan, as well as assets in New Jersey
and the Philadelphia area. The $55 million successfully raised upon closure of the bond offering in late November will reportedly
be used to raise capital and equity for future deals; as well as potential partner buyouts at some properties. The bonds closed at a
reported interest rate of 6.4%, the company benefiting from an A-rating from Israeli ratings agency Midroog.
In addition, companies planning to go another round with TASE include:
•
Brookland Capital – The Bedford-Stuyvesant-based developer had successfully raised $34.5 million at a 6.4% interest rate last year.
Brookland is looking to raise $30 million from a Series B bond offering through the Israeli stock exchange that is expected to launch
before the end of 2015. Raised funds will help finance the company’s roughly 32 Brooklyn projects that are in different stages of
planning and construction.
•
Spencer Equity Group – The company followed up last year’s initial $100 million bond issuance backed by a rental portfolio with
another series of bonds in November. Roughly $50 million was raised through the institutional tender phase at an interest rate of
$4.9%, hoping to raise an additional $12 million once the public tender had completed early in December.
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EB-5 Funding Remains Active
The rising number of high-end projects securing financing through the EB-5 program continues to spark criticism. Intended to aid
economically ailing neighborhoods, the current program that was due to expire at the end of September was ultimately extended to
December 11 in Federal stopgap legislation. More recently Congress voted to extend the program without any changes through September
30, 2016, failing to achieve an accord on some of the proposed changes including:
•
Tightened restrictions regarding the targeted employment area (TEA) that would have reportedly eliminated most projects in New York;
•
The reservation of 6,000 visas out of the total 10,000 yearly allotment for investment in 3-categories — rural areas, urban impoverished
areas, and areas outside of TEAs;
•
An increased percentage of direct jobs created versus indirect jobs when determining eligibility;
•
The establishment of qualifications for foreign agents who bring investors to developers in order to have better oversight; as well as
setting standards for the fees foreign agents charge.
Strong opposition from critics has risen in part due to the size of the target employment areas (TEA) not specified by current Federal
rules, allowing developers of high-end projects to create large districts that link luxury development sites with low-income neighborhoods.
The program is currently being reviewed in Congress, and discussions of the possible exclusion of high-end projects from eligibility of
benefiting from the program are being debated. In addition it is also anticipated that the program may become subject to heightened
regulation from federal agencies like the Securities and Exchange Commission (SEC), in part due to the about three-quarters of the parties
required to complete the deal are located outside the U.S. and exempt from federal rules and regulations; and due diligence typically done
not meeting the high-level required. Investigations currently being done could result in some “deals collapsing” as review of the program
faces greater scrutiny regarding disclosures and fees.
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EB-5 Funding (cont’d)
Recent applicants include:
1 Park Lane, 36 Central Park South (Plaza) – The development group led by Witkoff Group and Hong Kong-based Jynwel Capital have
tapped into the Federal government’s EB-5 Foreign Investor Program to secure additional financing for their planned redevelopment of the
former Helmsley Park Lane Hotel into a 350,000-square-foot residential condominium. While permits have yet to be filed it appears the
project has reportedly met its financing goals, having secured:
•
$219 million in EB-5 funding
•
$462 million in developer equity
•
$1.02 billion senior loan
The estimated $1.7 billion project on the block-through site situated between 58th- and 59th Streets is expected to reach a linear height
of 900-feet; and house approximately 88 condominiums. Several luxury amenities are being designed including a private port-cochere1 for
car passage; and dedicated security offices to accommodate private security personnel.
Although work has yet to begin on the Helmsley’s partial demolition, and the hotel currently remains open, completion is tentatively slated
for 2020. The property was acquired in November 2013 for roughly $654.316 million from the Leona M. and Harry B. Helmsley Charitable
Trust, with acquisition financing in the amount of $533.4 million provided by Wells Fargo Bank and Criterion Real Estate Capital. Due to
New York City’s current zoning, the site’s developers must preserve a portion of the old Helmsley Building in order to build a structure with
the same air rights.
2 World Trade Center (World Trade Center) – Silverstein Properties is reportedly looking to tap into the popular EB-5 Foreign Investor
Program, hoping to raise $500 million in low-cost financing for the construction of the tower which is the last to rise amongst the 4-building
site. All tax-exempt Liberty Bonds previously secured have been used up to complete construction for the company’s other 2-towers.
Some industry experts suggest some alternative sources to potentially secure the needed financing:
•
California State Teachers’ Retirement System (CalSTRS) reportedly has a joint venture with Silverstein Properties called Metro
Fund which has financed properties. Potentially the agency could become an equity partner in 2 World Trade Center, or provide debt
funding as one of several other sources.
•
Wells Fargo which is currently involved in the complex, acting as collateral agent on Legends Hospitality’s leasehold mortgage for the
observation deck at One World Trade Center which the hospitality company operates.
•
Bonds have played a major role in financing Silverstein’s efforts at the site. Although the tax-exempt Liberty Bonds have been used
up, bonds can still remain an option as in the example of the $340 million in financing for 3 World Trade Center secured through the
federal Recovery Zone bonds according to sources.
•
Crowdfunding platforms typically deal with smaller dollar volumes, but an already established relationship with Fundrise, may offer
an option to consider. Earlier this year the company initiated a campaign offering investors an opportunity to buy into a $2 million share
of the $1.6 billion in tax-free bonds issued to finance the further construction of 3 World Trade Center.
•
Rupert Murdoch signed a non-binding letter of intent (LOI) to lease about 1.3 million square feet at 2 World Trade Center for the
potential relocation if News Corp and 21st Century Fox; and if the deal moves forward, although a more remote option, could come
in as an investor.
1
Port-cochere: a passageway through a building or screen wall designed to let vehicles pass from the street to an interior courtyard.
Source:
http://www.wsj.com/articles/wanted-immigrant-funds-to-build-final-world-trade-center-tower-1446569760
http://www.wsj.com/articles/posh-tower-proposed-for-struggling-new-york-neighborhood-central-park-south-1444728781
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Crowdfunding Restrictions Ease
The Securities and Exchange Commission (SEC) recently finalized crowdfunding rules under Title III of the Jumpstart Our Business
Startups (JOBS) Act which was put into effect in 2012, bringing welcomed news to crowdfunding platforms. Previous rules mandated
for transactions not registered with the SEC, restricted crowdfunding platforms raising funds through the sale of securities to accredited
investors with a net worth over $1 million or an annual income of over $200,000. Sales to unaccredited investors required the cumbersome
and higher cost process of registering under Section 5 of the Securities Act — a similar process to what is done when companies
introduce a new stock or bond. The number of people with access to investments is now expected to significantly increase. The SEC’s
rules are intended to give small businesses access to capital — even if ideas are risky, while protecting investors; and now stipulate that:
•
Households with an annual income below $100,000 can invest the greater of $2,000 or 5% of their net worth or annual income;
•
Households with an annual income over $100,000 can invest 10% of the lesser of their net worth or annual income, but not more
than $100,000.
Transactions must go through an intermediary, such as a broker-dealer or a registered funding portal; and offerings must be checked by an
independent accountant, and in some cases fully audited.
Washington, D.C.-based Fundrise, which claims the title as the first functioning real estate crowdfunding platform in the U.S., is reportedly
seeking up to $50 million to further take advantage of the easing of restrictions by the SEC and form a real estate investment trust (REIT).
The new venture dubbed “e-REIT” is being described as a cheaper and more accessible alternative to traditional REITs that appears to
essentially be a very small, conventional non-listed mortgage REIT. The e-REIT allows investors to buy shares with an investment as low as
$1,000, but have no control over which properties the e-REIT invests in, however it is described as offering stable returns free from stock
market fluctuations. Dissimilar to conventional REITs, the e-REIT is filed under Regulation A of the JOBS Act, allowing Fundrise to sell
shares through its website and openly advertise them without going through a registered broker-dealer — intending to make the traditional
non-listed REIT structure cheaper for investors.
The news of the intended launch has raised questions by some of the viability of traditional crowdfunding. A sharp rise of investment by
institutional money is already usurping the smaller investor as competition amongst crowdfund platforms intensifies. In contrast, other
industry sources see it as next logical step that will offer investors an alternative option of a more diversified return through a pool of
investments; while other investors that want to maintain a closer control of their investment can continue to directly invest in single
property crowdfund campaigns.
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57
CMBS Activity in 2015 Falls Short of Projections
The expectation of heightened commercial mortgage-backed securities (CMBS) activity seems to have over-estimated the $125 billion
projected earlier in the year, now appearing that totals won’t exceed $100 billion. According to reported statistics compiled by Trepp, a
leading provider of information, analytics and technology to the global CMBS, commercial real estate, and banking industries, CMBS deals
from January through mid-November totaled $84.9 billion. A projected additional $11.6 billion expected by the end of the year will result in
an estimated total for 2015 of $96.5 billion, in comparison to last year’s $93 billion figure. Current low interest rates have driven spreads
wider in order to achieve the needed yield. On the other hand as rates rise the gap in estimates of pricing will widen between buyers and
sellers that will likely cause a slowdown in sales.
While the CMBS market has been recovering since the economic downturn, activity falls sharply short of the $229.5 billion in deals at the
height of pre-recession in 2007. Concerns of China’s economic downturn and the European economy rising reportedly sparked volatility in
the CMBS market that prevented activity from keeping up with the broader recovery in the equities and credit markets. Looking ahead, the
upcoming wave of maturity of CMBS issued a decade ago requiring refinancing will likely drive the market in 2016 according to sources.
However it is anticipated that instability will continue due to the recently announced interest rate hike by the Federal Reserve, and new
risk retention regulations that are also expected to push the cost of doing business higher such as:
•
Regulation AB rules which were expanded by the U.S. Securities and Exchange Commission (SEC) to require that the chief executive
officer of a CMBS issuer sign off on each new offering or deal, holding them personally liable for any false information on the deal’s
documentation;
•
Dodd-Frank Wall Street Reform and Consumer Protection Act will be enforced in the CMBS market at the end of 2016, requiring
that issuers hold onto 5% of the deal they are putting out on the market.
A higher number of changes to CMBS loans, both before securitization and after closing, have given rise to additional concerns. A review
of a sample of 28-loans over a 12-month period that ended June 30, 2015 by Fitch Ratings, a provider of issuer and bond ratings as well
as other financially related statistics, reportedly revealed that numerous loans were dropped. The findings potentially indicate a lack of
lender due diligence prior to sending initial loan information to rating agencies and/or B-piece buyers1; and that some originators may
be using B-piece buyers “as the initial providers of credit feedback.” Furthermore a separate report by Fitch showed that the number of
requests by borrowers to change the terms of loans after closing and putting the CMBS deal out on the market is also on the rise, and
could significantly affect individual borrowers looking to take on more debt.
1
B-piece buyers: investors who buy the below investment grade tranches.
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2 World Trade Center Receives PANYNJ Subsidies Approvals
In December the Port Authority of New York & New Jersey (PANYNJ) approved concessions to help expedite construction of the tower that
is the last to rise at the complex. Its construction is expected to create over 10,000 construction jobs and 12,000-15,000 permanent jobs.
The PANYNJ has reportedly exceeded expectations of public fund investment into the World Trade Center’s rebuilding which is delivering
primarily privately-owned space. However it has been projected that the gain in tax revenue and other monies by various government
agencies as a result of the complex’ completion will outweigh the agency’s investment if the complex is fully delivered as apposed to
being left to linger partially constructed.
•
News Corp. / 21st Century Fox - A subsidy package that would save the media companies a combined present-value of $43 million
over 30-years if a deal is secured to relocate to the proposed tower. The subsidy would reportedly cost the PANYNJ $9 million after
a $15 million state subsidy and $19 million of added rent to be incurred by Silverstein Properties over the course of the 30-year lease
for 1.5 million square feet. The total public support for the lease reportedly amounts to $16 per square foot over the 30-year term, with
the PANYNJ receiving $500-$600 million over the next 4-years in exchange for the modest long-term ground rent adjustment.
•
Silverstein Properties – The developer would receive a rent break that amounts to $9 million over the life of the lease from the
PANYNJ if the building is constructed.
It has been projected that 2 World Trade Center’s completion will generate $500-$600 million in revenue for the PANYNJ, to be used to
help subsidize the agency’s transportation and other projects. The majority of the revenue would come from the $300-$350 million that
World Trade Center retail leaseholder Westfield Corp. would pay the PANYNJ to buy the retail component of the tower — a deal that is
contingent upon its delivery. The agency would also reportedly receive $174 million from Silverstein for site preparation work and increased
ground lease payments should the News Corp. and 21st Century Fox leases be secured. In addition, the value of 1 World Trade Center is
expected to rise as a result of the full completion of the complex, facilitating the agency’s eventual exit from its investment as majority
stakeholder in the tower.
Sources:
http://www.wsj.com/articles/port-authority-approves-wtc-subsidies-1449799001
http://www.bloomberg.com/news/articles/2015-12-10/port-authority-approves-subsidies-for-2-world-trade-development
http://www.downtownexpress.com/2015/12/10/port-authority-will-pay-murdoch-companies-to-move-to-2-wtc/
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Lending
Emerging Market Debt Signals Potential Strain on Banking Sector
The market for emerging-market corporate bonds denominated in dollars and other hard currencies reportedly doubled since 2009,
reportedly reaching $1.5 trillion in mid-April. The gains which were fueled by investors’ attraction to higher-yielding debt despite the extra
risk of owning bonds of companies in developing markets, overtaking the amount of U.S. high-yield bonds outstanding. However late last
year, due to worries about companies’ ability to service debt because of the strengthening dollar and slowing economies in the emerging
world, prices fell sharply. Although a partial recovery ensued as tensions eased in Russia and oil prices stabilized, emerging-market
bonds remained lower than in 2014, prompting investors to shift investment dollars away from the sector. In addition, emerging-market
companies that have borrowed overseas will incur further hardship as the Federal Reserve begins to raise interest rates making it harder
to refinance debt. It is anticipated that in countries where a significant economic slowdown occurs, an increase in defaults will put a strain
on the banking sector.
•
Kaisa Group Holdings – In early 2015 China-based firm became the first Chinese developer to default on U.S.-dollar-denominated
bonds, reportedly sending tremors through the world of real estate and finance.
•
OAS SA – the Brazil-based oil company defaulted on its debt as Petróleo Brasileiro SA.
•
Ukraine – A severe shortage of foreign reserves has hindered efforts by the state’s companies to repay external debt.
Recent reports announced that issuance by emerging-market borrowers slid to a net $1.5 billion in the 3rd quarter representing a sharp
decline of 98% quarter-over-quarter as emerging market assets tumbled. Some factors contributing to weak debt-securities issuance were
reportedly growing concerns over emerging-market fundamentals, falling commodity prices, and rising debt burdens. Other sources note
that the emergence of the euro as a borrowing currency also contributed to the decline in international-debt sales, euro-bond offerings
from emerging markets rose during the 3rd quarter, surpassing net issuance of the $22 billion in dollar-denominated debt by $1 billion.
Long Island-based Lender Bumps-Up Construction Lending
G4 Capital Partners, the real estate bridge lending group division of Roslyn, Long Island-based G4 Companies recently provided 2-loans
for New York City projects. Both deals are part of the company’s push into construction lending despite certain risks should there be a
market downturn, or if a project’s developer goes over budget. Primarily seeking projects where the developer acquired the land at a low
cost, as was the case with the latest construction financing provided to both longtime property owners.
•
56 North 9th Street (Williamsburg) – A $29 million construction loan was provided for the 7-story, 108,000-square-foot mixed-used
development under construction at the corner of Kent Avenue. The new building will house 57 residential units as well as 2-levels
devoted to retail and restaurant space.
•
3-75 Sullivan Street (SoHo) – An $18.25 million construction loan was provided for the 9-story, 25,952-square-foot rental development.
Other financing provided over the last year include:
•
71 North 7th Street (Williamsburg) – The $5.5 million bridge loan provided for the acquisition of the small development site had a term
of 6-9 months.
•
96 Wythe Avenue (Williamsburg) – A $40 million construction loan was provided for the 8-story, 150-key boutique hotel development.
•
510 Driggs Avenue (Willimasburg) – A $22 million bridge loan was provided until construction financing could be secured for the
planned 5-story, 70,000-square-foot residential development.
Sources:
http://www.brownstoner.com/blog/2014/10/rendering-and-more-details-on-kaufmans-williamsburg-projects/
http://www.bloomberg.com/news/articles/2015-12-06/pain-of-emerging-markets-revealed-as-debt-sales-sink-98-percent
http://www.wsj.com/articles/investors-grow-wary-of-emerging-market-debt-1429473506
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Reported Loans Secured - 4th Quarter 2015
Midtown
501-505 Madison Avenue (Plaza) – The Vanderbilt family has secured an $80 million loan from AXA Equitable Life Insurance. The new debt
will swap out an existing $60 million construction loan from AXA that was intended to eventually by converted to a long-term debt when
building renovations were completed and the property leased up. The 200,000-square-foot property had been ground-leased since its 1929
completion under an 84-year term, but upon the 2013 expiration the Vanderbilt family opted to take back control.
15 West 47th Street / 22 West 48th Street (Plaza/Diamond) – Co-owners Isaac Chetrit and Ray Yadidi secured a total of $130 million in
refinance loans from lender Signature Bank. The 7-year debt with a reported interest rate of 3.88% broke down into a $75 million mortgage
on the West 47th Street 18-story, 136,372-square-foot building; and a $55 million loan on the West 48th Street 15-story, 90,000-square-foot
building. The properties were acquired by the partnership in 2012 for $116.3 million ($514 per square foot), having secured a $70 million
acquisition loan at the time from Wells Fargo.
575 Fifth Avenue (Grand Central) – Boston-based Beacon Capital Partners secured a $321 million loan from lender Deutsche Bank. The
new debt comprised of a $271.1 million acquisition loan, a $37.3 million building loan, and a $12.6 million project loan will help finance the
50% interest acquisition of an office condo at the MetLife building. The details of the deal were not disclosed.
295 Madison Avenue (Grand Central) – The Eretz Group secured $169 million to refinance the 298,628-square-foot tower from lender Bank
of China. The debt will replace a reportedly $110 million acquisition loan provided by SL Green in 2013 upon Eretz purchasing the tower for
roughly $212.685 million ($712 per square foot) from Westbrook Partners and the Moinian Group.
585-587 Eighth Avenue (Times Square) – Great Neck, NY-based McSam Hotel Group has secured an $80 million loan from lender Deutsche
Bank for the 271-key Holiday Inn New York City-Times Square hotel that opened in October. A portion of the new debt will replace a $40
million loan previously provided by Bank of the Ozarks last year.
5 Penn Plaza (Penn Plaza) – Haymes Investment is nearing a refinance deal for the 24-story tower through Citigroup which is reportedly set
to provide a $300 million commercial mortgage-backed securities (CMBS) loan. The new debt will replace an existing $203 million CMBS
loan provided by JPMorgan Chase in 2007 that was nearing a 2017 maturity. Citigroup is expected to securitize the new 10-year loan in the
coming weeks. The over 600,000-square-foot tower that spans an entire block-front between West 33rd and 34th Streets at 8th Avenue is
currently about 98.5% leased with roughly 26,000 square feet of retail space.
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Loans Secured (cont’d)
Midtown (cont’’d)
220 Central Park South (Midtown West) – Vornado Realty Trust has secured $750 million in financing for the REIT’s planned 117-unit
residential condominium development from a group of lenders including JPMorgan Securities and Merrill Lynch, Pierce, Fenner & Smith
Inc. The unsecured delayed-term loan facility reportedly matures in October 2018; and carries an interest rate of 115 basis points over
LIBOR plus an annual fee of 20 basis points on any unused portion of the financing. Initially withdrawing $187.5 million, all remaining
draws must be made by October 2017 according the terms stipulated. The maximum amount available to Vornado is twice the amount
outstanding on the facility as of April 29, 2016, or up to the $750 million borrowing limit. The announcement comes just over 1-month
following news of the Bank of China providing another $350 million in construction financing on top of a previously secured $600 million
debt arranged last year.
Construction of the high-end tower has a price tag of $5,000 per square foot according to reported figures released by Vornado — $1,500
per square foot for the land; and $3,500 per square foot in hard, soft, and financial costs. The building is expected to have the largest loss
factor of any building of this type to accommodate the amenity packages. The project that has a nearly $3 billion sellout had about 50%
of the 117-units sold at the end of October. The majority of buyers are reportedly domestic, of which 45% were New Yorkers purchasing a
primary residence; and about 30% were purchases by Americans living in other cities. Currently rising to the 9th floor, project completion
is expected to be in 2018.
15 Hudson Yards aka 553 West 30th Street (Hudson Yards) – Co-developers the Related Companies and Oxford Properties Group have
secured $1.3 billion in financing for the planned 70-story residential development. The finance package reportedly includes equity provided
by the co-developers and a sovereign wealth fund, tax-exempt bonds from New York State Housing Financing Agency (HFA), and the
previously reported $850 million construction loan by London-based hedge fund The Children’s Investment Fund. Located on the southwest
corner of the Phase 1 site at 11th Avenue, construction of the 960,000-square-foot development has already begun; and upon the expected
2018 completion will house 285 condo units and 106 affordable rental units. The new building will be attached to the planned indoor/outdoor
event venue dubbed the Culture Shed; and will be one of 2-planned towers to deliver new residential space, the other development
known as 35 Hudson Yards (560 West 33rd Street) will also include an Equinox-operated hotel and office space.
30 Hudson Yards aka 500 West 33rd Street / Shops & Restaurants at Hudson Yards (Hudson Yards) – Co-developers the Related
Companies and Oxford Properties Group announced in mid-December the closing of over $5 billion in financing for the site’s 2.6 millionsquare-foot flagship office tower and the 1 million-square-foot retail component connecting the 10- and 30 Hudson Yards towers. In addition
to equity from the developers and tenants, the finance package reportedly included:
•
$690 Million, 5-year loan from Bank of America Merrill Lynch, Wells Fargo and Canadian Imperial Bank of Commerce for 30 Hudson
Yards. Bank of America is acting as the administrative agent on the loan that will be syndicated in January. Approximately 8-banks are
expected to buy into the deal including Citizens Bank and TD Bank.
•
$1.5 Billion from Bank of China, Deutsche Bank, Industrial and Commercial Bank of China (ICBC) and Crédit Agricole for the property’s
retail and dining complex.
Renderings 220 Central Park South
15 Hudson Yards - Rendering
30 Hudson Yards - Rendering
Shops & Restaurants at Hudson Yards - Rendering
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Midtown South
520 West 30th Street (Chelsea/Hudson Yards) – The Related Companies has secured a total
of $200 million in loans for the 28-story, 207,334 square-foot mixed-use development from
lender JPMorgan Chase. The financing package was reportedly divided amongst a $24.6
million project loan, a $125.8 million building loan, and a $49.5 million acquisition loan.
The new building is expected to rise to a linear height of 354-feet and house 174-units plus
11,500 square feet of ground level retail space. Located on a portion of the 26,168-squarefoot parcel between 10th- and 11th Avenues, the planned development will join a 14-story,
131,748-square-foot affordable housing development. The new building at 529 West 29th
Street was completed by Related last year, comprised of 139-units with 70% set aside for
artists and 15% for local seniors. Other area development activity by the company includes
520 West 30th Street - Rendering
the 33-story Abington House, 500 West 30th Street also delivered last year, adding
312-units spread across over 400,000 square feet; and a planned 189-unit, 300,000-square-foot development at 532 West 30th Street
reported last year that would replace an existing 7-story, 15,447-square-foot structure, although there has not been any recent news of
project plans moving forward.
21-29 East 12th Street aka 100-114 University Place (Greenwich Village) – William Macklowe secured a $124 million construction loan
from lender M&T Bank. Funds from the 3-year debt will go towards the developer’s planned 23-story,
122,090-square-foot mixed-use development. The new building will house 52 condominium units,
13,075 square feet of commercial space, and a 1,050-square-foot community facility. Demolition
of the existing 75,000-square-foot garage that also housed Bowlmor Lanes began in November to
make way for new construction.
600 Broadway (SoHo) – The partnership of Aurora Capital Associates, A&H Acquisitions, and Crown
Acquisitions secured a 10-year, $120 million loan from lenders Bank of New York Mellon Corp.
and Iron Hound Management Company’s lending arm IH Capital. The new debt will refinance the
1 Great Jones Alley - Rendering
6-story, 57,947-square-foot building that last traded in 2008 for $71.4 million, replacing a $72.6
million mortgage originally provided at the time of acquisition by the now shuttered Anglo Irish
Bank and acquired by SunTrust Bank in 2014 per city records. A portion of the new funds will be cashed-out, with the remainder set aside
for capital reserves. The financing reportedly carries a 50% loan-to-value (LTV) ratio, and will be securitized in the commercial mortgagebacked securities (CMBS) market. The building located at the corner of Houston Street is currently fully leased, with Abercrombie & Fitch
subsidiary Hollister and gym chain 24 Hour Fitness occupying its 56,914 square feet of retail space.
1 Great Jones Alley aka 688 Broadway (NoHo) – Madison Realty Capital secured a $58.3 million construction loan from lender Bank of the
Ozarks for a planned 12-story, 44,785-square-foot mixed-use development. Plan approvals from the Landmarks Preservation Commission
(LPC) were received in 2012 for the 16-unit condominium that will also include 8,910 square feet of retail space. The former home of a
longstanding open-air flea market, construction of the new building that will front on Great Jones Alley is expected to begin before the
end of the year.
337-345 Lafayette Street aka 51-53 Bleecker Street (NoHo) – RFR Realty secured $22 million for the acquisition of the 3-story,
9,789-square-foot building from lender Mesa West Capital. The $20.8 million ($2,125 per square foot) purchase from owner/user non-profit
A.J. Muste Memorial came just a few months after the property known as the Peace Pentagon located in the NoHo Historic district was
introduced to the market. The seller will continue to remain in 2-floors of the building rent-free for 8-months upon closing. Redevelopment
of the property could give potential give rise to a 16,275 buildable-square-foot commercial or hotel project as-of-right that can increase to
21,158 square feet for a community facility according to sources.
670-674 Broadway (NoHo) – Paramount Group secured a $90 million acquisition loan from lender Bank of America for the purchase of
the 75,000-square-foot building that the company is currently in contract to purchase from longtime owner F.D.R. Industries. The building
which is primarily vacant offers the potential upside of securing new tenants at the current market’s higher rates.
Sources:
http://ny.curbed.com/places/529-west-29th-street
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Midtown South (cont’d)
88 University Place (Union Square) – Elie Tahari secured a $70 million loan from New York-based lender Mack Real Estate Credit Strategies.
The floating-rate debt will fund capital improvements at the 11-story, 82,000-square-foot building including new lobby entranceways, new
elevator cabs, mechanical upgrades, and common area improvements. Tahari acquired the 110-year loft building this summer for $70
million ($854 per square foot). WeWork will be occupying 8-floors as a result of a recently announced lease; expecting to eventually expand
into the remaining 2-floors of the building’s office space.
Essex Crossing (Lower East Side) - Co-developers L+M Development Partners, Taconic Investment Partners and BFC Partners under the
venture Delancey Street Associates have secured financing for 2-planned developments that are part of the multi-building project that will
rise within the Seward Park Urban Renewal Area (SPURA). The co-developers were awarded the project by the city in 2013, paying $180
million for the parcels. The additional loans are on top of the over $250 million in construction financing previously secured for 2-other sites
at the project —145 Clinton Street / Site 5 and 80 Essex Street-115 Delancey Street / Site 2.
•
242 Broome Street / Site 1 – A $95 million loan was secured from lender Goldman Sachs. The new 14-story building will house 55
residential condominiums of which 20% will be designated for affordable housing. An Andy Warhol Museum and the Splitsville Luxury
bowling alley will partially be housed in the building’s commercial space.
•
175 Delancey Street / Site 6 – A $79.5 million in financing for the 138,000-square-foot mixed-use development. The financing
package from lender Wells Fargo was reportedly comprised of:
-
$26.4 million construction loan, of which $6 million came from non-profit Low Income Investment Fund;
-
$11.7 million in New Market Tax Credits to finance the commercial component;
-
$16.9 million construction loan; and $11.5 million in Low-Income Housing Tax Credits (LIHTC) for the residential component, that
is expected to eventually increase to a total of $25.8 million worth of LIHTC equity.
In addition, Goldman Sachs and the development team have provided roughly $13 million in equity. The planned 14-story development
will house a 100-unit affordable senior housing component, 20,000 square feet of community space, 26,000 square feet for nonprofit Grand St. Settlement which will provide a senior center and job training programs, and 50,000 square feet of medical facility
space. Construction of the new building is expected to be completed in 2017.
Sources:
http://www.wsj.com/articles/whats-the-deal-1450059124
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Downtown
32 Sixth Avenue (TriBeCa) – Rudin Management secured a $425 million refinancing loan for the 29-story, roughly 1.1 million-square-foot
tower. The debt will be sold off as commercial mortgage-backed securities (CMBS) in a deal that was underwritten by JPMorgan Chase and
Deutsche Bank. The new 10-year loan will close out a $360 million loan due to expire in April 2017 that had also been securitized. Lower
interest rates and a stronger CMBS market had prompted the developer’s decision to refinance, despite a rise in the CMBS market over
the summer due to concerns of the economic downturn in China; and the $26.2 million early pay-off fee incurred. Japan-based advertising
firm Dentsu anchors the tower that is currently fully occupied.
250 Vesey Street (World Trade Center) – Brookfield Property Partners secured a $600 million loan to refinance the tower which is part of
the 4-building complex known as Brookfield Place. The new debt was provided by a group of life insurance lenders comprised of MetLife,
New York Life Insurance Company, Prudential Financial and AXA Equitable Life Insurance Company; and closes out the $325 million loan
provided by Deutsche Bank last year, resulting in $275 million in additional debt for future use by the company.
45 Broad Street (FiDi) – The partnership of Madison Equities and Italy-based Pizzarotti Group along with minority investor AMS Acquisitions
secured a $75 million acquisition loan to close on the $86 million purchase of the vacant parcel. Details of the loan were not disclosed,
but Mack Real Estate Credit Strategies was reportedly amongst the group of lenders. The site that can accommodate 264,200 buildable
square feet will give rise to a 65-story residential condominium, but project details have yet to be released. The property was originally
purchased in 2006 by Swig Equities for $29 million ($110 per buildable-square-foot). The existing 56,000-square-foot office building had
been demolished to make way for a planned Nobu Hotel project that was abandoned as a result of the economic downturn, evenutally
leading to a foreclosure of the property back to lender Lehman Brothers Holdings. Lehman ultimately sold the site to LCOR in 2012 for $14
million ($53 per buildable-square-foot).
Uptown
143-161 East 60th Street (Upper East Side) – Kuafu Properties has secured a $123 million mortgage from
Columbus Circle-based real estate debt fund Mack Real Estate Credit Strategies to close on the roughly
$300 million acquisition of the development site that spreads across 6-tax lots plus additional air rights from
163-167 East 60th Street. The transaction was in contract just weeks after World Wide Group introduced the
properties to the market. Located across the street from high-end department store Bloomingdale’s, existing
buildings could be demolished to make way for a roughly 280,000-square-foot development of a potential
linear height up to 1,000-feet. Adding to the portfolio’s value is the 200-feet of frontage along East 60th
Street. World Wide had acquired the assemblage through several transactions spanning years 2005-2014, last
trading for a combined total of roughly $66.874 million.
143-161 East 60th Street
Conceptual Rendering
Upper Manhattan
2341-2357 Adam Clayton Powell Jr. Boulevard (Harlem) – BRP Development secured a $53.2 million
construction loan from lender Santander Bank for the 8-story, 200,000-square-foot mixed-used development.
The 80/20 development dubbed The Renny will replace the former Harlem Renaissance Casino and Ballroom
complex that has sat vacant for 30-years; and will house 134-units, 20,840 square feet of community space, and
17,500 square feet of retail space. The block-long site bound by West 137th- and 138th Streets was acquired in
2014 for $10 million ($50 per buildable-square-foot) ) from Abyssinian Development Corporation. Design plans
include solar panels, a green roof, an energy-efficient boiler and water-saving plumbing, hoping to receive LEEDSilver certification. Construction is already underway and expected to be completed in 2017.
2341-2357 Adam Clayton Powell
Rendering
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Notable Transactions
Lease
Address
Submarket
District
Sq. Ftge
191,138
Tenant
55 Water Street
Downtown
FiDi
Downtown
World Trade Center
1633 Broadway
Midtown
Columbus Circle
10 Hudson Yards
Midtown
1120 Sixth Avenue
Midtown
1700 Broadway
Midtown
Columbus Circle
119,414
Gensler (Relocation)
300 Park Avenue
Midtown
Plaza
109,631
WeWork (Sublease)
600 Third Avenue
Midtown
Grand Central
100,000
L-3 Communications (Renewal)
83,000
Teachers’ Retirement System of the City of NY
SportsNet New York (Relocation)
260,829
Morgan Stanley (Expansion)
Hudson Yards
193,295
Boston Consulting Group (Relocatoin)
Times Square
126,000
Indeed (Relocation)
Pier 57 “Superpier”
Midtown South
Chelsea
115 Fifth Avenue
Midtown South
Union Square
250,000
77,000
Google
Perkins Eastman (Renewal)
88 University Place
Midtown South
Union Square
52,000
WeWork
Address
Submarket
District
20 Broad Street
Downtown
FiDi
Sale
Sq. Ftge
Sold Price
473,000
$185,000,000
Metro Lots (Leasehold)
Northwind Group
Newmark Holdings
40 Exchange Place
Downtown
FiDi
237,000
$115,000,000
86 Trinity Place
Downtown
World Trade Center
127,208
$105,000,000
Midtown
Times Square
185,000
$107,000,000
645 Madison Avenue
Midtown
Plaza
164,515
$76,000,000
114 Fifth Avenue
Midtown South
Union Square
313,500
$210,000,000
51 Astor Place
Midtown South
Greenwich Village
196,000
$113,000,000
6-Building Office Portfolio
Multiple
Multiple
2,650,000
$2,000,000,000
The Manhattan Office Market Report is produced quarterly by:
Jamie Mason | Director of Marketing & Research
ABS Partners Real Estate, LLC
Purchaser
Clarion Partners (70% stake)
William Macklowe Co.
Principal Financial Group
Nightingale Properties
Friedland Properties (ground lease)
Allianz Real Estate (Leasehold)
Korean Teacher’s Credit Union
(49% stake)
Blackstone Group (50% stake)
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For More Information Please Contact:
212.400.6060
•
www.absre.com
200 Park Avenue South, 10th Floor, New York, NY 10003
We Build Partnerships That Last
Although the information furnished is from sources deemed reliable such information has not been verified and no express representation is made nor is any implied as to the accuracy thereof. Sources: CoStar Group, The
Real Deal, Crain’s New York Business, The New York Times, New York Post, New York Yimby, and Commercial Observer

Manhattan Office Q4 2015

Transcription

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