Textile Building Lands Large Law Firm Lease After $350M Renovation
Quinn Emanuel has signed a lease for 132K SF at 295 Fifth Ave., known as the Textile Building, which was renovated by Tribeca Investment Group, PGIM Real Estate, and Meadow Partners. The joint venture completed its $350M redevelopment of the 700K SF building in April. The law firm is the first tenant to sign a lease in the building since its repositioning and will occupy the eighth through 10th floors. The lease is the largest relocation within Midtown South this year, according to CBRE. The 1920-built building features outdoor workspaces, flexible work zones, and hospitality-focused amenities. The owners brought on architecture firm Studios Architecture to head up the redesign process, which included adding a two-story, 34K SF penthouse on top of the property's original 17 stories. Asking rents in the property ranged from $95 per SF at the building's base to $135 per SF for the penthouse.
What REBNY’s office visitation report actually measures
Industry group reported 66% figure, but it’s not an attendance rate
The Real Estate Board of New York (REBNY) has reported a 66% office visitation rate in Manhattan, despite the fact that cell phone activity in office buildings was two-thirds higher in September than in 2019. The data is broader than Kastle's, which misses buildings that don't use its card-swipe services, including those with higher office attendance. The shift to remote work has significant implications for cities' tax revenue, office owners, lenders, investors, and restaurants and stores in office districts.
A revised study from New York University and Columbia University estimated that the city's offices would lose 44% of their pre-pandemic value by 2029, an increase of 16 percentage points from the previous year's original study. REBNY's visitation report has historically shown higher-end office buildings recovering faster than others, but the difference is marginal. In September, the average visitation rate in A+ properties was 67% of the 2019 figure, versus 65% for A, A-, B, and C buildings. Newer buildings are expected to have higher visitation than older ones. Midtown South led Manhattan office districts at 70%, Midtown at 67%, and Downtown at 60%.
Manhattan office leasing underwhelms in November
On pace to finish 2023 well below last year’s total
The latest Manhattan office leasing report shows that leasing activity for November totaled 2.1 million square feet, down from 2.6 million the previous month. Total leasing this year has already surpassed that of the first year of the pandemic, 2020, and is on pace to outdo the second. However, it will finish the year slower than 2022. Demand moves sideways, and as supply outpaces demand, the amount of available office space increased. The largest leases of the month included several renewals, with Dentons re-signing for almost 160,000 square feet at Rockefeller Group’s 1221 Sixth Avenue and Palantir Technologies Inc. renewing for 140,000 square feet at RXR’s 620 Sixth Avenue. The newest, nicest buildings are faring best, with the flight to quality being a significant factor. The borough had 24 deals close with starting rents north of $150 per square foot in all of 2022.
RXR signs former WeWork tenant for Sixth Avenue offices
Current takes 72K sf in direct deal, expansion at Flatiron District property
Mobile banking app Current has signed a direct lease with RXR Realty, extending its stay at 620 Sixth Avenue, a Flatiron District office building. The company is increasing its lease from 42,000 square feet to nearly 72,000 square feet, stretching across an entire floor of the property. The lease was previously taken from WeWork under a four-year contract, with rent asking for the lease to be upwards of $100 per square foot. WeWork's financial woes culminated in filing for bankruptcy in early November and a restructuring process that allowed it to exit leases across the country. The company handed over the 620 Sixth Avenue space back to RXR this month.
The fallout of WeWork's bankruptcy is expected to continue unabated for months.
It Just Shouldn't Be This Hard': Much Of NYC CRE Stuck In Limbo
New York City's commercial real estate sector is facing a decline due to rising interest rates, inflation, and a lack of government incentives. Despite apartment rents at all-time highs, development has slowed dramatically, with developers blaming the lack of government action and incentives. The office market is facing a particularly painful year, with $75B to $150B of office debt coming due in the next three years. Tenants are seeking shorter and smaller leases due to economic uncertainty and an unenthusiastic return to the office. Loans originated before the pandemic were likely underwritten with the understanding that landlords would have been able to increase rents over the past few years. The slow office transaction market means there are few indicators of how dramatically the pandemic has transformed office values, adding to the challenges faced by owners looking to sell or refinance. The capital markets and leasing environment has led to a pullback from some of NYC's most tenured office owners. Silverstein Properties is planning more conversions but is also applying caution.
Federal government falls short of return-to-office goals
Agencies spend about $7 billion annually on office space
The real estate industry has been hoping for the federal government to set an example for a return-to-office movement, but it seems unlikely. The government's efforts to bring workers back to the office have fallen short of their goals, with an estimated 17 agencies using no more than a quarter of their headquarters' capacities during a review of two dozen federal agencies. Washington, D.C. is the most affected, with an office vacancy rate of 21.3% in the third quarter. Some agencies, like the Department of Veteran Affairs and the U.S. Agency for International Development, have reached their workplace goals, while others, like the Securities and Exchange Commission and the Patent and Trademark Office, have vacated spaces upon lease expirations. The high costs of federal government office space, including operating buildings and leasing space from private landlords, are not a concern for employees who want to enjoy the perks of private employees.
Architects are chopping up NYC offices to add more floors for apartments
New York City is facing a dual real estate crisis, with soaring office vacancies and a lack of new housing construction. Developers and architects are transforming dormant office spaces into residential havens, such as Vanbarton Group and Gensler's 160 Water Street. The project, which includes 586 modern apartments, aims to address the lack of natural light and air circulation within the city's 96 million square feet of vacant office space. The architects have engineered three "blind shafts" to eliminate unusable space, and have created rooftop amenities and subterranean recreational spaces. Despite the high cost, these projects breathe new life into neighborhoods, attracting residents and invigorating local commerce. The challenge lies in ensuring affordable conversions and tax incentives tied to integrating affordable housing components.
SL Green Selling 625 Madison For $630M, Signs Big Leases On Park Avenue
SL Green has completed its largest office deals of 2023, selling its stake in a Plaza District office building for $632.5M and signing two large new leases in Midtown East. The 17-story office tower at 625 Madison Ave. will be sold to a global real estate investor, who will use the proceeds to pay down its corporate debt. SL Green and its partners are originating a $234.5M preferred equity investment in the building. The sale brings to an end SL Green's battle for ownership of 625 Madison, which began nine years after it acquired the leasehold in 2004. SL Green also signed two significant leases at two of its Park Avenue holdings. Investment bank PJT Partners signed a renewal and expansion for 270K SF at 280 Park Ave., a 1.25M SF office tower co-owned with Vornado Realty Trust. SL Green is also investing in 245 Park Ave., which is planning a redevelopment that will add tenant amenities.
Hudson Yards, One Vanderbilt Reportedly Got Fast-Tracked Inspections At Adams' Office's Request
The FBI is investigating possible corruption in Mayor Eric Adams' administration, with buildings like Related Cos.' 50 Hudson Yards and a sushi restaurant co-owned by SL Green on a list for expedited inspections. Authorities are also investigating the finances of Adams' 2021 mayoral campaign, including whether it improperly took money from Turkish government operatives via a straw donor scheme. The Farley Building development, co-owned by Related and Vornado, was also on a deputy mayor's list of preferred projects for FDNY inspections. The investigation is also looking into whether Adams pressured the city's fire chief to rush the opening of a new Turkish Consulate in Midtown East despite safety concerns. The practice of fast-tracking fire inspections was not restricted to the Turkish Consulate, according to a lawsuit filed by former FDNY chief of fire prevention, Joseph Jardin. The list is reportedly subject to widening FBI scrutiny.
Co-Owner Of Chrysler Building Files For Insolvency
Austrian firm Signa Holding, which owns a 50% stake in the Chrysler Building, has filed for insolvency. The company plans to undergo a restructuring similar to U.S. bankruptcy proceedings. The founder, René Benko, stepped down from his advisory board after failing to reach a deal with its lender to restructure its debt. Under Vienna regulations, Signa has 90 days to present a turnaround plan, pay back 30% of claims within two years, and maintain autonomy to restructure debt and dispose of assets. The insolvency filing threatens the firm's real estate empire, which includes a delayed Hamburg tower, British luxury department store Selfridges, and the Chrysler Building equity. JPMorgan Chase analysts estimate that over half of the $4.5B debt is floating-rate, making loans more expensive than when the firm first borrowed the money.
Highwoods Properties, anticipating downturn, offers $350M in unsecured notes
Strategy to pay down debt
Highwoods Properties, a Raleigh-based office landlord, is raising capital and improving liquidity by offering $350 million in unsecured notes. The move is part of Highwoods' strategy to pay down existing debt within the real estate investment trust. The proceeds will be used to repay a $200 million unsecured loan acquired in October 2022, which served debt payments, acquisitions, working capital, and development activities. The remaining funds will be directed toward Highwoods' $750 million unsecured revolving credit facility, nearly zeroing out the outstanding balance.
The decision to raise capital comes amid a challenging lending market and rising interest rates, making it harder for commercial real estate borrowers to secure funding. Highwoods aims to de-risk its future capital raising needs, signaling confidence in the availability of capital and support from bond investors. The move positions the company to potentially avoid the need for capital raises for a few years.