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A new skyscraper on Park Avenue, with Citadel as an anchor tenant, has secured a $911 million refinancing from Sumitomo Mitsui Trust Bank. The five-year, floating-rate loan will be used to pay off a loan from 2021, which funded construction and leasing. The building, completed in 2022, is 90% leased to finance and investment firms. Despite challenges in securing new financing due to rising borrowing costs and remote work, new buildings with more amenities have been able to secure loans. L&L Holding President Rob Lapidus praised the lending market's continued capacity to finance such high-end office towers.
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SL Green has announced three new tenants have signed leases at its revamped 1 Madison Ave. building, next to the MetLife clock tower. The 1.4 million square-foot building is 63.6% leased, with IBM leasing 330,000 square feet and Chelsea Piers Fitness taking over 50,000 square feet. The largest tenant is an unidentified financial services firm, taking 67,000 square feet for 11 years. Flutter Entertainment, the owner of Paddy Power betting site, is taking 36,000 square feet for a 12-year term. 550,000 square feet last quarter, the highest of any publicly traded real estate stock. The amenities at 1 Madison Ave. include a steakhouse run by Daniel Boulud, La Tête d’Or by Daniel, and an event space and rooftop garden on the 28th floor called Le Jardin sur Madison.
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The US tech industry's retreat from office space, accelerated by layoffs and hybrid work schedules since 2022, has led to a steep drop in leasing activity, exacerbated in 2024. The tech industry was responsible for 21.7% of total office leasing nationwide in 2019, and in tech-centric markets like the Bay Area, the total was well over 50%. In 2023, tech companies represented 15.5% of total office leasing. The tech sector's demand for office space cratered in 2023, with only 9M SF leased nationwide last year, compared to 16.6M SF in 2022 and 22.6M SF in 2021.
Tech giants like Amazon and Meta have downsized their footprints, with Amazon planning to cut its office space usage over the next three to five years to save $1.3B annually. The artificial intelligence trend has sparked new leases, but sustained levels of funding may not directly translate to office leasing.
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Fashion and sports industries sign top Midtown spaces in March
The professional soccer league has joined the list of the largest office leases in the five boroughs of NYC, along with banks, clothing brands, and legal firms. Michael Kors has renewed its HQ in the Grand Central building, owned by Tishman Speyer and Silverstein Properties. Major League Soccer has signed a new lease in the Penn Plaza building, relocating from a Fifth Avenue space. Financial services company Betterment has signed a new sublease in the Hudson Yards building,. NYU Langone Health has leased a new space in the Long Island City building, known as Innolabs, owned by Kings Street Properties and GFP Real Estate. Citizens Bank has signed a new lease in the Midtown West building, owned by Paramount Group. GTCR has signed a new lease in the Plaza District building, owned by L&L Holding Company.
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Index suffers worst day since 2022
Real estate shares have fallen to their lowest point in over a year due to a worse-than-expected inflation outlook. The index of real estate shares lost over 4%, marking its single worst day since mid-2022 and the worst-performing sector so far this month. Real estate stocks were expected to surge further this year as the Federal Reserve ceased interest rate hikes and signaled potential for several cuts. However, the inflation rate put a damper on this prospect, with the core consumer price index rising 0.4% from February and remaining static at 3.8% year-over-year. Other companies to suffer include BA Communications and Extra Space Storage. Shareholders of real estate companies hope inflation doesn't persist, as the Fed could take drastic measures, including hiking interest rates, which could further cut stocks. Blackstone's $10 billion bet on the sector through its acquisition of AIR Communities has also boosted real estate stocks.
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Truong My Lan, the 67-year-old chair of Vietnam's largest real estate firm, Van Thinh Phat, has been sentenced to death for embezzling $12.5B through loans to shell companies. The fraud, which equated to nearly 3% of the country's GDP, has caused concern among businesses and foreign investors. Lan was also convicted of bribing government officials and violating bank rules. She secured over 2,500 loans from Saigon Commercial Bank, giving her ownership of 91.5% of the bank's shares. The total damages caused by the scam amount to $27B.
Van Thinh Phat owns luxury residential buildings, offices, hotels, and shopping centers, with assets including Times Square Saigon, the Windsor Plaza Hotel in Ho Chi Minh City, and Capital Place. The company's crimes damage Vietnam's credibility during a time when its government is attempting to steal business away from neighboring countries. In 2023, an estimated 1,300 property firms withdrew from Vietnam, and developers are slashing prices and offering gold to attract buyers. Lan's case is part of a broader crackdown on corruption in Vietnam.
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A new report by Placer.ai shows that nationwide office visits in March were at their highest levels since the pandemic began. The report shows that office visits were down 32.7% compared to March 2019, with Miami and New York leading in recovery. However, the national visit gap dropped slightly from 36.3% in March 2023 to 32.7% in March 2024. Landlords are seeing more lease renewals, with 82% of them seeing the length of renewals increasing or holding steady. Tenant retention is a top priority for 57% of surveyed landlords, with 56% planning to enhance property management and tenant experience. However, there is still a significant gap between current visitation patterns and pre-pandemic trends, indicating the staying power of hybrid and work-from-home models. San Francisco office visits were down 50.1% in March compared to a pre-pandemic baseline, while Los Angeles and Houston rounded out the bottom three.
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Manhattan office owners are facing challenges in attracting companies to their buildings due to the high costs of tenant improvements and free rent. To secure new tenants, Vornado Realty Trust must commit up to $300 per square foot, divided equally between tenant improvements and free rent. This amount is more than $40 per square foot over a 10-year lease, which is a significant amount considering the weighted average rent in the buildings is $100 a square foot. This has eroded profit margins at Vornado, which owns 20 million square feet of office space around the city.
In the coming months, mortgages will have to be refinanced at higher rates for properties like 280 Park Ave. and 731 Lexington Ave. However, Vornado is optimistic about its attractive properties and the lack of new office space to compete with due to hostile financial markets. He also withdrew from bidding for a casino license, stating that tenants would not want to work across the street from one.