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JPMorgan Chase managing directors are now required to be in the office five days a week, the world's largest commercial bank told staff in a memo that noted some people are not coming into the office as much as required. While most employees are keeping to their agreed hybrid work arrangements at the bank, there are a number of employees who are not “meeting their in-office attendance expectations, and that must change,” per the memo. Managing workers in a hybrid environment and enforcing office attendance is largely falling to middle management, putting enormous pressure on these types of employees.
The bank is New York City’s largest private office tenant, but reduced its office presence in New York by 22%, or 2M SF, in 2022. The bank is building a brand-new headquarters in Midtown East, which will take the form of a 1,388-foot, 60-story building at 270 Park Ave. The supertall building, powered by 100% renewable energy, is expected to be open in 2025. JPMorgan CEO Jamie Dimon has spoken out against remote work in the past, saying in 2022 that office work is better for decision-making and encouraging diverse workplaces. This year, Dimon has espoused a more tempered approach, telling CNBC that work-from-home can work for people with childcare considerations and for roles like coding and researching. "I think it's perfectly reasonable to help women,” he said.
JPMorgan allows some workers to work a hybrid schedule, though they are required to be in three days a week unless approved by senior management. The memo noted there are thousands of workers at the firm who can't “take advantage” of hybrid work: employees in the retail bank branches and jobs in check processing."You’re responsible for meeting your hybrid model requirements," the memo said. "Your manager is responsible for ensuring that attendance requirements are being met and in cases where they aren’t, taking the appropriate performance management steps, which could include corrective action."
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One World Trade Center, which thankfully is less known as the “Freedom Tower” than it was a few years ago, continues to thrive in a challenged downtown market. The skyscraper’s three million square feet are 95% leased. With possibly more activity than any other Lower Manhattan tower, it has seen 70 transactions since the start of 2020, accounting for 1.2 million square feet. The tenant roster is increasingly diverse. Best known for Condé Nast’s 1.2 million square-foot headquarters, roughly 76% of the building is leased to TAMI firms (tech, advertising, media and information). The most recent signings are of different types. Tech company The Levin Group took 13,000 square feet in a new lease in the first quarter; digital ad firm Undertone expanded by 9,500 sf in the fourth quarter of 2022; and real estate investment outfit Group RMC extended on 6,500 sf also in the fourth quarter.
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Life insurance companies, until recently a reliable source of capital for commercial property developers, are turning their backs on office building owners as tens of billions of dollars in office loans come due this year. Many of these insurers have slowed or stopped making office loans, executives and analysts say, interrupting the sector’s decade long expansion into commercial property lending. Insurance firms have become skittish about rising vacancy rates and falling rents, reflecting the growing popularity of remote work and return-to-office rates that are still around half the levels workplaces enjoyed prepandemic. 15% of insurers with commercial real-estate lending businesses said that they plan to shrink their activity this year, more than three times as many in the same survey last year.
Principal Financial Group Inc., a large Iowa-based insurer, told investors in an early March call that it is “putting a pause” on deploying any significant new capital into commercial-mortgage lending. “We don’t want to invest that capital until we believe that the markets” have sorted out valuations. The retreat by insurance lenders is bad news for building owners at a time when other lending sources have all but dried up. Banks, the largest commercial property lenders, have been pulling back since last summer. Their aversion to commercial real estate intensified after the failures in March of Silicon Valley Bank and Signature Bank, industry participants say. Life insurers hold about 15% of the outstanding $4.5 trillion in U.S. debt backed by commercial real estate, according to Moody’s Analytics. These firms are particularly well suited to fill any gap left by the lack of bank lending because their source of capital is customer’s premiums, not customer deposits. That makes insurers less vulnerable to the bank runs that ruined Silicon Valley and Signature banks.
Commercial property loans aren’t yet likely to lead to big losses for insurance companies, analysts say. In general, life insurers’ underwriting standards have been stricter than those of lenders who repackage loans as commercial-mortgage-backed securities. Life insurers continue to make loans to owners of the top-performing property types such as warehouses and apartment buildings. They might even consider a new loan to top-performing office buildings with little vacancy and long-term leases with high-quality tenants.
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Rockefeller Center is preparing to open its first hotel, the latest sign that Midtown Manhattan’s largest office landlords are leaning into hospitality and entertainment as remote work reduces demand for office space. Aspen Hospitality plans to convert 10 floors of vacant office space above the NBC “Today” show studios into a luxury hotel, pending city approval. The hotel would be the second location for the company’s Little Nell Hotel, which opened in Aspen, Colo., in 1989. Rockefeller Center was a natural choice for Aspen Hospitality, because its owner, the Chicago-based Crown family, co-owns the complex with New York-based real-estate developer Tishman Speyer. The two family firms had discussed opening a hotel at Rockefeller Center for years, and even before the pandemic explored the possibility of repurposing some of its office space, said Paula Crown, a family member. The rise of remote work solidified the owners’ plans to move forward with the hotel, Ms. Crown said. The property will be aimed at both corporate and leisure travelers.
Rockefeller Center, like most Midtown landlords, has experienced a sharp decline in office workers since the Covid-19 pandemic began. Its office space is 93%-leased, but most of its 14 office buildings are about 50%- to 60%-occupied on its busiest days midweek, according to Tishman Speyer, which manages the complex’s day-to-day operations. Midtown landlords have increasingly turned to entertainment and hospitality since the onset of the pandemic. SL Green Realty Corp. has formed a partnership with Caesars Entertainment Inc. and proposed converting a Times Square office tower into a hotel and casino. In the past, many New York residents avoided Midtown, which teemed with tourist crowds during the holiday season and was often quiet on weekends and after business hours.
Right before the pandemic, Tishman Speyer embarked on an overhaul to breathe fresh life into the 84-year-old Rockefeller Center. The firm last year completed a redesign of the area around its ice-skating rink, which now transforms into a roller-skating venue during the summer. It also opened high-end restaurants such as Lodi, an Italian eatery, and Le Rock, which serves French cuisine. Aspen Hospitality aims to open its new Little Nell in 2026. The hotel is one of the first to seek approval under New York City’s special permitting process, which was approved in December 2021. Under the new rules, developers seeking to build hotels or expand existing ones need approval from the Planning Commission and City Council. The Little Nell proposal is currently under review by the Department of City Planning. Aspen Hospitality said it has already reached a neutrality agreement with the city’s Hotel and Gaming Trades Council that will allow the hotel’s employees to unionize.
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The Biden administration last week requested new workplace guidelines to “substantially” boost the amount of in-person work. The Office of Management and Budget sent a letter to dozens of federal agencies, calling on guidelines to be revamped as soon as this spring. White the OMB letter called for more in-person work, it allowed for the idea that remote work would remain critical going forward. “It is the expectation that as a part of these assessments agencies will continue to substantially increase meaningful in-person work at federal offices, particularly at headquarters and equivalents, while still using flexible operational policies as an important tool in talent recruitment and retention,” the letter read.
The administration’s push appears to come in response to the Real Estate Roundtable, an industry group composed of ownership, development, lending and management firms, as well as trade associations. The group urged Biden in a December letter to do more to bring federal employees back to the office, citing the federal government’s influence in the health of the office market. The group last week sent a second letter, this time with a more critical message to the Senate, calling on Congress to suspend federal telework rules. The industry group has cited the federal government’s massive share of the office market in its push for change to work policies.
The General Services Administration, responsible for federal government leases, is the country’s largest office tenant with more than 43 million square feet. A survey of two dozen federal agencies last year found that two-thirds of the agencies planned to cut their number of leases over three years, while all but five were looking at reducing square footage.
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Real estate investor Jeff Sutton thought he found a refinancing solution for a prime property he co-owns on Fifth Avenue that would have kept foreclosure at bay, but his lender sunk the deal by demanding a steep late fee, according to a new court filing. New York Life Insurance Co. filed a lawsuit in August against an affiliate of Sutton’s Wharton Properties, alleging it failed to pay off a $314M loan on the retail space at 717 Fifth Ave. that had matured. Sutton said in a court filing this month that British billionaires Simon and David Reuben had agreed to provide a replacement loan last July, but New York Life insisted on a $15M late fee and the deal fell apart. Sutton claims the lender was already pulling in default interest of 8.45% — $70K per day — and had no right to ask for an additional fee. Plus, Sutton said the lender failed to provide a payoff letter for five days after the request, adding $350K to the default interest. An Aug. 5 letter included a request for a $10M late payment and default interest of $1.8M. When Sutton told New York Life the Reubens wouldn't take on the deal if they had to make that payment, the lender wouldn't budge and moved to foreclose on the property, which has Dolce & Gabbana and Armani as tenants.
New York Life Insurance and the Teachers Insurance and Annuity Association provided two separate $150M loans on the property 10 years ago, and New York Life took over TIAA’s half in 2021. The lender claimed Sutton failed to meet obligations when the $300M debt matured in July. SL Green also owns a 10.92% stake in the property, according to a public filing. Sutton's firm owns dozens of retail properties in Manhattan, including along Fifth Avenue, 125th Street, 34th Street and Times Square. Wharton owns Prada’s flagship at 724 Fifth Ave. and Nike's flagship store at 650 Fifth Ave., also a joint venture with SL Green. Retail has been a particularly troubled sector of the real estate industry in New York. But luxury brands have helped boost the recovery in the city, and rents in some parts of the city are on their way to returning to their pre-pandemic levels. Average asking rent in Manhattan’s retail corridors was $638 per SF in the first quarter of the year, the third straight quarterly increase and 8% higher than Q1 2022.