Medical centers and telehealth startups among the top deals
Last month, several significant office leases were signed in the five boroughs, particularly for schools and tech companies. The top ten office leases included Weill Cornell Medicine, South Bronx Overall Economic Development Corporation, Quinn Emanuel Urquhart & Sullivan, Banco Bilbao Vizcaya Argentaria, Current, Notion Labs, Payoneer, Ro, Hawthorne Country Day School, and Headway. Weill Cornell Medicine signed a massive lease for a medical center in Sotheby's soon-to-be-vacated headquarters, while South Bronx Overall Economic Development Corporation renewed its lease in the Bronx.
Quinn Emanuel Urquhart & Sullivan signed a new lease to relocate its NYC headquarters from nearby 51 Madison Avenue. The Spanish bank inked a lease to relocate its NYC offices. Current signed a new direct lease for the space it had previously subleased within the building, while Notion Labs expanded its lease. Payoneer signed a 10-year lease, while Ro signed a 10-year lease. Hawthorne Country Day School signed a 15-year lease, and Headway signed a 5-year sublease. In summary, the ten biggest office leases of last month included telehealth startups, law firms, banks, and tech companies.
Stonepeak Partners departing Hudson Yards for Midtown East office
Stonepeak Partners has signed a lease for 77,000 square feet at SL Green's 245 Park Avenue in Manhattan, marking a significant expansion from the 30,000 square feet it leased at Related Companies' 55 Hudson Yards. The firm will lease space on the 31st and 32nd floors of the property for 15 years. The move comes after SL Green acquired the 1960s building out of bankruptcy last September, and Japanese developer Mori Trust bought 50% of the equity in a $2 billion deal. This was the largest office deal since the Federal Reserve started hiking interest rates and provided a boost to Manhattan's office market, which is still recovering from the pandemic and interest rate hike. SL Green has been renovating the building with a new lobby, amenities center, elevator cabs, and a full-service restaurant. Other recent tenants include Swedish private equity firm EQT Partners. Hudson Yards remains an attractive office location, with financial planner J.F. Lehman & Company and law firm Milbank adding to its footprint.
New York City's office occupancy rate reached 48.9% for the seven-day period ending November 29, up 10.4% from the previous week. This puts the city's in-person office activity back on par with where it has been for much of the last year. The city reached 50% of its prepandemic in-office levels for the first time in early June and has remained within a few percentage points of that threshold ever since, barring holidays. The latest data from real estate technology firm Kastle Systems, which tracks badge swipes at commercial office buildings in 10 major U.S. cities, shows that office occupancy across cities rebounded an average 9.7%. However, New York's return to the office rate continues to trail some major U.S. regions, such as Houston, Austin, Chicago, and Dallas. However, New York's in-office recovery is slightly higher than that of Los Angeles, the country's second most populous city, which reported office occupancy of 46.6% last week. The data from Kastle Systems represents commercial office buildings equipped with Kastle Systems security technology in 10 major U.S. cities and does not reflect a national average of the entire U.S. workforce.
CBS's former headquarters, Black Rock, is facing a decline in occupancy and may struggle to refinance its $420 million mortgage next year, according to bond-rating firms. The tower, which was once the powerhouse of broadcast television, has seen its occupancy rate drop to 70%, with CBS vacating over 130,000 square feet last month. The network is set to move out of its remaining 53,000 square feet by November 2024. In 2026, Orrick Herrington & Sutcliffe and Dorsey & Whitney's leases for 213,000 and 70,000 square feet expire.
Black Rock was sold to private equity firm Harbor Group International for $760 million two years ago and is currently 78% occupied. The building's net cash flow fell by 11% in the year ending September 30 to $31.8 million, and the landlord may struggle to refinance or exercise its built-in extension options. In 2021, the building's weighted average rents were $75.77 per square foot, below the area average of $89.26. Harbor Group has announced new tenants at rents around $100 per square foot.
The Helmsley Building, a 35-story office tower in Midtown, is at risk of defaulting on its mortgage next month due to weakening demand for office space and higher interest rates. The loan, which matures on December 8, is being sent to special servicing, the financial world's intensive-care ward, ahead of an "imminent maturity default." The 1.4 million square-foot tower, owned by RXR Realty affiliates, is in discussions to restructure the loan. The building, originally known as the New York Central Building, was acquired in 1978 by investors including developer Harry Helmsley. The building has one of Midtown's best locations and north-facing offices enjoy unobstructed views up Park Avenue. However, with space widely available at newer office towers, even the best-located older buildings struggle to retain tenants. S&P Global reported that the Helmsley has been forced to offer "very significant" incentives to tenants, with weighted average rents in the building being $79.40 per square foot in 2021, 23% below the Park Avenue market average. Three tenants paying about 30% of the rent roll could leave in 2025. The building's assessed value is $210 million, and the city finance department estimates a market value of $468 million.
Non-traded funds have great leeway to define NAV
Non-traded real estate investment trusts (REITs) have relatively stable net asset values (NAVs) compared to publicly traded REITs due to a loose definition of the term. The lack of a standard definition between REITs and mutual funds makes comparisons problematic and blurs how values reflect performance. NAVs are calculated with help from advisers and appraisers, estimating the fair values of their assets. However, critics argue that NAV is a misnomer for these funds. Publicly traded REITs have struggled due to the pandemic and elevated interest rates, with the MSCI US REIT Index down 25% since the end of 2021. However, Blackstone Real Estate Income Trust's NAV is up 2%, while Starwood Real Estate Income Trust's NAV is down a modest 5%. Blackstone spokespersons claim that BREIT's NAV would be "virtually identical" if governed by generally accepted accounting principles.
The Securities and Exchange Commission doesn't seem inclined to clamp down on non-traded REITs' use of the NAV label, even though rules ban companies from submitting filings with "titles or descriptions of non-GAAP financial measures that are the same as, or confusingly similar to, titles or descriptions used for GAAP financial measures."
Company on the hunt for funding before deadline
The Pennsylvania Real Estate Investment Trust (PREIT) is on the verge of bankruptcy for the second time since the start of the pandemic, with the company seeking funding to navigate a Chapter 11 reorganization. The biggest threat is $1 billion in credit facilities, primarily held by Wells Fargo, with the maturity date on those facilities set for December 10. PREIT's financial picture is bleak, with a net loss of $63.9 million in the third quarter and a 5.3% drop in same-store net operating income. The company was booted from its trading platform last year after failing to maintain a market capitalization of at least $15 million. The company has been trading as a penny stock since May and peaked at 25 cents on Monday. The company emerged from bankruptcy in December 2020 with $130 million in new financing. However, problems continue, including turmoil in the board of directors. PREIT has around two dozen assets in its portfolio, mainly in the Mid-Atlantic region.