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Ken Griffin, founder of Citadel, and his development partners Vornado Realty Trust and Rudin Management are in contract to acquire 525,000 square feet of air rights from St. Patrick's Cathedral on Fifth Avenue, a significant amount of unused development space that would cost $164 million. The deal could also be for a smaller amount of air rights, as little as 315,000 square feet for $98 million, depending on what is needed. The developers inked the deal last January, but it only came to light through a petition filed in Manhattan Supreme Court. The project aims to build a 1,350-foot tower containing 1.7 million square feet of space on a multiparcel site on Park Avenue in Midtown. The tower would open in 2032, suggesting the developers are playing a long game in the belief that office trends will return to their prepandemic levels by then.
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A new EY survey indicates that the work-from-home (WFH) era is not just coming to an end, but it's not the only work model headed for extinction. Only 1% of over 500 business leaders surveyed by EY say their companies are fully remote, a stark contrast to 2022 when 34% of companies were virtual. Between 2019 and 2021, the number of employees who worked fully from home tripled, and many embraced their new working conditions. However, as work from home peaked, business leaders started speaking out about their disdain for the remote model. Even CEOs who have taken companies to a remote model for reasons such as cost, employee quality of life, and diverse hiring goals, say it requires a sacrifice of key corporate goals. "Leadership is thinking we're losing some of our culture," said Mark Grinis, who leads EY Americas' Real Estate, Hospitality and Construction sector.
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New York City experienced a record-breaking week of office occupancy at 51.4%, the first time since March 2020 that the number exceeded 51%. The city reached 50% of its pre-pandemic in-office levels in early June and has remained just a few percentage points below that threshold ever since. However, after the Thanksgiving holiday, New Yorkers returned to the office in droves over the last two weeks, according to data from real estate technology firm Kastle Systems. Office occupancy across cities peaked at an average of 51.6%. 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 48.2% last week. The data 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.
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Investment giant nabs 20% interest; FDIC retains 80% stake for $16.8B
The Federal Deposit Insurance Corporation (FDIC) has awarded Signature Bank's $17 billion commercial real estate loan pool to a Blackstone affiliate, with a Canada Pension Plan Investment Board subsidiary and funds associated with Rialto Capital as partners. Blackstone bid $1.2 billion for a 20% stake in the debt, while the FDIC retained an 80% interest in the failed bank's commercial real estate debt and provided 50% financing. The deal holds 2,600 mortgages on retail, market-rate multifamily, and office properties, with Blackstone as the lead asset manager and Rialto as the service provider.
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Borrowers can’t cover debt service,
Short-seller Carson Block has warned that Blackstone Mortgage Trust (BXMT) is at risk of a liquidity crisis, with 75% of its borrowers unable to cover interest expenses without rate swaps. The firm's analysis of BXMT's collateralized loan obligations showed most assets are underwater by about 20%. Block forecasts that most borrowers will be unable to refinance, and that Blackstone Mortgage would be forced to modify loans. Insiders say a similar real estate story is playing out across the bridge lending space, a market that bets big on multifamily syndicators. Industry observers say sponsors who regularly borrowed at 70 to 80 percent leverage have seen their equity wiped out, meaning refinancing is off the table unless they can inject more capital.
Debt funds are not yet willing to take losses and are turning a blind eye to maturity or technical default if a sponsor continues to make interest payments. As more loans come due, industry observers expect lenders to formally extend loans, hoping rates eventually subside.
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JCS Realty plans to demolish office building to build multifamily
Last week's commercial property sales in Brooklyn's middle market, defined as between $10 million and $40 million, saw several notable deals. JCS Realty paid $38 million for 540 Atlantic Avenue, Brooklyn, while A10 Capital took control of a property in Soho for $23 million. R.A. Cohen & Associates paid $19.1 million for a 46-unit property in Brooklyn Heights, which was once attached to a loan from Signature Bank. The Joyce Theater Foundation sold a property to Denham Wolf Real Estate for $16 million, and Efstanthios Valiotis paid $13.1 million for 1775 East 18th Street. JAM Real Estate received $10.5 million for a 20-unit residential building in Manhattan, which was purchased by an entity connected to Japan-based Shink Co.
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WeWork's landlords are frustrated with the company's efforts to renegotiate hundreds of leases, expressing frustration with the opaque and antagonistic tone during lease talks. The official committee of unsecured creditors formed for the Chapter 11 process consented to an amended plan that was approved by a bankruptcy judge. The approved financing allows $700M in outstanding letters of credit tied to WeWork leases to be renewed, and U.S. Bankruptcy Judge John Sherwood's order prevents landlords from drawing on those letters of credit en masse at the end of this month. WeWork's creditors, led by SoftBank, have granted WeWork certain liens against WeWork's leases. The committee's role is to ensure a successful reorganization of WeWork while driving a fair negotiating process and secure recovery for landlords. WeWork's lease for more than 40% of the building is set to expire in 2021.
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Interest rate cuts are around the corner, but hedge funds might still make money betting against U.S. mortgage REITs
Short sellers are targeting mortgage real-estate investment trusts (MortgREITs) that offer bridging loans to commercial property owners. Carson Block's Muddy Waters hedge fund and Viceroy Research have staked in Blackstone Mortgage Trust and Arbor Realty Trust, with almost 20% of Blackstone Mortgage Trust's shares and 33% of Arbor Realty Trust's on loan. Both companies have seen their shares rise over the past month as investors become confident that interest rates have peaked. However, the hedge funds predict that mortgage REITs will still face a rocky 2024, as borrowers may struggle to refinance properties that have plummeted in value or be forced to inject equity to meet lenders' loan-to-value requirements.
Borrowers may struggle to get refinancing on properties that have plummeted in value or be forced to inject equity to meet lenders' loan-to-value requirements. Lower interest rates may take some pressure off mortgage REITs, but the anticipated cuts won't be deep enough for the weakest loans.
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