Weekly Market Report - December 9, 2025
- Broker Support
- 12 minutes ago
- 10 min read
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Central bank warns regional lenders pressured by high rates, low valuations
The Federal Reserve is increasingly concerned about commercial real estate (CRE), specifically regarding office-heavy loans at community and regional banks. The Fed's recent report highlights issues such as elevated interest rates, tighter underwriting standards, and declining commercial property values, which may complicate refinancing and push borrowers toward distress. While banks are not in immediate danger, challenges persist in CRE, particularly for refinancing maturing loans as valuations decrease and buyer hesitance grows. Fed supervisors are closely examining banks' credit-loss reserves and portfolio evaluations, ensuring most remain above capital minimums.
Stress tests indicate big banks can withstand a recession, but the Fed remains vigilant about material risks, including interest rates and cybersecurity. Although regulators have eased some capital rules, new vulnerabilities have emerged from private credit defaults, exposing banks to riskier nonbank lenders. Additionally, the Fed is intensifying its review processes to ensure banks can effectively activate recovery plans and maintain liquidity across various scenarios.
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SL Green, New York's largest office landlord, may reduce its dividend next year due to declining earnings. Since 2016, it has consistently paid about $3 per share, but analysts project distributions could outpace adjusted funds from operations, risking the payout unless new cash sources are found, such as property sales. Investor concerns have heightened over potential dividend cuts, particularly with anticipated lower property sales in 2025. Despite Manhattan's strong office leasing market, SL Green's stock has dropped 30% this year, partly due to a failed casino bid and negative market sentiment. Although the portfolio is largely occupied, the company has underperformed, selling less than $500 million in properties against a $1 billion target, leading to an expected payout ratio increase.
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Big deals keep market on firm footing, activity slides 18%
The Manhattan office market experienced a slowdown in November, with leasing activity declining nearly 18 percent from October to 2.99 million square feet, representing a 12 percent year-over-year drop, as reported by Colliers. Despite this dip, demand surpassed the borough's 10-year monthly average, pushing year-to-date leasing to 36.7 million square feet, potentially exceeding 40 million by year-end for the first time since 2019. Noteworthy transactions included Millennium Management renewing 438,000 square feet at BXP’s 399 Park Avenue, Rippling leasing 133,000 square feet at Vornado’s 330 West 34th Street, and two significant leases at Vornado’s Penn 2 by Robinhood and Dick’s Sporting Goods.
Availability decreased to 14.2 percent, the lowest since late 2020, while net absorption remained positive at over half a million square feet. The sublet supply continued to decline, falling to 11.8 million square feet. Midtown led the borough with 1.4 million square feet leased, although it fell nearly 30 percent year over year. Midtown South accounted for 1.23 million square feet, driven largely by tech and retail, while Downtown leasing halved to 356,000 square feet but still exceeded last year's figures.
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Dollar Tree, Tractor Supply and other companies show a renewed desire to move into vacant space, despite economic challenges
Retail landlords are entering next year on solid ground despite consumer sentiment challenges. In Q3, retailers occupied 5.5 million more square feet than they vacated, a shift from earlier negative demand linked to bankruptcies and tariffs. Strong interest from discount retailers, like Dollar General and Aldi, is evident. Existing supply is tight, with a national vacancy rate of 4.3%. Despite some expected declines in 2025, CoStar forecasts retail occupancy to grow again in 2026. Tractor Supply is expanding, opening new stores despite 40% of its products facing tariffs. Retail rent growth has moderated amid rising online sales and inflation concerns. Store closures, particularly among smaller retailers, are rising, but consumers continue spending, especially the affluent, sustaining the retail market’s resilience.
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At the turn of the millennium, Manhattan office rents unexpectedly surpassed $100 per square foot, a figure once deemed outrageous by some. By now, prime Manhattan office rents have soared to as high as $300 per square foot, surprising industry leaders. Key properties commanding these rates include 1 Vanderbilt Ave., 425 Park Ave., and the General Motors Building, with Citadel reportedly paying $300 for top-floor space at 425 Park.
Real estate executives highlight that paying $300 is no longer uncommon, with some tenants willing to accept rates ranging from $175 to $200 per square foot as advantageous. Developers are reacting to this demand, initiating projects despite rising construction costs exceeding $2,000 per square foot. Additionally, firms like Related Cos. are expanding projects in Hudson Yards and other key locations. Jamie Dimon’s development of a $3 billion tower at 270 Park Ave. has sparked heightened competition among firms, further driving expectations for elevated rental prices in the market.
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Sovereign Partners purchases 2 Grand Central Tower for $273M
Rockwood Capital successfully sold its Midtown office tower, 2 Grand Central Tower, to Sovereign Partners for $273 million, translating to $409 per square foot. This sale, completed after Rockwood's previous attempts, fell short of expectations; the firm had aimed for around $270 million but in 2020 sought close to $580 million before the pandemic. Rockwood acquired the property in 2011 for $401 million from Boston Properties, which had purchased it for around $428 million in 2008.
The transaction was finalized last week with financing from MetLife, which provided Sovereign with $177 million for the acquisition. Notable tenants include Cigna, Maersk, and various professional services firms. Rockwood, which recently announced a merger with Harrison Street Asset Management, listed another property at 1 Broadway for $180 million. Sovereign Partners, active in the Midtown East market, also previously acquired 780 Third Avenue and 100-104 Fifth Avenue at discounted prices.
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State board recommends all three get licenses
New York City is set to receive three new casinos as the state Gaming Facility Location Board recommended awarding licenses to proposals in Queens and the Bronx. The plans include Steve Cohen’s $8 billion Metropolitan Park near Citi Field, a $4 billion complex at Bally’s Golf Links, and Resorts World’s $7.5 billion expansion of the Queens Aqueduct. The board's evaluation emphasized economic activity and potential job creation. The Gaming Commission is expected to finalize the licenses by December, ensuring compliance with statutory requirements. The anticipated casinos could generate $7 billion in gaming tax revenue and $5.9 billion in other taxes. Each proposal includes significant investments in local infrastructure, including affordable housing and entertainment venues. While some protests occurred, the proposals' backers expressed optimism about the developments for New York City.
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Empire State Realty Trust is acquiring the Scholastic Building for $386 million in a cash sale-leaseback arrangement. Scholastic will lease 222,000 square feet of the property for 15 years, with options for two 10-year extensions. The property, located in SoHo, has around 70% occupancy, with the retail space leased to Sephora and Capital One. The sale is part of Scholastic's efforts to reduce debt and repurchase stock, projected to generate $327 million in proceeds. Scholastic has owned the building since 2014 but is downsizing. ESRT will handle maintenance and rent collections, while Scholastic anticipates an annual lease expense of $11.2 million. Scholastic is also selling its distribution facility in Missouri to Fortress Investment Group for $95 million, committing to a 20-year lease at $7.6 million annually. This transaction reflects a broader trend of increased activity in Manhattan's commercial real estate market.
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Gindi-connected owner battling foreclosure on 21 Astor Place commercial condo
The closure of the Astor Place Starbucks in 2024, after nearly three decades, significantly impacted the East Village commercial strip and the Gindi family financially. The commercial condo at 21 Astor Place fell from $42 million in value to $11.7 million over the past decade, leading to foreclosure battles for the Gindis. They acquired the property for $13 million in 2004 and refinanced with a $26.65 million loan in 2015. Trouble arose when FedEx vacated over 60 percent of its space in 2021, causing a 40 percent revenue drop. Although DoorDash took over the 6,000-square-foot space with incentives, rents remained lower than before.
Starbucks had a significant presence, occupying over 4,000 square feet since 2004, but its closure resulted in a missed $1.5 million deposit requirement in the foreclosure suit. The Gindis, limited guarantors on the loan, allegedly failed to provide necessary financial documentation. Their legal counsel cited high taxes, complex regulations, and lengthy approvals as factors for the vacancy, expressing optimism about securing a new tenant. A temporary receiver has been appointed for the property amidst these issues.
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Blackstone is selling The Shops at Skyview in Flushing, Queens, for approximately $425 million to a partnership between TPG and Acadia Realty Trust. The complex, located near Citi Field and a casino site approved for New York Mets owner Steve Cohen, encompasses 555,000 square feet and is nearly fully leased. Major tenants include BJ's Wholesale Club, Round1 Bowling & Arcade, and Marshalls. Both Blackstone and TPG have declined to comment, while Acadia have not responded. Blackstone remains active in commercial real estate, having completed various transactions recently.
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Cannon Hill Capital Partners has formed a joint venture with TriPost Capital Partners to invest $1.5B over the next three years in distressed office buildings along the Acela corridor. This partnership aims to acquire nonperforming loans tied to office buildings in New York City, Washington, D.C., and Boston, while also financing redevelopment projects. Cannon Hill's co-founder and CEO, Jeff Gronning, expressed optimism about the returning liquidity and rising values in the office sector. The collaboration will target deals over $50M and capitalize on the anticipated wave of maturing loans on undercapitalized office properties. Despite a decline since 2020, central business district office values increased nearly 5% in the past year. Cannon Hill, founded in 2022 by former Normandy Real Estate executives, has a portfolio exceeding 10M SF, primarily in key urban markets.
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Deal extends CMBS loan for 3 years in exchange for additional equity
The Chetrit Organization successfully restructured the debt on its 65 Broadway property after two years of negotiations, extending the maturity date of a $151.5 million CMBS loan by three years. This move involved additional equity infusion, subordinating part of the existing debt. The deal was brokered by Iron Hound Management with the special servicer CW Capital and a CMBS trust. The property, a 355,000-square-foot office building in the Financial District, had entered special servicing in February 2024 after significant tenant departures, including Great American Insurance and New York Cares.
By April 2024, the loan was marked for maturity default due to cash flow issues. The property's reappraisal revealed a value of $104 million, half its previous worth and less than the loan amount. However, by mid-2024, Chetrit managed to bring payments current, indicating a positive outlook for the asset. The building, which is over a century old and last renovated in 2018, was 35 percent vacant as of July 2024. This restructuring marks the second major move by Chetrit recently, following a modification of $714 million in debt for other properties in June 2024.
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New York Life provided debt for 600K sf office tower
Paramount Group is navigating its $1.6 billion take-private while managing financial obligations. Recently, the company refinanced its 900 Third Avenue office tower through a $175 million loan from New York Life Insurance. This follows an earlier $270 million loan originally secured from Landesbank Baden-Württemberg in 2008. Paramount’s financial disclosures indicate that the tower is also backed by the company’s credit facility. The new loan amount reflects a depreciation in the property’s value, much like other office buildings. In January, Paramount sold a minority interest in 900 Third Avenue, valuing it at $210 million, a significant drop from $352.5 million in 2012.
By the close of 2024, the tower was 69% leased. As Paramount approaches a sale to Rithm Capital—announced in September—Rithm plans to acquire the company’s 13 million square feet of office space at a 40% discount to book value. This decision followed disclosures of substantial undisclosed payments to Behler’s affiliated companies and an ongoing SEC investigation into the REIT, including findings related to a no-bid contract awarded to a firm close to Behler’s ex-girlfriend.
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Firm already scored $320M construction loan at 97 West Street
The Jay Group secured a significant construction loan and site acquisition for its project on the Greenpoint waterfront. Jacob Kohn’s firm purchased the lot at 97 West Street from Pearl Realty Management for $130 million, revealing a notable appreciation from its previous $7 million purchase in 2001. The $320 million construction loan for a 590-unit rental project was facilitated by G4 Capital Partners. The firm’s activity in the area includes the 2021 acquisition of 101 Fleet Place for $42.8 million and another $130 million loan from G4 to build a 21-story residential tower there.
G4 also provided a $55 million loan for the purchase of six additional lots in the vicinity last year, further underscoring the evolving relationship between the buyer and seller. The rezoning of the neighborhood in 2005 opened the door for residential development amidst its industrial past. Along West Street, additional projects are under planning, including TF Cornerstone’s 1,000-unit development and a large proposal by Domain Companies, LMXD, and Park Tower at Greenpoint Landing, incorporating affordable housing and retail space.
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Owner Sutton Management faces foreclosure on Class B building
Billy Macklowe acquired a troubled $46 million loan on the 129,000-square-foot office building located at 291 Broadway in Tribeca from Flagstar Bank, which was facing foreclosure on the property. Macklowe purchased the note for slightly less than the outstanding balance of about $45 million. Flagstar had initiated foreclosure proceedings against Sutton Management in July, claiming missed payments since late 2024, with the landlord reportedly owing $48.6 million as of June 30.
The building entered receivership in August. Constructed in 1911 as the East River Savings Bank, the 10-story structure may undergo a residential conversion if Macklowe proceeds with foreclosure or opts for a deed-in-lieu. The loan was initially issued by New York Community Bank, now Flagstar, in late 2019, predating a significant post-pandemic downturn impacting older, non-Class A office buildings in downtown New York.
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