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Weekly Market Report - June 18, 2024

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Blackstone, the world's largest owner of commercial real estate, is finalizing a deal to expand its headquarters at Rudin's 345 Park Ave. from 750K SF to just over 1M SF, one of the largest office leases in Manhattan in recent years. The expansion will occupy 28 floors, or roughly 55%, of the massive Midtown building, which opened in 1969. The company has quickly grown its workforce since 2020, going from 3,165 to 4,735 employees at the end of last year. Blackstone has been on the search for 1.5M SF to house its employees, making it New York City's seventh-largest office tenant with 1.4M SF. In 2022, Blackstone added 200K SF to its Midtown office at 601 Lexington Ave., bringing its total occupancy in the building to 330K SF. The company is considering a deal to anchor a new office tower, similar to JPMorgan Chase's under-construction supertall at 270 Park Ave. or Citadel's deal to take 800K SF across the street from Blackstone HQ at 350 Park Ave.


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Coworking firm Industrious has signed a 10-year, 240K SF agreement with landlord Kato International at Tower 49 in Midtown, New York City. The company, which counts CBRE as its largest backer, will manage 16 floors at 12 E. 49th St. The deal allows Industrious to take on a larger space than its typical location, allowing it to experiment with different business initiatives. The 45-story Tower 49, built in 1986, spans over 600K SF and was used by WeWork as a key anchor tenant. Industrious' business model relies on doing management deals with landlords rather than signing leases, resulting in a more even risk and profit split between Industrious and the landlords. Demand for coworking tenants has been a boon to landlords in the post-pandemic years, leading Industrious to evaluate former WeWork spaces. The deal for the former WeWork headquarters comes as the embattled coworking giant gets set to form bankruptcy proceedings after a judge approved its plan at the end of May. Before the judge's approval, the company spent more than six months exiting locations and renegotiating leases during its Chapter 11 process, slashing its future rent payments by $12B but leaving many of its landlords in the lurch.

 

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Brokerage cuts come amid leadership changes and Fannie and Freddie blacklist


Meridian Capital Group has laid off several brokers in its New Jersey office amid a leadership shakeup and a blacklist from Freddie Mac and Fannie Mae. The company is transforming into a leaner and more efficient company, aiming to lead the CRE and multifamily brokerage space. The move comes after Freddie Mac and Fannie Mae halted business with the firm amid allegations that some brokers falsified financials to secure larger loans. Meridian has appointed a new CEO, chief risk officer, and two new board members, with long-time CEO Ralph Herzka being moved to chairman. The company is poised to become the industry standard bearer in compliance and risk management that meets the needs of Fannie Mae and Freddie Mac. Meridian has grown to be one of the largest brokerages for mid-size landlords in New York City, closing $4 billion of new business with 99 lenders in the first quarter of this year.

 

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Host Hotels & Resorts in hot pursuit of property


Starwood Capital Group is reportedly nearing a deal with Host Hotels & Resorts to purchase 1 Hotel Central Park in Midtown Manhattan. The deal has not been finalized and could still collapse. Sternlicht purchased the property in 2011 for $72 million and aimed to turn it into a hotel. United Overseas Bank provided $125 million to refinance the property in 2015, but Starwood attempted to sell it for more than $1 million per room in 2016. In 2018, United Overseas returned with a $162.5 million loan to refinance the 18-story property. This could be an advantageous time to enter the Manhattan hotel scene, as room rates are rising due to red tape and fewer lodging options for tourists. Starwood and Host have a history of successful deals, including 1 Hotel Nashville and the Turtle Bay Resort in Hawaii.

 

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Real estate company Vornado has completed a $400 million refinancing of its office and retail property at 640 Fifth Ave. in Midtown. The new loan has a smaller and higher interest rate than its previous one, indicating a challenging borrowing environment for office landlords. The fixed interest rate is 7.5% and matures in July 2029. In 2019, Vornado sold a minority stake in its Times Square and Fifth Avenue retail portfolio to Crown Acquisitions, a joint venture led by sovereign pension and wealth funds. The Bank of China provided a $500 million loan for the properties at the time, with a 1.1% interest rate. The property, which spans 315,000 square feet, is 22 stories tall and has a retail portion occupied by major tenants. Vornado also completed a major refinancing with SL Green earlier this year, securing a new loan for over $1 billion.

 

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Alexander's Inc., the owner of a fully occupied office tower at 731 Lexington Ave., has extended its mortgage by four months before the $500 million loan came due. The modification, which cost $10 million paid against the principal, may signal how reluctant banks are to write large loans for office buildings like the 57-story tower. The building is 100% occupied and anchor tenant Bloomberg LP agreed to retain all its 900,000 square feet of space through 2040. Alexander's expects to complete the refinancing by October 11. The floating-rate mortgage at 731 Lexington has jumped to 6.2% over the last two years, tripling the landlord's quarterly interest and debt expense to $16 million.

 

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Levy previously served as president of Ashkenazy Acquisitions

 

Daniel Levy, former president of Ashkenazy Acquisitions, has left the company due to its facing headwinds. Levy, who managed the company's acquisition of a portfolio of trophy properties, plans to launch his own firm, Propel Partners. Levy spent 22 years at Ashkenazy, where Ben and partner Michael Alpert acquired a portfolio of prime properties, including Barneys retail space, Union Station in Washington, D.C., Faneuil Hall in Boston, and 625 Madison Avenue. However, recent years have seen the company lose some properties to lenders or struggle to operate buildings, raising eyebrows for Ashkenazy's handling of the distress. Levy infamously threatened to "go nuclear" on his partners, the Gindis, in a power struggle. Ashkenazy lost the D.C. property to Rexmark in a foreclosure, and sold Faneuil Hall.

 

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Loan on FiDi office property sent to special servicing in March

 

Meyer Chetrit's 65 Broadway office has been appraised at $104.3 million, a 51% decline from its 2019 valuation of $215 million. This is a third lower than the $151 million loan it was linked to, which may explain why Chetrit didn't pay off the loan at maturity in April. The loan, which went to special servicing in March, does not expire until August. The office tower, formerly known as the American Express Building, has seen occupancy drop from 100% in 2019 to 75% by the end of 2022 and 67% in September. Cash flow has also stalled, with revenue barely covering debt service and 15% below issuance.


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Real estate was PSP’s only asset class to record negative return

 

Canadian pension fund PSP Investments reported a negative -16% return in its real estate portfolio for the fiscal year ending March 31, primarily due to office properties. The asset class had the lowest five-year annualized return among seven core asset classes. PSP's CEO, Deborah Orida, emphasized the need for more focus and discipline in the future. The fund reduced its exposure to the office market to 22% of its portfolio, compared to 25% a year earlier. Instead, it is shifting its focus to multifamily, logistics, and student housing sectors. Real estate makes up only 10% of PSP's portfolio, which includes fixed income and public markets. PSP's recent real estate divestments include an industrial portfolio in Mexico and the Hangar District, a redevelopment near an airport site in Toronto.

 

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Firm eyes $350M for 3333 Broadway, 20 months after first try failed


Brookfield Properties is attempting to sell its largest Manhattan apartment property, 3333 Broadway, a 1,200-unit rental complex, after its first attempt failed. The property, which spans 1,193 units, is part of the former Putnam Portfolio that Brookfield bought in 2014 for over $1 billion. The property was sold to L+M Development Partners and Invesco for $1.5 billion in 2019, but Brookfield retained 3333 Broadway. The owners were negotiating an affordability agreement with the city, which owns the ground underneath the properties, in exchange for extending the complex's 99-year ground lease and receiving a tax abatement. The complex is currently 97% free-market, with 47% under an agreement for Section 8 housing vouchers. Brookfield and Urban American recently spent $60 million on capital improvements to 3333 Broadway, including new elevators, windows, cogeneration systems, and roofs. The complex is similar in scale to the 1,290-unit Bronx portfolio that Vistria Group bought a stake in last year for $175 million.

 

 

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