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Weekly Market Report - March 19, 2024

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The 1,000-foot project under construction is still searching for an anchor tenant


Miami's office market is starting to cool, with New York developer Related Cos. and international development firm Swire Properties struggling to find an anchor tenant for One Brickell City Centre, the city's tallest corporate tower. Leasing activity in the Miami office market was down 25% last year from 2022, and sublease vacancy increased by 66% through the end of the year. Miami's exceptionalism appears to be fading, with new-to-market activity slowing down. Miami's office-construction starts have slowed down after a recent peak in the second quarter of 2023, due to higher interest rates, elevated costs for construction material and labor, and a slowdown in leasing activity amid a softer economic environment.


Miami is trying to pivot from an economy geared toward leisure and tourism into a new business and financial capital. However, Miami is also suffering from growing pains since the pandemic accelerated the business boom, with single-family home and rental prices rising and property insurance costs soaring. Miami's office market remains one of the strongest in the country, with the highest annual office rent growth of all major U.S. markets.



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Taconic Partners and Nuveen Real Estate are set to build a nearly half-million square-foot office tower on Trinity Church land at Hudson Square, a sign of confidence in Manhattan's troubled commercial market. The project, designed by SHoP Architects, will rise 28 stories with 430,763 square feet of office space. The land is currently vacant, and construction will not begin until an anchor tenant is found. The tower will feature advanced wellness and sustainability features, a 13,000-square-foot amenities center, 20,000 square feet of outdoor space, and 14-foot ceiling heights. Taconic is currently developing the Hudson Research Center and three apartment buildings, and its Essex Crossing on the Lower East Side has been acclaimed as one of the city's finest mixed-use projects ever.



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Company purchased 452 Fifth Ave for $330M in 2010


Discount Investment Corp, the parent company of Property Building Corp, is planning to raise at least $400 million to buy and pay off its debt on the 30-story tower at 10 Bryant from JPMorgan. The raise is expected to close in 30 to 60 days. The building's outstanding debt, including the senior and mezzanine loan, totals $385 million. If more than $385 million is raised, the proceeds can go toward property improvements. The tower is 94 percent leased, but its anchor tenant, HSBC, will vacate its lease next year. The property is currently undergoing a repositioning and is now known as 10 Bryant. PBC, led by Eli Elefant, purchased the 30-story tower in 2010 from HSBC for $330 million. The building was listed in October 2021 as part of a larger plan to sell off a $2 billion portfolio of U.S. real estate assets.



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RXR CEO Scott Rechler has acknowledged the challenges faced by office space owners, but RXR head of leasing Bill Elder believes that the company's approach is more nuanced. RXR and SL Green took out a $1.3B loan to refinance the 2002-built office tower at 5 Times Square in September 2022, and pledged $300M of the joint venture's own funding for renovations. The fourth floor of the tower is dedicated solely to amenities, designed by the Rockwell Group, and offers an array of spaces to help workers feel like they aren't in the office — without leaving the building. The secret to making a successful amenity space is not the attention to detail in the interior design, despite the aesthetics taking roughly a year to hash out. The building's ownership surveys tenants to see what types of activities they are interested in and makes a program based on that input. The RXOs are what will make 5 Times Square's amenities shine through, with the golf simulator being one of the building's most popular amenities.



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WeWork has transferred its $55M loan to special servicing after rejecting its lease at 57 E. 11th St., a building owned by Winter Properties. The landlord failed to make debt payments for over two months, resulting in the building's bankruptcy. The landlord had taken out a $55M refinancing loan from Citi Real Estate Finance in May 2019, which was underwritten at a valuation of $76M. The coworking giant then began to implode, and the pandemic forced Winter Properties to give WeWork a break on rent payments. The building, over 120 years old, has been owned by Winter Properties for at least 54 years. As the bankruptcy progresses, WeWork has exited around 90 locations and vacated nearly 9 million SF nationwide since 2016.



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Office occupancy in the US has risen to 52.5% of pre-pandemic levels during the first week of March, 2.4 percentage points higher than last year's average occupancy of 50.1%. The data shows a wide range of occupancy depending on the day, with Tuesdays being the busiest days and Fridays being the least trafficked. Placer.ai reported a larger increase in February office visits, up 18.6% year-over-year and down 31.3% from February 2020. Most major employers require employees to come in at least three days a week, but the number of employees under new mandates has been slowing since Q4. Dallas reached a new high office occupancy rate of 59.5%, while Austin had the highest at 67.4%. The pace is expected to slow in the coming year as most private sector employers have already issued requirements.



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Empire State Realty Trust has secured $715 million in senior unsecured revolving and term loans, potentially expanding to $1.5 billion, as long as certain conditions are met. The $620 million unsecured portion of the loan package carries an interest rate of 6.6%. The new package, which matures in five years, replaces an existing $1.1 billion credit facility that matures next year. Real estate dealmakers described the loans as an unusual package for a distinctive building. Occupancy rates at Empire State Realty’s office portfolio remain below 2019 levels, but net operating income at its observatory rose by 26% last year to $94 million. The stream of tourist cash flow gave bankers confidence to lend more, albeit at higher rates.


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Jeff Gural's real estate firm, GFP Real Estate, is in contract to purchase 222 Broadway, a downtown office property, for $150 million, a significant discount from Deutsche Bank's $502 million purchase in 2014. The deal was brokered by a Newmark team led by Doug Harmon and Adam Spies. 222 Broadway, built in 1961 and renovated in 2011, spans approximately 800,000 square feet and is currently just 40.4% leased. GFP is also planning to convert the Flatiron Building into a luxury condo property through a partnership with the Brodsky Organization and Sorgente Group. The firm has also partnered with Metro Loft Management to convert Lower Manhattan's 25 Water St. into over 1,000 apartments. Lower Manhattan's office market has been struggling compared to its Midtown and Midtown South counterparts, with a record-high availability rate of 21.7% in February. Other neighborhood conversions include Vanbarton Group's Pearl House and Metro Loft and Silverstein Properties' 55 Broad St. apartment project.



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Cohen Bros. Realty, a family-run real estate firm, has filed for demolition permits for 15 E. 54th St., which shares the same block and lot number as its 19-story office building at 3 E. 54th St. The permit indicates that Cohen Bros. may be planning only a partial demolition of the property, which spans about 280,000 square feet. The company, which has been struggling with major office vacancies in the aftermath of the pandemic, owns eight office towers in Midtown, many of which are older buildings facing competition from newer ones and a tough office market. The company faces significant vacancies at properties like 3 Park Ave. and 805 Third Ave., where vacancies grew to 40%. Cohen Bros. is headquartered in its building at 750 Lexington Ave. in Midtown, where WeWork is the largest tenant.


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Citadel plans ‘an iconic building’ including a luxury hotel


Ken Griffin, the founder of Citadel, has announced plans to relocate his $1 billion headquarters from Chicago to Miami. However, nearly two years later, the waterfront site he purchased for the new headquarters remains empty. Citadel employees are still using temporary space in the financial district, and the firm has yet to replace the developer it parted ways with last spring. The new headquarters is being designed by Foster + Partners, which aims to create one of the tallest towers in the city. Griffin is also planning a luxury hotel for the top of the building. Citadel is also planning new office spaces in New York City and further growth in London. The main headquarters will be in Miami, which Griffin frequently extols as "Wall Street South."


The Citadel effect has captivated Miami's business community, attracting more businesses and wealth to the city, driving pockets of the real-estate market, and fueling philanthropic giving. With the fate of its future headquarters still being worked out, Citadel hired Paul Darrah from Alphabet's Google to head the company's real-estate efforts as chief workplace officer. Darrah is preparing a temporary space for Citadel inside 830 Brickell, a class A office building in downtown Miami that is under construction and delayed.

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