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The increase comes as hiring by technology companies has edged higher
Technology companies' leasing of office space in the US reached its highest level in nearly three years in Q3, according to a report from CBRE Group. Tech firms leased 9.9 million square feet of office space, up from eight million in Q2, and the highest amount since Q4 2021. Hiring by tech companies has also increased, leading to an increase in office demand. Job growth was up 1% for the year through July, compared to 0.3% in 2023. However, the US office market remains in a glut due to many tech companies taking less space when signing new leases due to hybrid workplace strategies. About 30 million people in the US, or 19.5% of employed people, worked remotely at least some of the time in 2024, nearly double the 10% who worked remotely in 2020. New AI companies like OpenAI and Anthropic are growing in cities like San Francisco, New York, Seattle, and Boston, with AI firms backed by venture-capital firms leasing 6 million square feet in the top six markets since 2019.
Among October’s biggest leases, IWG and OpenAI nabbed new office spaces
Last month, several high-profile office leases were signed across the five boroughs of New York City. Bloomberg, the media giant, renewed its 946K sf space in the Midtown East building, expanding its total NYC footprint to almost 2 million square feet. Google renewed its lease in the Chelsea building, which was once a Nabisco cookie factory. Blue Owl, an investment firm, renewed and expanded in the Plaza District building. International Workplace Group signed a new lease for six floors of the Midtown West building, owned by GDS Development and Sabal Investment Holdings. OpenAI, the AI company that created ChatGPT, inked a new lease in the Nolita building,. Verition Fund Management signed a new lease in the Grand Central building. Roivant Sciences signed a new lease. The Brooklyn District Attorney signed a new lease in the Sunset Park building. Berkeley Research Group signed a new expansion in the Midtown West building. DSM-Firmenich signed a new lease in the Chelsea building.
The office-market downturn is forcing some of the city’s multigenerational families to make emotionally fraught decisions
The office market's severe downturn is forcing some multigenerational family owners in New York City to sell their core properties, as they managed to avoid selling during world wars, financial meltdowns, and a global pandemic. The Rudin family sold control of a 30-story office tower in downtown Manhattan last year and agreed to part with 80 Pine Street, another financial district tower, after anchor tenant American International Group left. Today, U.S. office vacancies are near record levels and demand looks permanently impaired by remote work and companies doing more with less space. Properties that had been reliable cash cows now require substantial upgrades or other capital infusions to replace departing or shrinking tenants. For many families in their third and fourth generation of ownership, it makes more sense to sell for whatever they can get. The decision by a number of families to sell is part of a natural evolution under way in New York and other big cities.
Stephen Haymes, the owner of a nearly 700K SF office building across the street from Madison Square Garden, is seeking a modification of its $260M CMBS loan more than a year before it's set to mature. The loan, tied to 5 Penn Plaza, was moved to special servicing this month. The building's occupancy was 76% in March, down from 97% when the debt was issued in 2016. However, the leasing market has picked up, and after signing 30K SF of leases over the past month, the building is on pace to hit 85% occupancy. The 679K SF building was constructed in 1915 and has been dealing with "weakening cash flow" in recent years. Haymes took out a $40M mezzanine loan in 2016 to refinance a $200M CMBS loan from 2007 tied to the property. The building was appraised for $540M in 2015, but its present market value is likely lower considering its age and the higher interest rate environment.
Michael Kors has cut its rent in half and expanded its location at 667 Madison Ave., becoming the latest big retailer in the Plaza District to land a bargain. The luxury fashion house is paying $438 per square foot, a 49% markdown from the prior rate of $862. The new lease continues through 2034. The luxury fashion house is having a challenging year, with revenues declining by 16% last quarter, citing "softening demand globally for fashion luxury goods." The availability rate along Madison between East 57th and East 72nd streets declined to 14% last quarter from 19% a year ago.
667 Madison is a 25-story, 275,000 square-foot Class A tower developed in 1985 by Leonard Stern, CEO of Hartz Mountain, which owns 38 million square feet of space in New York, New Jersey, and other places. The property is on track to reach 84% occupancy by year-end, up from 80% in April, but S&P Global said net cash flow likely won't return to historical levels. KBRA cited Michael Kors's lower rent as a reason it considers 667 Madison's mortgage a "loan of concern." Office rents at 667 Madison have fallen by only 4% since 2016, S&P said. Stern is prepared to pay off the loan and continue holding the building if there's any difficulty refinancing when the $254 million mortgage comes due in 2026.
The Adams administration is in discussions with the Real Estate Board of New York (REBNY) to reduce the cost of demolishing obsolete office towers. The program will target non-landmarked buildings that no longer attract tenants and should be replaced by new office or apartment towers with ample demand. JPMorgan spent $160 million to tear down its former headquarters three years ago to build a new $3 billion tower. For developers without JPMorgan's resources, property-tax discounts, loan subsidies, or cash grants could be necessary to clear out buildings that are no longer viable.
This would mark a significant escalation by the city, which has offered incentives for landlords to convert older Class B or C buildings into new, amenity-rich Class A office space under a program called Manhattan Commercial Revitalization. However, no further recipients have been announced, possibly reflecting continued market weakness. EDC's goal is to announce the next round of recipients in early 2025. Approximately one-quarter of Manhattan's 600 million square feet of office space remains empty, and the vacancy rate in Midtown South was a record 26% last quarter. Asking rents for downtown office space continue to fall to about $55 per square foot. Class A space is mostly full, with the vacancy rate along Park Avenue at just 13%.
“You don't need a reason to buy a property in the Midtown area”
Jack Elo Organization is set to buy the 1920s office building at 21 West 46th Street, which is fully occupied and will be kept as an office. Elo's large office portfolio includes properties in the nearby Diamond and Garment districts, which he bought for $110 million in December 2020. Elo also owns the office building at 151 West 46th Street. Elo sold a Gowanus development site to developer Yitzchok Katz for $22 million, which could qualify for a 1031 exchange, allowing Elo to defer capital gains taxes on his Brooklyn assemblage. The building is owned by Arline Hannon-Weinmann, who has owned it since 1967.
Extell purchased air rights from the Weinmanns for $1.3 million in 2008, and the building is on the same block as Extell's planned 32-story Fifth Avenue tower. WorkHouse occupies 15,000 square feet of the building, with other tenants including YGI Group and House of Kaizen. The value of Class B and C buildings has tanked in recent years due to high interest rates and remote work. Some owners are selling at a discount to prior values rather than going through distress and troublesome refinancing. Brokers have described a window of opportunity as mortgages on older buildings come due and interest rates stabilize.
Landlord says it is “finalizing” extension for Times Square tower
The $743 million loan tied to SL Green's 1515 Broadway office tower, the site of the office landlord's casino bid, has landed in special servicing for imminent maturity default, according to Morningstar. The loan is due next March and a refinance would likely saddle SL Green with a higher interest rate. Currently, the sponsor is paying less than 4% interest. SL Green is performing well and is finalizing an extension on the maturity date. The building is a premier asset located in the center of Times Square with substantial cash flow to meet all obligations. However, the building's biggest tenant, Paramount, leases almost all of 1515 Broadway and announced layoffs in August that would cut 15% of its workforce, including several hundred employees at SL Green's tower. The near-single tenancy could complicate a search for new, long-term debt. SL Green announced plans to turn the office tower into a Caesar's Palace casino in partnership with Caesars Entertainment and Jay-Z Roc Nation.
Undisclosed Japanese conglomerate picking up 102 Greene Street, which sold for $32M in 2022
Aby Rosen's RFR Holding is selling 102 Greene Street, a fully occupied retail property in Soho, for $46 million, according to the Commercial Observer. The deal, which brokered by Adirondack Capital Partners' Michael Hunter Coghill, brokered the off-market deal. The property, which dates back to 1881, was transformed by luxury retailer Cartier into a gallery, lounge, studios, and rooftop garden. RFR purchased the property two years ago from TA Realty for $31.5 million, months after Cartier signed its lease. The property was reportedly valued at $43.5 million in 2017 when SL Green sold its 90 percent stake. Soho has been a significant factor in Manhattan's retail recovery from the pandemic, with recent deals boosting Fifth Avenue. RFR and Rosen are currently in a legal battle over the Chrysler Building, with a judge allowing Cooper Union to collect rent from tenants, forcing RFR to cede control of the building. Additionally, RFR agreed to sell an 827-unit development site in Gowanus to Tavros Capital and Charney Companies for over $160 million.
Landlord seeks modification of CMBS loan after upgrading midtown tower
Stephen Haymes is seeking to modify the $260 million commercial mortgage-backed security tied to his office tower near Penn Station, which is set to mature in January 2026. The debt is a result of a drop in the debt-service coverage ratio, which has dropped below breakeven levels in recent years, indicating weakening cash flow. The building's occupancy was around 97% when Citigroup originated the debt in 2016, but as of March, occupancy is at 76%. Haymes has recently made upgrades to the property, including a golf simulator, rooftop terrace, gym, and conference center.
The building's most recent appraisal of $540 million dates back to before the upgrades. The landlord has managed to stay up-to-date on its interest payments and has requested access to reserves held by the lender. Haymes also received a $40 million mezzanine loan in 2016, which refinanced a $200 million CMBS loan. Manhattan's office market has faced challenges in recent years, with a nearly 1-million-square-foot office building on West 50th Street selling for $8.5 million, a 97% decrease from the $332.5 million UBS paid for the property in 2006.
Wells Fargo filed a preforeclosure suit due to overdue loan
Wells Fargo has filed a pre-foreclosure suit against Savanna, a Manhattan office investor, for a $242 million loan backed by the property. The 39-story, 460,000-square-foot tower is expected to be sold to recoup losses. The bank alleges that Savanna is past due on the loan, which was originally matured in June 2021 but was extended through June. The loan is part of a commercial mortgage-backed security. Wells Fargo provided the loan to finance Savanna's purchase of the property from SL Green in 2019, which Savanna paid $381 million for. The property is 77 percent occupied and has at least two floors available for lease. Equinox, which occupies more than 5% of the building's space, is locked in a lease through 2035. Savanna has not commented on the lawsuit and has yet to file a response. The bank is also trying to work out the defaulted loan, which was transferred to special servicing in August.
1 Park Ave., an office building in New York City, has been stripped of its AAA rating by S&P Global. The Beaux Arts tower, located between Grand Central Terminal, Penn Station, and FDR Drive, is in good condition and has a strong tenant with a long-term lease. However, the building's occupancy rate is 93.5%, and it may not fill the vacant space soon due to the lack of Class A amenities. S&P downgraded the building's $525 million mortgage to AA, stating that it is a solid class B office building that may attract less tenant demand than well-located properties with Class A amenities.
The 20-story, 1 million-square foot tower has an intricate facade with patterned mascarons decorating large windows and a large lobby with original features like 20-foot cathedral-stone ceilings, chandeliers, and inlaid stone floors. The lobby was deemed "excellent" in 2021 by KBRA, a rival to S&P in the bond-rating arena. 1 Park is the third Midtown office tower to lose its AAA rating, following 667 Madison and 1740 Broadway in 2023. The building was acquired by Vornado Realty Trust in 2011 for $374 million, and the Canada Pension Plan Investment Board bought 45% of it in 2014 for $250 million. The building's mortgage was deemed AAA because 67% of the space was leased to NYU Langone Health, which operates Tisch Hospital four blocks east.
Mayoral ally Jesse Hamilton allegedly steered agency into unfavorable deal
City Hall has halted a lucrative city lease awarded to a donor of Mayor Eric Adams while investigating the execution of the deal by one of the mayor's allies. The Department for the Aging's office lease at 14 Wall Street in the Financial District is being reviewed, but the lease is only said to be on pause, meaning it could still be enacted. The building is owned by billionaire Alexander Rovt, a real estate investor, healthcare entrepreneur, and Adams donor. The Department of Citywide Administrative Services, run by Jesse Hamilton, is one of several officials under investigation regarding the city's commercial leases. Hamilton reportedly stepped into the lease procurement process to steer a deal towards Rovt, even though AmTrust Realty's 250 Broadway was the top pick for the lease. A Manhattan community board recommended approval of the lease, but later voiced concerns about building ownership and Hamilton's role in the procurement process. The City Planning Commission also approved the lease, but resistance formed in the City Council.
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