Weekly Market Report - April 8, 2025
- Broker Support
- Apr 10
- 8 min read
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Accounted for nearly half of municipal tax revenue last year
New York City's commercial real estate market has seen an all-time high in tax revenue, reaching $37 billion last year. This year, it is expected to reach $50 billion, according to data from the Real Estate Board of New York. Commercial real estate is the main driver, accounting for 82% of property tax revenue generated in the city. The real estate sector remains the backbone of New York City's economy and revenue base, despite the pandemic, changing workplace trends, and volatile macroeconomic pressures.
Real estate-related tax revenue was the top source of municipal tax revenue last year, accounting for nearly 50% of the total. Since 2010, real estate-related taxes have increased by 100%, while the city budget only increased by 89%. The tax revenue generated last year was enough to pay the wages and salaries of 280,000 municipal workers. Property taxes are the largest revenue source for the city's police, fire, and sanitation services. The overall tax-assessed value of the city's properties increased by $2.5 billion over four years.
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Manhattan's office market is at its healthiest point since 2019, with much of that recovery concentrated in prime assets along Park Avenue and around Hudson Yards. Class-A properties along Third Avenue are starting to draw more interest than they have in five years. More than 21% of office space on Third Avenue is vacant, still well above the 15.8% citywide average but vastly improved from the corridor's vacancy rate of roughly 29% in late 2022. The tightening is being driven by proposed residential conversions removing space from the market and spillover demand as other corridors in Midtown fill up.
Tenants signed 418K SF of office leases on Third Avenue in the first three months of 2025, nearly double the total from a year ago. Most recently, law firm Kirkland & Ellis took 131K SF at 900 Third Ave., needing the extra space to grow from its 400K SF New York headquarters down the street at 601 Lexington Ave., a BXP-owned building that is nearly full. Third Avenue's renewed allure is a rapid turnaround from the corridor's reputation in 2022, which Manhattan office brokers described as "leave-behind space." The corridor's amenity-light, decades-old buildings were unable to compete with trophy towers to sign tenants hoping to lure hybrid workers back to the office.
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Manhattan's office market has seen a strong recovery, with 12.2 million square feet of leases signed in the first quarter, the strongest period since the fourth quarter of 2019. The market's recovery was largely driven by large tenants expanding and upgrading their real estate portfolios. There were 16 deals of at least 100K SF in the quarter, totaling 4 million square feet. Eight of the 10 largest leases were renewals, five of which were expansions. The technology, advertising, media, and information sector made up more than 20% of the quarter's leasing volume. Universal Music Group signed the largest relocation deal for the quarter, a 334K SF lease at 2 Penn Plaza.
Horizon Media's renewal of its 360K SF lease at One Hudson Square was the largest TAMI deal overall. Manhattan's trophy and Class-A office space is now below 12%, with availability in Midtown as low as 7.5%. Class-B and C office space availability dipped just 40 basis year-over-year to 19.4%. The average asking rental rate for all Manhattan offices is just under $75 per square SF, driven largely by lower-quality office space. Hudson Yards is particularly desirable, with an availability rate of just 9%. The Plaza District has the second-highest rental rate in the city, followed by Plaza North. Sublease space availability has fallen from 21.3M SF in Q1 2024 to 16M SF during the same period this year.
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A new survey by the Partnership for New York City reveals that 57% of Manhattan office workers have returned on average workday, a slight increase over 2024 and slightly below a 2023 reading of 58%. About 30 of the city's 125 leading employers surveyed between March 5 and 20 said they would impose stricter office-attendance requirements later this year. However, the percentage of New Yorkers at their office desks has barely changed since September 2023 when the Partnership reported an increase from 52%. Return-to-office rates have flattened nationwide despite workers being summoned back by big companies, including Amazon and JPMorgan.
The Trump administration has demanded federal workers return to the office. A new stable normal is not good news for office-tower owners, many of whom are struggling to lease up empty floors and refinance debts. Manhattan's office vacancy rate of 23.3% at the end of 2024 was slightly higher than the prior-year's 22.8%. Shares in the city's biggest office landlord, SL Green, have fallen by 14% since the year began, and as a group office-building owners are down 10%. Even workers who have returned to office most often are coming in less than before, with real estate professionals, lawyers, bankers, and tech workers returning less than before.
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Printemps, which opened last month in the Financial District, is betting that minimal customer-facing technology will create a more compelling in-store experience
Printemps New York 1 Wall St, New York, NY, a 54,000-square-foot Parisian-style shopping experience in lower Manhattan, is focusing on an old-fashioned, face-to-face shopping experience as its killer app for drawing business. The store has minimal screens inside, no shopping app, and no e-commerce website. The strategy runs counter to the tech-focused experiences retailers have been driving over the past decade, such as apps that send alerts when shoppers enter stores, scattered QR codes offering more information on products, and armed associates with smartphones to order products online when they're not available in person.
Printemps is focused on creating that in-person value proposition with experiences such as archival fashion exhibits, an on-site spa, and champagne tastings. The store is taking a risk by potentially alienating a group of consumers that might initially want to shop online or look at an app. The store currently has four screens, with plans for four more, all designed to help guests find their way around. The website is more inspired by the websites of New York's Museum of Modern Art, the Louvre, and the Disney theme parks, which entice people to visit in person. An e-commerce site is slated to launch in the fall, and the company also anticipates releasing an app at some point.
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Thor Equities and Premier Equities are facing a foreclosure suit from investment giant Blackstone over allegedly being in default on a $10 million mortgage secured by 25-27 Mercer St., a double-wide retail space between Howard and Grand streets. The 9,500-square-foot commercial condo has cycled through several clothing stores and other boutiques in recent years. Thor and Premier were notified of their default on the loan on March 25 and filed a foreclosure suit in Manhattan state Supreme Court six days later. Thor and Premier owe a balance of $9.5 million on the mortgage plus interest and fees. The original loan was issued in 2016 by Signature Bank, which collapsed in March 2023, and the debt was assigned to Blackstone-backed shell company Sig CRE 2023 Venture LLC in May 2024. The property, which has been occupied by Nanushka, a Hungarian women's apparel shop, has been in use since September. Thor, a $20 billion firm vying for a coveted downstate casino license to anchor a planned $3 billion Coney Island project, has trimmed its portfolio, sometimes under financial stress and at a major loss.
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Manhattan-based developer Moinian Group has fully repaid debt holders $630 million raised on the Tel Aviv Stock Exchange. However, the company is struggling to meet its commitments, as office-tower owners often fail to pay off mortgages when they come due. Last month, Moinian failed to pay off the mortgage for two office buildings at 535 and 545 Fifth Ave. The $310 million loan was transferred to special servicing, and the firm expects to refinance the Fifth Avenue loan in the near future. The $175 million mortgage for the Moinian-owned Hilton Garden Inn on West 54th Street was also sent to special servicing in February due to imminent default. Moinian's difficulties are not unusual, as nearly every major New York developer has distressed properties.
Morgan Stanley reports that over the last 12 months, only 33% of "urban office" loans have been paid off at maturity, underscoring the difficulties landlords have in securing new loans to replace expiring ones. Moody's Analytics examined a $19 billion pool of office loans maturing this year and determined $13 billion worth could have difficulty refinancing. Vacancy rates in Manhattan office towers have risen to 23.3% in the fourth quarter from 22.8% a year earlier, as the slow leak of tenants continues from older buildings. Lenders have two options when a developer fails to pay off a loan at maturity: kick the can and hope for better times, or kick off foreclosure proceedings.
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Lower rates could make real estate a “safe haven,” according to Stephens’ John Campbell
Real estate stocks have fallen due to President Trump's tariffs, which impose a 10% tax on most US trading partners and more punitive levies on countries that respond with their own tariffs. The impact of these new taxes will reverberate throughout the US and global economy, increasing the cost of goods for builders, leading to supply restrictions and cost increases on residential and commercial construction. The National Association of Home Builders projected that the cost to build a single-family house in the US would increase by as much as $10,000 under Trump. However, Stephens analyst John Campbell sees long-term upside in the residential market, which he believes will be a "safe haven going forward" for investors. The biggest influence in the housing market will be rates, which will go "lower, faster" with the market slowdown. However, many economists do not believe there will be a major reshoring of manufacturing in the wake of these measures.
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But they've have had enough of the special servicer’s "sinister" foreclosure scheme
Commercial real estate borrowers are facing a battle with Rialto Capital Advisors, a servicer that has lodged at least 88 pre-foreclosure actions since March 2024. The servicer, one-third of the venture managing Signature's $17 billion commercial loan book, has a history of ignoring borrowers' notices to exercise loan extensions and then suing to foreclose. The FDIC has been largely hands-off since the debt sale closed, leaving borrowers without legal protections and regulatory oversight. This has raised the question of whether there should be a guardian angel for commercial borrowers.
Rialto, a special servicing company, is allegedly dragging out negotiations on securitized debt when sponsors default on their loans. Signature sponsors claim Rialto copied and pasted the strategy when it took over their loans, aiming to obtain default interest and management fees. Rialto has been accused of using a borrower-friendly product and servicing structure that Signature clients had relaxed into. The end game for Rialto and its joint venture partners, Blackstone and the Canada Pension Plan Investment Board, is to maximize profits, with the group scoring its stake in loans at a discount to their book value.
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Affordable portfolio leverages tax cut and new law to juice profits
Floyd Mayweather, Jr., the former boxer, recently made a record-scratch deal of $402 million for 1,000 affordable units in Upper Manhattan. The deal was for a Black Spruce portfolio, with Mayweather holding a minority stake in most of the 62-building portfolio and an option to buy the remaining properties outright. The deal was attributed to miscommunication between Mayweather and his investment firm, Vada Properties. The Morningside Heights portfolio, which is rent-stabilized and collateral for Signature Bank debt, is a prime example of a distressed investment strategy. Many of the buildings benefit from government programs, such as Article XI and Section 610, which provide a tax cut and revenue booster. However, the city has announced that it will no longer accept new applications for the program, which has a waitlist in the thousands. The deal has raised questions about the legitimacy of Mayweather's investment strategy.
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