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Office usage in the 10 largest metro areas remains at 60.5% of pre-pandemic levels, according to Kastle Systems' keycard swipe data. However, most CEOs believe the era of remote work is coming to an end, with 83% of global CEOs expecting their companies to shift back to requiring five days of office attendance in the next three years. This is a steep jump from the 64% predicted near-term end of remote work in 2023. Older CEOs are more likely to predict a return to prepandemic work models, with 87% of those aged 60 to 69 saying hybrid work would end in the next three years. Amazon CEO Andy Jassy recently announced that the company's leaders had decided to return to being in the office before the COVID onset.
Amazon's corporate workers will be expected to return to the office every workday starting Jan. 2, except for extenuating circumstances. Financial firms, including Goldman Sachs, Citigroup, HSBC, Barclays, and JPMorgan Chase, have also called employees back to the office full-time. Office occupancy around the country continues to lag prepandemic levels, and many executives have accepted a hybrid work model as their best path forward in a tight labor market.
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Weaver and Tidwell take entire floor, occupying 36K sf
Weaver and Tidwell have agreed to take 36,500 square feet at the Midtown office tower Penn 1, which was redeveloped by Vornado Realty Trust. The firm will occupy the entire 28th floor, moving from 11,000 square feet at a Bryant Park building. The consolidation of Manhattan offices to Penn 1 comes via an 11-year lease, with the asking rent on the 28th floor being $105 per square foot. The property's proximity to Penn Station and updated amenities were key factors in the decision.
Vornado, led by Steven Roth, invested $450 million into Penn 1, formerly known as 1 Pennsylvania Plaza, to improve the property's 55 floors. The 2.5-million-square-foot complex includes new plazas, a curtain wall, refreshed elevators and lobbies, LEED certification, and 160,000 square feet of food and recreational amenities. Other notable tenants at Penn 1 include Dell, Empire Heath, Gusto, Hartford Insurance, Jacobs Engineering, Morgan Stanley, and Wells Fargo. Since launching the redevelopment of its Penn District, Vornado has secured 1.5 million square feet of new leases, renewals, and expansions.
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Duell Family sold property at 673 Madison Avenue, home to Viand Coffee Shop
Friedland Properties has acquired a piece of the Duell family portfolio on Madison Avenue for around $30 million. The five-story building at 673 Madison Avenue, which has been home to the Viand Coffee Shop for 45 years, was sold to the Duell family, who put the building up for sale earlier this year as part of a nine-building portfolio. The Duells decided to split the portfolio and sell the properties separately. The acquisition adds to Friedland's large presence on Madison, as the family already owns the building next door at 675 Madison Avenue and several other properties up and down the block. The property is located catty corner to the former Barneys New York department store at 660 Madison Avenue, which has been rumored to be sold to a retail user.
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The commercial real estate market is starting to recover, with prices down 19% from a peak in 2022. This is partly due to lenders and owners wanting to cut losses and make new investments, as the Federal Reserve's first rate cut in four years provides clarity on valuations. The market is expected to see more activity in 2025, driven by struggling properties that took on too much debt at lower rates. However, there is still uncertainty in the industry, causing some investors to remain cautious about jumping in too early. Signs of more bidders are eyeing property and loan sales, with more companies willing to provide loans. Investment titans are preparing to jump in to provide certain loans at higher interest rates. The market is moving on, with liquidity returning in various ways, with new issuance climbing to $92.5 billion this year through July, up 57% compared to the same period in 2023.
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The real estate industry in New York City is facing a potential strain due to Mayor Eric Adams' indictment, which has been criticized for being politically motivated. Adams has defended the investigation, stating that it is "lies" and that he will not resign. The industry could support Adams, but they would be backing a weakened version of him. The City Council has already overridden Adams' vetoes on high-profile bills, and his legal struggles could potentially impact his administration's housing reforms. The industry could also try to coalesce around a new candidate, but this comes with risks. Adams' replacement would be Public Advocate Jumaane Williams, a progressive politician whose office is arguably the industry's least favorite. Although Adams has faced challenges in the past, the real estate industry remains a major and influential sector of the city. If Adams decides to resign, the industry will likely be unhappy, but they will survive.
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Many commercial-property owners borrowed too much when rates were super cheap and are struggling to hold on to assets they need to refinance
Commercial real-estate owners are experiencing relief as interest rates start to fall, but many highly indebted property investors are still struggling. The Federal Reserve has cut short-term rates by a half-percentage point last week, and commercial mortgage rates have been falling for weeks in anticipation of a Fed move. However, lenders and owners are not enough to hold on until rates come down enough to refinance. The value of commercial real-estate loans in foreclosure nearly tripled between January and August this year to reach $19.2 billion.
Landlords who took out floating-rate loans, which shot up with prior interest-rate increases, are "getting clobbered most," said Mike Haas, CEO of CRED-iQ. Tides Equities, one of the biggest apartment landlords in the Southwest, has seen around a dozen buildings enter foreclosure or a similar process this year. The layered troubles across Tides' many buildings have made it difficult for the company to land rescue money, even as rates start to come down.
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New amenities, from a gym to a movie theater, and a good commuter location filled this suburban office tower
Manhattan's office-vacancy rate reached a record high of 15% this year, while Philadelphia's occupancy is at historically low levels. However, a 24-story office tower between the two cities has more than doubled its occupancy over the past five years. American Equity Partners bought 1 Tower Center for $38 million in 2019, and the property is now nearly fully leased at competitive rents. The turnaround shows how office buildings can thrive even during dismal times for most of the U.S. office market. Success often requires an ideal location, upgrades and amenities to lure employees back to the workspace. The recent interest-rate cut and reports of Amazon.com reinstituting a five-day office workweek have raised hopes that the office market might be getting closer to turning.
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Developers are searching for sites for warehouses and industrial projects in a constrained market as land is rezoned for residential use and residents resist warehouses. About 90% of sites have environmental issues, making them port-centric and transportation-centric. Industrial vacancy stands at 5.6% nationwide, with e-commerce driving demand. Other niche sectors like cold storage and data centers are also booming. However, the supply of land for industrial use dwindles, making brownfield sites a challenge. In New York City, developers are looking to rezone neighborhoods to allow for dense residential projects and eliminate the potential for new industrial uses. Cleanup and redevelopment can add immense value to the surrounding community, and cities can provide economic incentives for developers.
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JLL marketing Tower 57 after landlord clash, judge’s order
A troubled Midtown office property, a curved tower, is on the market after a court ruling bumped Charles Cohen from ownership. The Wallace family, who own the land beneath the building, spent over a year battling Cohen in New York State Supreme Court. Cohen defaulted on the lease in early 2023 and skipped paying city property taxes over $8 million. Court documents show he also neglected some repairs, leading retail tenant Saks Off Fifth to begin another court action and stop paying rent this year. A judge signed an order on Sept. 6, backdating Cohen's eviction to his initial default on June 26, but some tenants may have even paid him their July rents. The Wallace family is now open to either a new reconstituted ground lease or even a full sale, with all options on the table. The building, designed by Kohn, Pederson Fox, was developed by Madison Realty Associates on land owned by the Wallace family.
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Pearl House’s developer in contract to buy 26-story FiDi building for $95M
Vanbarton Group is set to purchase the office building at 77 Water Street in New York City for $95 million, with the deal expected to close by the end of the year. The company is not looking to restore office glory to the 26-story property, which has tenants like AT&T, Goldman Sachs, and Lewis Brisbois Bisgaard & Smith. Instead, Vanbarton is eyeing another conversion to residential space, potentially creating 600 rental units. The company has a history of turning offices into residences, having paid $165 million for the 1970s-era building in 2014 and secured a $272 million construction loan from Brookfield's lending arm in 2022. In 2017, Vanbarton converted 180 Water Street into a 570-unit building and in Midtown, the 300-unit Hollingsworth opened. Other notable conversions in the Financial District include Nathan Berman and InterVest Capital Partners' 1,300-unit project at 111 Wall Street and Berman's redevelopment of 25 Water Street.
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Majority tenant of 141 Livingston Street on lease that expires next year
David Bistricer is facing financial uncertainty at a Downtown Brooklyn office building, where his firm, Clipper Equity, is 30 days delinquent on a $100 million commercial mortgage-backed securities loan backed by 141 Livingston Street. The $100 million loan was secured from Citi via the CMBS market in 2021. Bistricer secured the financing from Citi via the CMBS market in 2021 and had roughly three years left on a $79.5 million mortgage provided by New York Community Bank in 2016.
The largest office tenant at the 15-story, 206,000-square-foot property is the Department of Citywide Administrative Services, which leases 96% of the available space. The agency recently leased space at One Willoughby Square in Fort Greene and is on a lease expiring at the end of next year. The building was purchased from Blackacre Capital Management for $14 million in 2002. Fitch Ratings issued a warning about the CMBS debt tied to the property. The looming loss of the Human Resources Administration and the Department of Environmental Protection will create a 342,000-square-foot void for Clipper Realty to fill at a daunting time for office landlords.
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Developer paid $45M and reportedly spent $10M on renovations
KPG Funds' Gregory Kraut aimed to address New York's ailing office market by converting small buildings in cool neighborhoods into Class A office space. By summer 2023, 86% of its portfolio was leased. However, higher interest rates have forced KPG to sell one of its prized assets, a five-story building at 446 Broadway, for a likely loss. The building was bought for $45 million in 2018 and spent over $10 million on renovations. KPG sold the property for $52 million to San Francisco-based Spear Street Capital, which was only $1 million more than the loan KPG got from Ladder Capital to refinance the property in 2022. KPG's total financing package was reportedly $64 million, including mezzanine debt not recorded in city records.
The issue is not demand from tenants, but rather the rise in interest rates since March 2022, which has driven down the values of office and other properties across the country. Even buildings perceived as attractive are suffering drops. KPG bet on the NYC office market as other landlords began defaulting and handing over keys. The firm plans to convert a seven-story building at 32 West 14th Street into a Class A office and retail building.
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Related sold the asset for $40M, after buying it in 2018 for $153M
Related Fund Management has agreed to sell a Hell's Kitchen office to Namdar Realty Group, Empire Capital, and Mason Asset Management for an unknown number below $50 million. The property at 321 West 44th Street was acquired for $40.5 million, a 73% discount on its 2018 purchase price of $153 million. The final purchase price for the 181,000-square-foot property breaks down to about $224 per square foot. Namdar is the majority owner with a 92.5 percent stake, easily dwarfing its partners.
The transaction was a short sale, meaning Related and its lenders were okay with selling the property for below the outstanding balance on the mortgage, which was reportedly above $100 million. Tenants at the 10-story building include Battery Studios and AKA. Related CEO Jeff Blau recently told The Real Deal that Class B office owners should "take what you can and run." Meanwhile, Igal Namdar and Empire have run into trouble on a separate Midtown office property, which Benefit Street Partners initiated a UCC foreclosure on.
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Requirement will take effect in early 2025, CEO Andy Jassy says
Amazon is reintroducing a five-day work week for its employees, following a decision by CEO Andy Jassy. The move follows the Covid-19 pandemic, where Amazon allowed some employees to work from home. Since May 1, 2023, Amazon staff have been required to be in the office at least three days a week. The return-to-office requirement will take effect in early January 2025. Amazon is joining a group of large companies, including UPS, JPMorgan Chase, and Boeing, that have called at least some of their workers back to the office full time. The mandates so far have not led to a broader filling of desks, with the average office occupancy in 10 major U.S. cities hovering around 50% for months. Amazon values in-office culture and is investing in its office spaces in recent years. The company is also reducing the number of managers overseeing teams and implementing a dedicated method for employees to flag any bureaucracy or unnecessary processes.
The move could prompt other tech companies to follow suit, as 33% of U.S. companies required employees to come to the office full time in the third quarter of 2024. However, many companies have come to accept that employees will spend some of their working time at home, and hybrid work arrangements will be tough to abandon altogether. ”We just have to keep working to optimize these hybrid environments and make sure that they’re working for the employer and for the employee,” he said.
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