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Manhattan's office market experienced a strong third quarter, with companies leasing about 8.6 million square feet, a 5.6% increase from the previous quarter. This was the strongest quarterly volume for the borough in two years, and the largest deal for the quarter was Blackstone's expansion to over 1 million square feet at 345 Park Ave. The largest deal was Christie's renewal of 373,000 square feet at Rockefeller Center, followed by Willkie Farr & Gallagher's expansion to 316,000 square feet at 767 Seventh Ave. Ares Management and Google renewed and expanded to about 307,000 square feet at 245 Park Ave. The largest share of activity was leasing by finance, insurance, and real estate firms at 46%.
The average asking rent dropped for the fifth quarter in a row to $74.07 per square foot, 6.8% lower than the March 2020 average of $79.47 per square foot. The total amount of available office space was 93.1 million square feet, up 72.9% since the pandemic began, but net absorption last quarter was about 3.6 million square feet, meaning more office space was leased up than arrived on the market. The available supply has tightened measurably since last September, but these trends will need to continue for the foreseeable future before the market finally reaches the elusive recovery status.
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After making a fortune post-1980s recession, the well-connected exec honed in on projects that “made sense"
Mickey Rabina, the builder behind Manhattan's 520 Fifth Avenue, is known to real estate's top dealmakers for his innovative approach to complex projects. The 1,000-foot-tall mixed-use building will be the tallest on Fifth Avenue near the Empire State Building, and will be the biggest project in Rabina's six-decade career. He has found solutions for distressed situations using connections and deep pockets, such as his ski trip tradition. Zrubavel Rabina, a successful American real estate investor, made a fortune by buying discounted loans from the federal government's Resolution Trust Corporation during the late 1980s recession. He focused on institutional-quality properties with stable cash flow and eventually sold half of his portfolio in 2004.
When the market came back after the financial crisis, Rabina stopped mulling and began to buy and develop properties. He teamed up with big-name developers like Jorge Perez and World Wide Group on rental towers and apartment buildings. In 2017, Rabina helped finance a project by Lou Ceruzzi, a Connecticut-based developer, by buying the site for $205 million and working to get the company off its guarantees.
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New York City's office market is experiencing a slow recovery, with activity up nearly 50% year-over-year. Tenants signed 9.3 million square feet of leases in Q3, with financial services firms accounting for 40% of all leasing activity. Data shows an increase in large leases, with 25 transactions spanning over 100 thousand square feet this year, up from 18 last year. Two leases larger than 100 thousand square feet closed in the first two days of the fourth quarter. Manhattan's leasing activity continued its upward trajectory from the first half of the year, with overall availability dropping below 19% for the first time since Q1 2021. There is cause for optimism as the market activity may compress transaction timelines post-pandemic. While transactions continue to take longer to close than pre-pandemic comparisons, there are signs that market activity could compress those timelines on the other side of the election.
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ChatGPT maker reaches agreement to rent 90,000 square feet in Manhattan’s Puck Building
OpenAI is leasing its first office in New York City, indicating a growing appetite for office space in the artificial-intelligence industry. The company has leased 90,000 square feet in Manhattan's Puck Building in the trendy Soho neighborhood, and has also subleased two San Francisco buildings from Uber Technologies. The office market has shown signs of stabilization after a period of rising vacancies, rent reductions, and transactions at fire-sale prices. AI businesses are particularly strong in San Francisco, where the remote working trend has affected the city's total office space.
AI companies have signed 57 office leases in San Francisco this year, with 40 of those from small and midsize companies taking office space for the first time. Demand for space is coming from companies primarily focused on AI and companies like Google, Microsoft, and Apple that are investing heavily in AI. The volume of space leased for AI could quadruple in size in the next six years. The Puck Building, owned by Kushner Cos, is known for its association with Thrive Capital, a venture-capital firm that recently led a $6.6 billion funding round for OpenAI.
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International Workplace Group, a Swiss-based coworking company, has signed a massive lease to take over six floors of Manhattan's Metropolitan Tower. The deal was signed by GDS Development and Sabal Investment Holdings, a California-based real estate firm. The 18-story office portion of the building was built in 1986 and contains 235 residential apartments and 283,000 square feet of office space. The flexible workspace company, which will operate under its creative brand name Spaces, has more than 1,500 centers across the country and more than 4,000 locations worldwide. The company has signed 465 new partner locations in the first half of this year.
The lease signing comes at a time when office space, particularly coworking space, is in high demand. WeWork filed for Chapter 11 bankruptcy protection in November 2023, listing nearly $19 billion in debt. The former Adam Neumann-led company managed to emerge from bankruptcy with a reorganization plan recently approved by U.S. bankruptcy Judge John Sherwood. Other office buildings are being converted into housing to account for the decline of in-office workers compared to the limited housing supply. However, Mark Dixon, founder and CEO of IWG, remains undeterred and believes in the need for flexible office space as "demand for hybrid working solutions in New York City continues."
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Wealth-management firm Corient and Pennsylvania-based Customers Bank have agreed to lease more space at 101 Park Ave., a development that will help offset the loss of Tiger Management and Morgan Stanley. Corient, a Miami-based wealth manager with $120 billion in regulatory assets under management, will lease another floor measuring 25,000 square feet, increasing its footprint in the 48-story tower to 77,000 square feet. Customers Bank, with $21 billion in assets, will also lease an additional 25,000 square feet and will occupy a total of 37,000. The additional floors taken by Corient and Customers Bank amount to half the space being left behind by Tiger Management and Morgan Stanley. Tiger Management moved out of 53,000 square feet last month, and
Morgan Stanley is expected to vacate 49,000 square feet in December. Tiger paid $115 per square foot and Morgan Stanley $83 a square foot at 101 Park, according to credit-rating firm KBRA. The amounts paid by Corient and Customers Bank were not disclosed. 101 Park, a 1.3 million square-foot tower developed in 1982 by Kalikow, is a premier workplace destination with large boardrooms, sculptures, granite floors, and dark-wood flourishes.
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SJP Properties is reportedly acquiring British company PATH Entertainment Group to fill a vacant 50,000-square-foot space at 11 Times Square. The landlord, run by Steven J. Pozycki, was asking for $8 million a year for its community chest, which is $160 per square foot. The Monopoly Lifesized deal is one of the largest done in Times Square since the film experience never materialized. The tenant was represented by Michael Rielly of Rielly Retail Solutions. The Times Square Alliance praised the deal for the triplex space, which covers the ground, second, and lower levels, totaling 49,982 square feet. The Monopoly Lifesized concept, which was born in London and is now operating in Denver and Riyadh, Saudi Arabia, involves guests working as a team to solve escape room-style challenges on a giant Monopoly board, unlocking chances to buy property, charge rent, and break out of jail. The Monopoly game is expected to open next year at the earliest.
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Servicer’s suits allege $300M in defaults on failed bank’s loans
Rialto Capital Advisors has filed to foreclose on another Signature Bank loan, this time tied to a stalled development site in Lower Manhattan. The Roe Corporation defaulted in January 2023 on a $25 million mortgage tied to 267 Broadway, which the company failed to develop and then tried to sell. The lender collapsed a couple of months later, throwing its loan into limbo until Rialto started servicing the debt in early 2024. Rialto has brought at least 15 foreclosure suits against Signature borrowers, alleging defaults exceeding $300 million. The number represents a fraction of the failed bank’s $17 billion commercial loan book awarded to the joint venture, but some borrowers accuse the servicer of engineering defaults. Rialto has also sued Aby Rosen three times in contract disputes, alleging RFR defaulted on $80 million in debt. Rialto has faced two suits alleging it mismanaged run-of-the-mill extensions to either trigger late fees or drive loans to the brink of foreclosure. The latest was filed last month by landlord MJ Orbach
Associates, who claimed the servicer was “angling for” defaults. The Rialto-Blackstone venture has already sold $247 million in loans to distressed debt player Maverick Real Estate Partners, whose strategy involves charging default interest rates up to 24 percent. In another suit against Rialto, a Staten Island shopping center owner claimed the servicer mishandled a routine extension, saddling the owner with hundreds of thousands of dollars in wrongful fees.
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Recovery pushes rate down to 14.7%, barely half of pandemic peak
Manhattan's retail market experienced a significant drop in availability last quarter, with only 14.7% of prime retail space available from July to September, the lowest ever recorded in the city. The market is tighter than it was before the pandemic, with availability averaged at 21% in 2019. Lower Fifth Avenue experienced the most significant drop, dropping from 21% in the second quarter of 2023 to a record-low 11.3 percent. SoHo experienced a dramatic recovery in terms of vacancy, with availability rates falling from 34.6% in 2021 to just 11.5% this quarter. The current asking rent is $301 per square foot, a modest 3% increase year-over-year. However, availability trended upward in some submarkets, such as Madison Avenue and Williamsburg.
The Meatpacking District faced challenges, with the availability rate increasing to 26.9% but average asking rents falling 4.5% year-over-year to $293 per square foot. Asking rents have followed mixed patterns, with Times Square experiencing a 23% year-over-year increase and upper Fifth Avenue experiencing a 9% decline. Tourism has rebounded significantly, with hotel occupancy near record highs and visitor numbers close to pre-pandemic levels.
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Short-term rental operator warned of serious trouble last week
Sonder, a San Francisco-based short-term rental company, is facing significant challenges due to its unprofitability and large lease obligations. The company's business model involves signing long-term leases for apartment units and hotel rooms to operate as furnished short-term rentals, which poses risks if demand drops. Sonder has been renegotiating its portfolio across 10 countries and over 40 cities, hoping to cut down rents or exit properties altogether. In the last 11 months, Sonder has reduced rent on or left roughly 4,300 units across 105 buildings. The company expects annual cash flow to improve by more than $40 million due to the culling.Sonder has also made "capital light" deals, putting landlords on the hook for any initial capital improvements.
In August, it raised $146 million in additional liquidity, including $83 million from existing bondholders. The company also partnered with Marriott to make 9,000 units available on Marriott's platforms by year's end, the first time Marriott has partnered with a short-term rental company in this manner. Sonder lost $296 million last year, $51 million more than it lost in 2022. The company laid off 17% of its workforce early this year, expected to result in $11 million in annual savings. Sonder went public via a SPAC merger with Gores Metropoulos II in 2022, valued at $1.9 billion.
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Lender took office property at 29 West 35th Street back for $23M
A Midtown office building, 29 West 35th Street, was returned to its lender in a credit bid last month. The bondholders on the $41 million CMBS loan appeared to have opened bidding at $23 million, which is well below the dollar amount that would have made it whole but high enough to saddle it with an extra $477,000 in transfer taxes. This suggests the lender was sending a message to bidders: they will let the building go for $23 million, or a 60% discount to the $62 million they are owed — fees, interest and all. At $23 million, the 85,000-square-foot building would have sold for $270 per square foot, and there were still no takers.
It's unclear if the plaintiff's attorney announced $23 million as the upset price or the amount at which it would let the asset go. Scott Siller, the referee on the auction, said he couldn't recall and the figure is not listed in court records. Herrick Feinstein, the law firm representing the lender, declined to comment. It's highly unlikely the bondholders on the CMBS loan would opt to pay more in transfer taxes by opening bidding at $23 million. The transfer tax rate is 1.4 percent for sales of $500,000 or less and jumps to 2.075 percent for sales of $3 million or more. A price of $23 million would have been a big haircut, dwarfing the original loan amount and the lender's $62 million judgment.
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Lakewood developer faced loss of massive Newark project
Jack Klugmann, owner of Accurate Builders and Developers, has managed to keep his New Jersey portfolio from foreclosure threats from Madison Realty Capital. Klugmann, who owns Accurate Builders and Developers, has restructured or sold some properties to Madison Realty. One of the properties he kept was the site of the former Newark Bears stadium, where he had been pursuing a massive project. Madison Realty initiated a U.C.C. foreclosure on the equity interests in the Newark site, and an auction by Matthew Mannion of Mannion Auctions did not occur.
Klugmann restructured a loan to keep the Newark properties and reworked loans on properties in Clifton and Cedar Grove that also faced foreclosure by Madison. Now, Klugmann is no longer facing any foreclosure threats. Madison Realty, led by Josh Zegen and Brian Shatz, is among the busiest non-bank lenders in New York City and has recently raised over $2 billion for its latest debt fund. The firm has also initiated foreclosures, most recently against Joe Chetrit's 1,300-unit apartment project in Two Bridges and moving to foreclose on Aby Rosen's massive site in Gowanus across from Whole Foods.
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Some bluff and borrow their way through, but others don’t make it
Josh Schuster, a real estate developer, faced a series of challenges during the pandemic, including six development projects that were sidelined, lawsuits, and the collapse of his company, Silverback. Despite the challenges, Schuster maintained an image of success, despite the reality of the situation. He maintained a lavish lifestyle and invested in private schools, country club memberships, and a driver to shuttle him to events. However, he also faced the strain of losing investors' money and the emotional weight of disappointment. Some developers, like Schuster, returned to the industry, while others, like Artem Tepler and Brandon Miller, faced suicide.
Real estate success requires confidence and comfort with taking risks, with developers' personal assets sometimes at risk. Entrepreneurs and large-scale real estate investors typically score as "high stimulus seekers" on the "Sensation Seeking Scale." Risk takers may be overly optimistic and fail to appreciate the impact of luck on business outcomes. Developers like Remy Raisner embrace instability and the challenges it brings, while Eric Brody found himself dealing with debt and the emotional impact of the pandemic.
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