New York City office
and retail Market Research

February 2008

February 2008 » Market Analysis » NY New Developments

February 2008 New York New Developments

New Developments

New York City's office market has gained on the world's two most expensive cities, London and Hong Kong. London vaulted over Hong Kong to become the world's priciest office market with rent for Class A hitting $265 per square foot. The peak rate in New York City's Midtown reached $225 per square foot. The next most expensive U.S. office markets were San Francisco, with a rate of $110 per square foot; Boston, with a rate of $90 per square foot; and Manhattan's Downtown, with a rate of $65 per square foot.

Steven Witkoff, Developer, pulled bid to develop Pier 57, planning to spend an estimated $400 million on building a bridge to the High Line, a marina, a museum, and a gourmet banquet hall. Witkoff got caught in the Manhattan district attorney's investigation of a former chairman of the Hudson River Park Trust, James Ortenzio, who a former chairman of the New York Republican County Committee pleaded guilty to a felony tax violation and failure to make a financial disclosure.

Bad news for Wall Street may mean good news for Manhattan's congested office markets. By late December, the major financial houses had lost more than $40 billion related to the sub prime mortgage crisis, which may force tens of thousands of people out of work in Midtown and Lower Manhattan. The possible resulting layoffs have led brokers to believe that Wall Street firms will try to sublease some of their unused trading floors. New office inventory couldn't come at a better time for the Manhattan market. Asking rents in Manhattan hit $62.91 in the third quarter, representing a new record. The jump of 37.2 percent from the year-ago quarter was the biggest annual increase ever recorded.

Citigroup and Merrill Lynch announced plans to counter enormous losses tied to sub prime mortgage investments. Citigroup, just posted the biggest loss in its history, it received $12.5 billion from outside investors to help recover from an $18 billion write-down. The bank is expected to cut 4,000 positions, following 17,000 job cuts announced last spring. Merrill Lynch will raise $6.6 billion from three foreign investment funds.

Morgan Stanley, Lehman Brothers Holdings Inc. and Credit Suisse Group are eliminating about 1,640 jobs as the worst U.S. housing market in 26 years slows economic growth and their profit outlook.

The New York State Appellate Division denied an appeal against the state's use of eminent domain for Forest City Ratner's Atlantic Yards project.

The state commission studying the city's proposed congestion pricing plan is most likely to approve an $8 charge on vehicles entering Manhattan below 60th Street on weekdays. The commission also opposes Bloomberg's proposal to charge vehicles for trips within the congestion zone. The estimated $500 million in annual revenue would be given to mass transit.

Hudson Yards. There are five proposals for Hudson Yards, two from the Extell Development Company and Brookfield Properties. These two bids have been looked upon favorably by the public and/or architectural critics. It is the other three that are reportedly the favorites. All three of them have in common high-profile tenants. Reportedly, the Metropolitan Transportation Authority, which owns the Hudson Yards site, has already narrowed down to three bids from the Related Companies, Tishman Speyer and Durst/Vornado, and that the authority may try to merge them. More importantly, New York needs to find an anchor tenant before the shovels are in the ground.

Financial District Hotel developments. Mr. Chang's is building a 350-room Holiday Inn at 99 Washington Street to open in mid 2009 opening.

The hotel business in New York City continues to boom, as a market niche is widening for select-service hotels in mid-block locations. These properties think of brand offshoots such as Hilton Garden Inn or Holiday Inn Express fall between the budget and luxury categories, offering mid-priced beds, decent coffee and Wi-Fi access. Hotel developers such as the McSam Hotel Group, the Lam Group and Hersha Hospitality are piling on to build them, encouraged by a real estate market that is favorable to smaller, hotel buildings tucked away on side streets, especially in areas like Midtown South, Midtown West and Chelsea. Gary Wisinski, chief operating officer of McSam Hotel Group, said that his company has plans for several new select-service mid-block hotels.

With an influx of young people, Korea town has changed the character of the 32nd Street neighborhood, driving rents up and creating demand for trendy new hangouts. In 2000, rents at the Korea town residential building Herald Towers were around the mid-$30s per square foot; now they've reached the mid-$50s. Developer of the Herald Towers said retail rents in the towers had increased by 30 to 40 percent since last year.

Median sale prices in Queens fell 5.2 percent to $460,000 in the fourth quarter, down from $485,000 in last year's fourth quarter. A decline in median sales prices across the overall Long Island-Queens market. Prices dropped by 3.2 percent to $425,000 this quarter, compared to $439,000 in the fourth quarter last year. The numbers have fluctuated between stable and weak for the last few quarters.

City Point tower is being built at a site in Downtown Brooklyn. It could become Brooklyn's tallest building if it reaches its planned 65 stories. The 1.9 million square-foot tower will include about 500,000 square feet of retail space, 280 hotel rooms, along with 800 residential rental units and 360,000 square feet of office space.

The Federal Reserve made an emergency interest rate cut of .75 percent, the biggest single cut since October 1984 as a fear of a recession looms. Along with cutting the key overnight interest rate to 3.5 percent, the Fed also cut the discount rate 75 basis points to 4 percent.

United Nations is negotiating a lease at 380 Madison Avenue for 600,000 square feet to relocate up to 1,700 employees from the Secretariat Building while the tower and other buildings on the UN's East Side campus undergo a renovation to begin next year. The deal, which is huge by Manhattan leasing standards and will be the biggest transaction to be completed in the city so far this year, constitutes more than what the United Nations initially planned in order to house staff that will be displaced by the work.

Over the summer, the United Nations reached an agreement to occupy the Albano Building, a 187,000 square foot fully vacant office property near its East Side campus in which it plans to move 700 employees.

International law firm Crowell & Moring signed a lease for 100,000 square feet at Minskoff Equities' 590 Madison Avenue. Rents on some floors are reportedly $135-$165 per square foot. The firm is moving from its 60,000-square foot offices at Boston Properties' 153 East 53rd Street, the Citigroup Building.

Foreclosures in New York City fell by 13 percent in the fourth quarter. The total of 605 foreclosures, however, was still 71 percent higher than the final quarter of 2006. On Staten Island, new foreclosure auctions jumped 53 percent; the other boroughs saw drops of 10 to 30 percent. The neighborhood with the most foreclosures was in Queens: Jamaica, South Jamaica, Hollis and St. Albans had 23. Foreclosures in the city were up 71 percent.

A weakening of the U.S. dollar brought a record number of visitors to New York City last year. An estimated 46 million people visited the city in 2007, an increase of 5 percent. Foreign visitors increased by an estimated 8.5 million, a jump of 17 percent.

A feud between the state redevelopment corporation and its contractor, Bovis Lend Lease, has been resolved. The demolition of the former Deutsche Bank building at 130 Liberty Street is set to resume. The Lower Manhattan Development Corporation announced that it hired a new subcontractor, LVI Services Inc., to remove asbestos and other hazardous materials and demolish the structure.

At the City Council's finance committee hearing, members questioned the need for Madison Square Garden's $11.5 million annual tax break. The tax break was created in 1982 after the arena's then-owners threatened to move the Knicks and Rangers to New Jersey. Barry Watkins, Garden president, said talks of ending the tax break are premature, while plans are drawn for a new arena at Moynihan Station.

The Port Authority has completed excavations at the site of Larry Silverstein's planned Tower 4 at the World Trade Center, designed by architect Fumihiko Maki. The agency said the adjacent Tower 3 site will be ready by the middle of next month.

Mayor Michael Bloomberg prepares for next week's State of the City address. He is considering ending a 7 percent property tax cut and a $400 property tax rebate for homeowners, to help close the city's budget gap. The mayor has always billed that as something we will do when we can afford it, but it's not permanent.

Due to credit drying up and Wall Street banks lending less to real estate investors, recent deals have been financed by balance sheet lenders, including insurance companies, savings banks and commercial banks. Many high-profile lenders involved in Manhattan deals are foreign; including Irish, Scottish, and German banks. For the purchase of 1177 Sixth Avenue, $700 million was provided in financing. Deals continue to happen, the shift to on-balance sheet lenders might result in lower leverage and higher cost of capital.

After years of delays, developer Edward Minskoff is moving forward with plans for a 110,000-square-foot parcel in Long Island City that was once a strip club. Minskoff has completed plans for both an office building and a college dorm at 30-30 Northern Boulevard, which is near Queens Plaza at the intersection of 40th Avenue and 31st Street. His development company, Edward J. Minskoff Equities, first planned an office building after acquiring the property about three years ago. After no anchor tenant was found, Minskoff switched gears and planned for a college dorm at the parcel. Now, Minskoff has completed one plan for an 18-story, 650,000-square-foot Class A office building and another for a 1,600-room college dormitory with classrooms and administrative offices that could be 18 stories or taller.

Ogilvy & Mather, the international advertising and public relations agency, says it will move its headquarters to 636 11th Avenue, at 47th Street. The WPP Group-owned company leased the entire 11-story building, which will undergo an interior redesign. Ogilvy will vacate 600,000 square feet of noncontiguous at the Harry Macklowe-owned Worldwide Plaza, on Eighth Avenue and 50th Street, next year. Hakimian Organization and its partners Peykar Brothers Realty and Gorjian Properties leased the building.

Developer Mort Zuckerman's Boston Properties has signed its first tenant at a planned tower at Eighth Avenue and West 55th Street. Law firm Gibson, Dunn & Crutcher has reportedly taken over 200,000 square feet. Law firm, Proskauer Rose, is expected to take about 400,000 square feet.

After selling its stake in the World Trade Center in 2003, the Westfield Group is now a big driver behind Ground Zero's redevelopment, with a $1.45 billion partnership with the Port Authority to develop and operate about 500,000 square feet of stores and restaurants.
  • Green Acres Is the Place for Macerich
  • Billionaire Shows How Small Buildings in NYC Can Mean Big Money
  • Optimal Spaces in the News - New York's Pix11 / Wpix-Tv
  • Fighting rubber ruler measurements
  • Manhattan's Low-Rent Dining in Hiding
  • The NY Fed Is Buying Its Own Building