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January 2010

January 2010 » Market Analysis » NY New Developments

January 2010 New York New Developments


New Developments

Mort Zuckerman, chairman and CEO of Boston Properties, discussed his outlook on commercial real estate and whether the national recovery is on its way. While he was somewhat pessimistic about the industry as a whole, there are some pockets of the country that are moving toward stabilization. The industry in general is in a fairly weakened condition. In the major cities the commercial real estate is doing reasonably well but in the minor cities they are having more difficulty.

Hudson River Park, the five-mile waterfront band stretching from Battery Park to 59th Street, is short on cash and may be unable to generate enough cash for necessary maintenance. Nearly half of the money comes from parking fees at Pier 40 at Houston Street. The pier's crumbling roof has resulted in the closure of 160 parking spaces, worth an estimated $600,000 in funds, and more closings could be imminent. A development at Pier 40 would have paid for the pier's renovation and generated additional revenue for the park. Hudson River Park is expected to increase in size by 25 percent next year with new sections opening.

Eight years after taking the reins at Tavern on the Green, Jennifer LeRoy is bidding farewell to the famed restaurant once operated by her father. The heiress to a once-burgeoning restaurant empire, LeRoy was put in control by her father when she was 22. Now, after losing a bid to renew her family's lease at the landmark Central Park restaurant, Tavern on the Green's closing is heartbreaking for the family.

Park Avenue is an empty shell of its former self. The Park Avenue submarket which runs from Grand Central to 59th Street has fallen harder and faster than any other Manhattan submarket over the past 12 months. From October 2008 to October 2009, average asking rents dropped 34.7 percent, from $108.57 per square foot to $70.85 per square foot. By comparison, overall asking rents in Manhattan fell 22 percent during the same period.

Marc Holliday, CEO of SL Green, discussed strategy at its 485 Lexington Avenue. The company had been looking to sell off 49.5 percent of its interest in the commercial office building between 46th and 47th streets before the deal fell through. We're in contract of sale, but the special servicer looks like they may be rejecting the transfer. He would only add that we may have to evaluate our options.

Jeans retailer Levi Strauss & Co. is in talks to lease a portion of the newly-constructed 414 West 14th Street retail and office building in the Meatpacking District near the High Line. Levi's would take less than half the 6,400 square feet of the ground-floor retail space, with about 25 feet of street frontage for a high-end store. The opening of the High Line in June has brought more potential shoppers to the neighborhood, but pedestrian traffic remains light during the day.

The city has slightly fewer stalled construction sites after November brought the rejuvenation of some projects that had come to a standstill. The city is home to 515 inactive construction sites, the result of a large increase during the month of October. Nearly all stalled projects are residential developments, and they are largely concentrated in Brooklyn, which has 237, or 46 percent, of the city's total number. Manhattan has 80. The city recently introduced incentives for owners of stalled projects to keep their sites safe in exchange for renewing their building permits for up to four more years.

GE Capital, a unit of General Electric, expects $7 billion worth of commercial real estate losses. The company's commercial real estate portfolio has already declined in equity by roughly 34 percent since its 2007 high. The company expects commercial property values to fall 13 percent next year, driving future losses. GE has not been required to mark its portfolio and reserve its portfolio like Citi and Bank of America have, as federally chartered banks, and as a result it has a lot more marking to do.

Pet shops are in high demand because of consumers' emotional attachments to their pets. New York City pet stores are surviving the financial downturn thanks to pet owners unwilling to scrimp when it comes to their pets and landlords who are more amenable to negotiations with canine-catering tenants. In fact, many pet stores are even expanding operations, despite the overall dismal environment for the retail real estate market.

Brazil's Banco Itau has signed a 15-year lease for 25,000 square feet on the top floor at the General Motors Building, at 767 Fifth Avenue. With a rate of more than $130 per square foot, the lease marks the city's most expensive deal of the year. The GM tower is one of a scant few in the city that still rakes in more than $100 per square foot. Others include the Lever House at 390 Park Avenue and the Seagram Building at 375 Park Avenue.

Dubai World is undergoing serious difficulties. Sovereign wealth fund managers are investing more in property and commodities to hedge against the risk of inflation caused by massive stimulus packages in the west. There is quite a lot of interest in real estate and other long-term hedges against inflation.

"American Idol" hotel investor and New York Four Seasons hotel owner face financial woes.

Trophy hotel investments have turned into long-term nightmares for many novice Manhattan real estate investors, including ultra-wealthy media tycoon Robert Sillerman, whose $180 million investment in developing a luxury Anguillan hotel may never return a profit,. Ty Warner, best known for his line of Beanie Babies, is at risk for foreclosure on his New York Four Seasons hotel and three others, unless he can snag an extension on his $345 million mortgage by its Jan. 9 due date.

The Broadway Hotel at 230 West 101st Street, formerly used as a single-room-occupancy building, has been shut down by city officials for operating far above capacity, according to Fox News. Owner Hank Freid, CEO of the Impulsive Group, a hospitality company that operates several Manhattan hotels, including the Ameritania in Midtown and the Marrakech Hotel NYC on the Upper West Side, was slapped with an order to vacate, after reports surfaced that the Broadway Hotel was over capacity by more than 400 people.

The Buildings Department approved part of BKSK Architects' plan for a six-story commercial and retail building at 363 Lafayette Street. Although it's not immediately clear what part of the plan was approved, if the project does come to fruition it could mean a TKO for Close, who has been fighting with lot owner Olmstead Properties to block the project.

The former site of bankrupt Cabrini Medical Center has drawn a preliminary $80 million bid from residential developer JD Carlisle, but they are hoping for a much higher sum come its planned mid-January auction. Cabrini, whose five buildings sat between Second and Third avenues and 19th and 20th streets, closed in March 2008 and filed for bankruptcy this summer. It will need 44 percent more in order to pay off its creditors. After the auction of two Queens hospitals fetched 50 percent more than the starting bid. The property drew 14 preliminary bids, and that JD Carlisle's $80 million was the highest amount offered.

SL Green hasn't seen its occupancy levels drop much from the company's 2005-2006 peak, and that many of its tenants are beginning to rebound. We're starting to see signs of improvement in our tenants' businesses: they're beginning to hire again; they're making more money; they seem to be more optimistic. As for the long-awaited decision on the winning bidder for the Aqueduct race track project. The state has indicated that a selection will be made shortly, but I think the evidence is such that that's been the case for many months now, so you really can't point to an announcement date.

A Tishman Speyer venture is in default on a mezzanine loan that was part of a $1.7 billion purchase of six Chicago office buildings comprising 5.7 million square feet. Tishman bought the package of mortgages in 2007 at the top of the market from Blackstone Group, which flipped it as part of a $39 billion leveraged buyout of Sam Zell's Equity Office Properties that year. Tishman is negotiating with the Federal Reserve Bank of New York to rework an estimated $1.4 billion in loans, set to come due next year, and in response to the default, the Fed has frozen a reserve fund. The lenders have delayed certain capital expenditures that already had been approved and that were required under the loan agreement. If the buildings cannot get refinanced, they could become part of the growing wave of "zombie buildings," which lack the money to cover brokers' commissions and reconstruction.

The fate of famed restaurant Café des Artistes could be decided through auction. The restaurant closed in late August after the owners' temporary closure turned permanent. Speculation has abounded over who would invest in the spot, but this week's auction -- which includes all furnishings and the six years remaining on the eatery's lease -- has yielded no winners. One offer of $140,000 for the whole kit and caboodle was denied. If a winning bidder doesn't emerge by the auction's end today the space will be returned to the building's co-op board.

3 West 57th Street is said to be seeking as much as $5 million in annual rent -- a sticker price seemingly too high for a long-term deal. Landlords that had not previously been open to temporary deals are inking them.

The reborn Mark Hotel at 25 East 77th Street at Madison Avenue looks much as it always did, but preserving the demure pre-war dignity that it had when it opened back in 1927. The real pleasure is revealed when you enter and behold one of the most exhilarating interiors in the city. It was conceived by Frenchman Jacques Grange, France's most famous interior designer.

A state appellate court has rejected the use of eminent domain in Columbia University's plan to develop its new Manhattanville campus on 17 acres in West Harlem, 9 percent of which is currently owned by two families unafraid of fighting to keep control of their properties. The Singh and Sprayregen families, owners of the storage warehouses and gas stations in question. They had sued the Empire State Development Corp., the state's development agency, which tried to seize their buildings so that Columbia's new campus could run uninterrupted, with an interconnected underground facility beneath it. Attorneys for the families argued that the state should not use eminent domain on behalf of a private institution; the general public would not benefit from Columbia's new campus, they said. The state countered that the area in question is blighted -- a point of contention from opponents -- and said that it will appeal today's decision, which they said is inconsistent with established law. Just last week, the state's highest court upheld the state's use of eminent domain for Bruce Ratner's Atlantic Yards mega-development in Brooklyn, although the state is contributing heavily towards funds for that project.

Thompson Hotels has announced that Smyth, the new 14-story, 100-room hotel at 85 West Broadway near Chambers Street in Tribeca, will soon be home to bi-level, 100-seat Jour et Nuit Restaurant & Lounge by Parisian restaurateur Frederick Lesort. The restaurant's 2,500 square feet of underground space will be known as Cellar Cocktail Lounge, and the space will open in the spring. Rooms at Smyth, which was developed in collaboration with Tribeca Associates and opened in February, start at $275 per night for a standard room. A king suite is $575 per night, and the penthouse is $3,500.

SL Green is poised to take over 100 Church Street, an office building that has struggled to retain tenants. With the building's January auction, industry experts say other investors are unlikely to outbid SL Green. The group, which took control over 100 Church Street after the Sapir Organization defaulted on its loan in August, is one of the building's biggest lenders and is angling to protect its investment. The plan to acquire the building is a lot better than just foreclosing and selling an empty building.

The Forbes headquarters at 60 Fifth Avenue is rumored to be close to contract for roughly 60 percent off the original asking price. Forbes Media originally listed the 144,000-square-foot building for $140 million in 2007. After a potential buyer walked away from a deposit on a $120 million deal, the company was asking $80 million for the property, with a three-year lease back agreement for $3 million each year. Forbes may sell for $55 million, or just $380 per square foot, to an unidentified buyer.

As the fall of 2009 comes to a close, many of the commercial real estate lenders continue to limit their exposure to financing for real estate. The buzzword for 2009 is "extend and pretend," where a bank extends the term of a loan to a later date. Our government has become the bailout city. If a loan is kept current, the banks will 'pretend and extend.

Dubai impact on NYC limited to distressed hotels, but signals end to sovereign wealth rescue.

As the international credit crisis spread into the kingdom of the United Arab Emirates, real estate experts said that while any direct impact on New York would be limited, it may signal the inability of sovereign wealth funds to bail out distressed assets here. The financial world briefly shuddered last week after Dubai World, the main investment arm of the powerful Gulf region city-state, asked lenders for a six-month suspension of nearly $60 billion in debt payments. The suspension may force Dubai to sell many of its trophy assets around the world, including several high-profile buildings in New York, like the Jumeriah Essex House, the former Knickerbocker Hotel.

City officials held a groundbreaking ceremony for the new Fiterman Hall, the Borough of Manhattan Community College building destroyed in the Sept. 11 attacks. The original 15-story academic building, which was unoccupied at the time of the attacks, was condemned after neighboring 7 World Trade Center collapsed on top of it. Demolition was completed. It will be replaced with a $259 million, 14-story project. When the new facility opens in 2012, it will house 96 classrooms, office space, a conference center, art gallery and café.

To the investors hoping to score one of Dubai's prized Manhattan properties as the beleaguered city-state struggles to climb out of its $59 billion debt hole, analysts are saying: not so fast. In order to sell any of its five Manhattan properties, Dubai World, the government's holding company, would be taking a big hit, which might not be wise. The Knickerbocker Hotel building, which the company bought for $300 million in 2006, is half-empty and worth nothing. They're going to take a huge hit if they sell. Dubai World may also be underwater at 450 Lexington Avenue, where the company has a 99-year leasehold, purchased in 2006 for $600 million. Meanwhile, the W Hotel Union Square, bought for $285 million in 2005, was scheduled for a Dec. 8 foreclosure auction.

The city will invest more than $5 billion in public works projects even as the recession necessitates budget cuts elsewhere. The projects would be made possible by agreements reached last week with the city's construction unions, saving $300 million in taxpayer funds over the next four years.

7-Eleven announced its planned expansion in the city. At a time when many chains are contracting, Dallas-based 7-Eleven is taking advantage of low entry costs and aggressively taking on Manhattan, where the company, which is currently operating six stores, plans to tack on an additional 100 locations over the next five years.

Times Square office buildings saw a tremendous growth before the real estate bust, and are now struggling to maintain their clientele as companies flock to take advantage of steep rent discounts in more traditional and less congested -Midtown locations further east. Besides its crowd control problem, Times Square buildings suffer from the wrong layout for this new real estate era. The area's biggest envelopes are raw space, where major build-outs are required. That's a tough sell these days, with so much prebuilt space on the market at low prices. Meanwhile, the 1.1 million square feet at speculative office tower 11 Times Square, which is slated for completion early next year, is still tenant-less. It may join the ranks of the former New York Times building at 229 West 43rd Street, whose 767,000 square feet is also currently vacant.
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