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November 2019

November 2019 » Market Analysis » NY New Developments

November 2019 New York New Developments

Major Developments:

Barneys has been sold to Authentic Brands Group and B. Riley for around $270 million. The new owners will likely shut Barneys’ locations, including its 275,000-square-foot flagship property at 660 Madison Avenue. IBM is looking for 500,000 square feet to consolidate its New York office space from multiple locations including a WeWork. IBM’s lease at WeWork’s 88 University runs through 2024. Vornado Realty Trust has encountered more retail challenges as Forever 21 filed for bankruptcy protection. However, Forever 21 may be able to keep its stores at 435 Seventh Avenue and 1540 Broadway open for a bit longer. Taconic Investment Partners and Nuveen are planning an office project in Hudson Square. The two firms have bought a controlling interest at 2 Hudson Square, a development site near the Holland Tunnel entrance that can accommodate a project of around 300,000 square feet.

Excluding mergers and portfolio deals, cross-border investment has dropped off. Foreign buyers acquired just under $8 billion worth of commercial property in the five boroughs in 2017 and $9.5 billion last year, down from about $20.2 billion in 2015 and $15.8 billion in 2016.

Acadia Realty Trust has been buying in Soho especially along Greene Street. The real estate investment trust closed on another $25.1 million of its previously announced plans to acquire some $122 million worth of retail assets along Greene Street.

The community board is opposing Lenox Hill Hospital’s redevelopment plan. Manhattan’s Community Board 8 declined the Upper East Side project for a $2 billion development plan that would upgrade the hospital and include a 516-foot hospital tower on Lexington Avenue and a 490-foot residential tower on Park Avenue.

The Manhattan hotel market is not looking so good due to continued increases in supply, coupled with pressures on demand stemming from continued trade tensions and slowing economic growth. Marx Development Group secured a $202 million refinancing for its Hudson Yards hotel which is to open next month.

Mack Real Estate Credit Strategies provided the debt for the 29-story Courtyard by Marriott at 461 West 34th Street. The deal includes a new $76.5 million gap mortgage. Victoria’s Secret sues WTC landlord to exit their lease. The women’s clothing retailer has accused the owner for not having ready the space, which was to happen by October 2015. The lawsuit comes after the retailer said it would close 53 stores in the U.S. this year.

Sbarro’s Times Square location has closed after 23 years. The family-oriented Italian restaurant failed to renegotiate its lease, but its owner will look for another location in the area. Its number of locations has been halved in recent years, and it went through bankruptcy in 2014.

550 Madison Avenue’s major renovation is underway. Renderings show a new lobby with a new entrance and a large rear window that frames a garden in the rear of the building. The project is to wrap up by next year. The building’s exterior was landmarked in August 2018, and the latest design proposal for the tower’s exterior was approved by the Landmarks Preservation Commission.

Joe Sitt’s firm is facing foreclosure proceedings at 725 Eighth Avenue where it had planned to open a restaurant. The bank claims that Thor took out an $11 million loan in 2016 that was due to mature in 2026. Thor has missed a roughly $67,000 monthly payment and has not made any additional payments since then.

Thor Equities was evicted from its ground lease at 545 Madison Avenue. Marx Realty, owner of the land underneath the building, is now assuming control of the 140,000- square-foot building and planning to conduct a $10 million renovation.

WeWork’s biggest backer is taking a $5 billion writedown. SoftBank, which had already put $10 billion into the co-working company, bailed WeWork out. The deal brought WeWork’s valuation under $8 billion.

Property owners who are feeling less secure about WeWorks are turning to WeWork’s competitors to line up options in the event they need to suddenly fill space.

WeWork’s recent struggles could put many of its leases in jeopardy, its Soho and Flatiron spaces are most vulnerable if coworking rates drop. The company’s lease obligations are only 2% below market rate in Soho and 4% below in Flatiron. The firm’s average rent in Manhattan is $58.91 per square foot, 20% below the average rate of $74.15. Its highest concentration of space is in the Financial District, where it leases 1.3 million square feet at about 16% below market rate. Contractual rent increases for WeWork leases over the next five years will amount to a growth rate of 6.3% overall. WeWork is backing away from multiple leases in Manhattan. The coworking company called off plans for their Downtown locations at 120 and 250 Broadway and paused negotiations for Midtown locations at 5 Times Square, 340 Madison Avenue and 63 Madison Avenue. WeWork is trying to cut its losses of about $700 million per quarter.

WeWork’s rivals are eager to take advantage of its struggles. Smaller coworking companies such as IWG, Convene, Knotel and Industrious are pitching themselves to landlords as more stable options than WeWork, effectively turning the tables on the industry giant.

WeWork had planned to put its headquarters in the 424 5th Avenue building, but now the property is just weighing down the company. WeWork is paying an average of $105 per square foot, which is well above market value and totals about $73.5 million per year. The company is now considering using just half the space for its headquarters. Some tech companies have expressed interest in the building. WeWork is abandoning its planned Seattle co-living location at Third Avenue and Lenora Street to refocus on its core business. This news comes as WeLive is under investigation by the city for 110 Wall Street in Manhattan.

The top loan was $625 million from JPMorgan Chase to Nightingale Properties and Wafra Capital Partners for their $909 million purchase of the Coca-Cola building. Apollo Global Management provided Wharton Properties and Brookfield Asset Management with an $807.5 million loan for the commercial portion of the Crown Building. Alchemy-ABR Investment Partners is planning an office tower on Billionaires’ Row. The company is buying the Calvary Baptist Church’s properties and plans to build a boutique office building on top of space for the church. The project, at 123-141 West 57th Street, will span 230,000 square feet with a commercial condo for the church, along with office and retail space. Big hotel owners like Mayor de Blasio’s special-permit plan that would require council approval to build a new hotel. The plan is seen as likely to stem the creation of nonunion hotels, which have proliferated across the city since the mid 2000s.

Facebook and Apple are both interested in leasing space at Vornado Realty Trust’s conversion of the James A. Farley Post Office, Facebook has been in talks for 740,000 square feet of space in the project, but Apple has more recently decided it wants to lease all four floors of office space and a new floor being built on the roof.

A 269,000-square-foot project on Roosevelt Island from Related Companies is being planned. The mixed-use development will be split between 265,000 square feet of residential space and 4,000 square feet of commercial space and stand 29 stories tall with 365 residential units.

L&L MAG filed plans to build a 225,000-square-foot mixed-use project at this Chelsea site, where the firm inked a 99-year ground lease late last year. The initial filing with the Department of Buildings says the development will stand 11 stories tall with 266 residential units and include about 10,000 square feet of commercial space.

The long-delayed luxury hotel project at 456 Greenwich Street has finally secured a construction loan and is emerging from bankruptcy. The partnership entity, CBCS Washington Street LP, received confirmation of a reorganization plan in bankruptcy court. The plan includes a three-year, $135 million construction loan commitment from Hana Financial Investment. The 96-key hotel is to open in April 2022 under the Hotel Barriere Le Fouquet brand.
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