September 2023 » Market Analysis » NY New Developments

September 2023 New York New Developments

Major Developments:

Blackstone and Hudson Pacific Properties are joining with Vornado to build a new film studio on Manhattan’s West Side. Dubbed Sunset Pier 94 Studios, the project would be developed as a public-private partnership with New York City Economic Development Corp. The total investment from the three publicly traded firms will be about $350 million. The campus would span 266,000 SF with six soundstages. The development would feature a 1,850 SF amenity space, 25,000 SF of waterfront open space. Vornado has the long-term leasehold on Pier 94 and is providing the lease to the joint venture, in which it will have 49.9% ownership, while Hudson Pacific will have 25.6% and Blackstone’s institutional core-plus real estate fund will own 24.5%.

Metropole’s $215 million loan at 681 Fifth Avenue has fallen delinquent. Before the pandemic Tommy Hilfiger’s flagship closed, occupying 27% of the 82,573 square feet, but represented 77% of the total annualized base rent when the mortgage was securitized.

Savanna raised eyebrows by transferring its 40% stake in 110 William Street to its partner at the 31-story office building. The firm has blown past maturity dates on a number of securitized loans, and vacancies are rising on two of its Midtown office buildings.

Work-from-home policies have punctured occupancy rates and rapidly rising interest rates have made it difficult to refinance.

Fears of Local Law 97’s effect on New York City building owners appear unfounded so far. Only 11% of buildings aren’t on track to meet the standards of the city’s landmark carbon emissions rule. A preliminary review was conducted by the city’s Department of Environmental Protection. The city expected a much higher lack of compliance for the measure’s initial period, running from next year through 2029. The forecast of noncompliance was 20%.

Converting a New York City office building into apartments is complicated for many reasons, not least of which is all the different city agencies that developers must navigate. Aiming to streamline the process, Mayor Eric Adams launched an Office Conversions Accelerator, a one-stop-shop of sorts, with representatives from all of those departments, commissions and boards.

Cohen Brothers Realty is at least 30 days late on half a billion dollars’ in loans collateralized by 3 Park Avenue, 222 East 59th Street, 750 Lexington Avenue and 979 Third Avenue. Debt on 805 Third Avenue is also watchlisted, bringing his total flagged debt to $760 million. Cohen-owned properties occupancy averages 62%. Across the five troubled buildings, revenue covered less than 30% of debt service, on average, at the end of last year.

Pressure builds on office debt. It could downgrade the credit ratings on dozens of banks, partly due to exposure to commercial real estate loans that have become increasingly difficult to refinance. Roughly 5% of CMBS office loans were delinquent in July, up from below 2% at the end of 2022.

As more office owners decide their best course of action is to hand keys to their properties over to lenders, many financial institutions are looking to sell their loans to parties more keen on takeovers.

Executives at Fortress, the Abu Dhabi sovereign wealth fund, noted that the company would be interested in taking on office debt it felt confident would get paid back, rather than pursuing a loan-to-own strategy.

With hope for a full-fledged return to office fading, the conversation around underused office buildings in cities nationwide has largely featured the idea of converting them into housing, laboratory space or another in-demand property type. But with high costs and a litany of other challenges, conversions have been largely characterized as a drop in the empty-office bucket.

As expectations for full Class-B and C offices crumble and renovation costs climb, demolishing buildings to free up the land under them for a new use is gaining traction.

Demolition is a slow-moving business when it comes to growth or contraction. It takes time for teardowns to become reality. However, the industry is growing by 1.4% from 2018 to 2023 to $8.7 billion in the U.S.

Trends toward smaller office leases, a 30-year high for office vacancy and the tendency for office occupiers to seek space in higher-quality buildings, have all added up to a significant amount of lower-quality property sitting idle.

Most of the vacancy in the office sector is concentrated in older properties, which also tend to be shorter, wider and have floor plates that are more conducive to conversions. That is, they’re theoretically ideal candidates for a repurposing project.

Nightingale Properties has averted foreclosure at its SoHo office building at 300 Lafayette Street, an 86,500-square-foot building. Lafayette Portfolio Funding stepped in to halt a foreclosure by purchasing a $143 million note.

The Four Seasons brand and Beanie Babies founder Ty Warner, owner of the hotel at 57 East 57th Street, agreed to reopen the property next year. Construction costs and management fees were at the heart of the dispute. The 368-room property is expected to reopen next fall.

A South Korean real estate investment firm is the new lender on Extell Development’s proposed skyscraper at 570 Fifth Avenue in Midtown. South Korea-based IGIS Asset Management recently acquired a $185 million loan on the property from JPMorgan Chase.

American Outcomes Management, an infusion provider focused on intravenous immunoglobulin infusion therapy, signed for nearly 14,000 SF at Industry City. The deal is for seven years and will see AOM opening labs and patient care facilities.

A foreclosure lawsuit accuses Maefield Development and its CEO Mark Siffin of failing to repay a $750 million loan on 20 Times Square.

A City Council committee voted to extend Madison Square Garden's permit for five years, as opposed to ten.

Rockrose Development has sold its stake in a Flatiron building that was, until this month, home to Jay-Z’s nightclub for two decades.

NYC's unlicensed cannabis stores expose banks and Landlords to legal liability. Lenders like JPMorgan Chase and Wells Fargo and landlords like BentallGreenOak and Ashkenazy Acquisition Corp. have been pulled into the unlicensed cannabis market in New York City, potentially exposing them to legal liability.

A new law that took effect allows the city to fine landlords who knowingly lease space to tenants illegally selling cannabis up to $10,000. While cannabis consumption is legal in the state, it is still illegal federally, and banks that are found to have been paid via cannabis sales could face regulatory penalties.

Smoke shops have proliferated across the five boroughs since New York legalized recreational marijuana in 2021, with as many as 2,000 unlicensed stores now in existence in the city.

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