commercial real estate

From the Wall Street Journal: "Friday could be black for retailers in more ways than one. Traditionally it is the day that retailers start to break even for the year. This time it could be the moment when some accept reality and start making plans to scale back. For those that do, there is a serious concern: exposure to long store leases. That can become a real problem for retailers cutting expansion plans and closing stores, many of which are leased for 10 years or longer."

The New York-based real estate private equity firm Brickman has dropped $96.5 million on 95 Morton Street, an eight-story pile of bricks at the corner of Morton and Washington streets. The Fifth Avenue firm signed the deed on Nov. 21.

The Hudson Square building dates back to 1911, has 203,412 square feet and is home to tech clients like SAP and SpiralFrog.  read more »

From The Real Deal: "Nearly every building in the city, perhaps with the exception of 9 West 57th Street and the General Motors Building, is offering incentives to tenants. They include additional periods of free rent and higher tenant improvement allowances. The stars are aligned for a bleak office leasing market for at least the next 12 months, which will provide great opportunities to tenants seeking a good deal on commercial space."

CB Richard Ellis in a new report declares London's West End and Moscow the world's most expensive office markets, according to occupancy costs for the 12 months ending Sept. 30. Among the 50 office markets ranked by cost in the report, New York doesn't make an appearance until No. 15: Midtown, with occupancy costs of $98.08 a square foot annually.

Here's more, including a run-down on the Top 50:  read more »

From the Wall Street Journal: "For a time, glimmers of stability appeared in the financial system as banks and brokerage firms got much-needed capital injections and support from governments and central banks. The credit markets showed signs of improvement in key areas such as lending between banks. And hopes arose that the housing market might be close to stabilizing.That bit of optimism was quickly dashed by worries that the commercial real-estate market had cracked. The fresh worries sent shares of banks and insurers, which are heavily exposed to that market, tumbling."

CB Richard Ellis is out this morning with a release on the 15-year, 100,000-square-foot lease it arranged for law firm Pryor Cashman at Boston Properties' Times Square Tower (a.k.a. 7 Times Square). My colleague Dana Rubinstein reported the deal on Nov. 18.

The way things are going, this will surely be one of the last big leases of 2008.  read more »

A fresh Newmark Knight Frank report paints a gloomy future for New York City's office market in the near-term, and it's understandable: Being the world's financial capital has its drawbacks.

Newmark Knight Frank’s outlook for New York City calls for a substantial decline in asking rents despite a moderate level of new development, largely because it is at the epicenter of the financial crisis that is gripping the global economy.

The report forecasts a local office-sector employment drop of 5 to 6 percent before any recovery bgins, and as much as 4 million square feet of new space will likely come online in 2009 or early 2010. At the same time, asking rents will decline "substantially," and the "peak to trough decline in asking rents will be much larger, and the fall in effective rents will be larger again."  read more »

From Real Estate Weekly: "Brokers say that the German bank WestLB has pulled away from doing a deal at 7 World Trade Center and is now looking at a host of options in midtown, including 114 West 47th Street, 1633 Broadway and 1290 Avenue of the Americas."

From The Real Deal: "Less than two months after HSBC backed out of a massive lease agreement at 7 World Trade Center, Silverstein Properties has reached a tentative agreement on a new lease with German lender WestLB, sources familiar with the discussions said. WestLB, a leading German financial institution, has agreed to relocate to the Lower Manhattan building with a 129,000-square-foot lease on the 50 to 52nd floors. Asking rents at the 1.7-million-square-foot tower range from $75 to $85 a square foot for the top two floors."

It's a trend.

CB Richard Ellis announced this morning that it will join the rush of brokerages vying for the growing advisory business surrounding just what the hell to do with all of these distressed assets likely to be flooding the market sometime soon.

CBRE has dubbed its team the Restructuring Services Group and named senior managing director Spencer Levy as its leader.

In so doing, CB is joining an army of firms looking to cash in on what is likely to be a lucractive business. As The Observer reported this week, Colliers ABR, Jones Lang LaSalle, Savills Granite, Newmark Knight Frank, Eastern Consolidated and Grubb & Ellis have all formed distressed asset groups.  read more »

Pryor, Cashman, a mid-size entertainment law firm resplendent with B-list clients, has announced it will take 100,000 square feet at Times Square Tower, the Boston Properties building on 42nd Street between Broadway and Seventh Avenue. It will relocate from Eastgate Realty's 410 Park Avenue, which has housed the firm since 1971.

The firm, whose clientele includes, among others, a number of American Idol contestants, and Bob Guccione Sr., the founder of Penthouse, signed a 15-year lease for the 39th, 40th, and 41st floors of the 48-story tower, beginning in mid-2009.  read more »

NBC Universal has subleased roughly 100,000 square feet at Tishman Speyer's 75 Rockefeller Plaza from AOL, according to Crain's. (The Observer's Dana Rubinstein noted the likelihood of more space at 75 Rock in October.)

The move is part of NBC Universal's grand maneuvering to find 600,000 square feet of office space to consolidate its business operations, maneuvering that has seen the media giant kick the tires at 7 World Trade Center, Worldwide Plaza and the old New York Times building. Thusly, the 75 Rock sublease is reportedly short-term.  read more »

It's extraordinary what passes for good news these days! But here you have it. Commercial Mortgage Alert is reporting that only $6 billion worth of CMBS loans worth $50 million or more each will mature in 2009, a quantity that the trade mag dubs "relatively manageable even given the virtual shutdown of lending markets."

The largest borrower in the group, by far, is General Growth Properties. The mall REIT, whose severe debt problems have been well publicized, accounts for one quarter of the total. Other borrowers with large loans coming due next year include New York developer Joseph Moinian ($382 million) and private-equity firm Yucaipa Cos. ($254 million).

Mr. Moinian has a $292 million loan for 180 Maiden Lane coming due on Nov. 11, 2009, and a $90 million loan for Ocean Residences maturing on Nov. 1.

Other New York-relevant names on the list include Istithmar, which has a $115 million loan coming due for 6 Times Square; Hines, which plans to build a 61-story Shangri-La Hotel at 610 Lexington Avenue, has a $91 million loan coming due for commercial space in Miami; and Gramercy Capital, which has a $63 million loan maturing for commercial space in St. Louis.  read more »

From Crain's: "The problem is that a growing number of ailing or dissolving hedge funds and private equity firms are also looking to unload lavishly outfitted offices that they leased at eye-popping prices. Before the financial markets crumbled, these companies paid up to $200 a square foot—more than double the average—for offices in midtown's trophy towers. ... A growing number of vacancies at the best addresses is contributing to the overall rent declines. ... The choices are in some of the city's swankiest buildings. Citigroup, pulling the plug on its Old Lane hedge fund, recently dumped roughly 20,000 square feet at 500 Park Ave. into the market, Similarly, the demise of The Carlyle Group's Blue Wave fund unleashed 24,000 square feet at 1177 Sixth Ave. SAB Capital is seeking takers for 9,000 square feet it occupies at the General Motors Building, while Clinton Group wants to unload 30,000 square feet at 9 W. 57th St."

Comcast has signed a mega-lease for nearly 100,000 square feet in the Ernst & Young building at 5 Times Square, according to sources familiar with the transaction.

The cable company will relocate in May 2009 to the ninth, 10th and 11th floors of the 1.1-million-square-foot tower, owned by the Yonkers-based AVR Realty, from Brookfield Properties' Grace Building at 1114 Avenue of the Americas.

This is just the latest bad news for Brookfield, which has 4.2 million square feet at its World Financial Center leased out to Merrill Lynch. Bank of America, which recently bought out Merrill, has just moved into fabulous new headquarters at One Bryant Park, and the fate of Merrill's space downtown remains murky.  read more »

From GlobeSt: "CB Richard Ellis Group Inc. has priced its new offering of 50 million shares of stock at $3.77 per share and expects to generate $180 million in proceeds from the sale of the stock. The company initially said, earlier this week, that its offering of 50 million shares could raise $355 million at an expected price of $7.10 per share, but that was before the stock's price declined to $3.77 earlier this week. The shares rebounded Thursday, closing at $5.39. ... Its prospectus says that it intends to use the proceeds of the offering 'for general corporate purposes, which may include the repayment of principal of revolving credit loans and term loans under our senior secured credit agreement.'"

Probably the biggest story in the Manhattan office market at the close of 2008 is sublease space. A lot of it's spilling onto the market, a stark indicator of what belted the office market, long the nation's healthiest, off its pedestal just a few months ago: the economic crisis.

Simply put, many companies are looking to shed office space they no longer need because of layoffs or tighter budgets. (Most recent exhibit: two financial firms at 1095 Avenue of the Americas.)

Above is a chart by Colliers ABR research ace Robert Sammons showing the amount of Manhattan office space available for sublease from March 2003 to October 2008. Currently, there's over 6.79 million square feet of Class A space available for sublease, and another 4 million-plus of Class B and C space.

From The Real Deal: "Midtown saw the greatest amount of office space returned to that submarket since January 2003, fueling an increase in vacancies and a decrease in asking rents throughout Manhattan, according to a report released today by CB Richard Ellis. Midtown experienced a net absorption of negative 1.85 million square feet in October driving up the overall Manhattan vacancy rate to 6.6 percent from 6.1 percent in September, while average asking rents fell more modestly to $69.10 from $70.72."

The Wall Street Journal has a fascinating article today about yet another development that doesn't bode well for the commercial real estate market in New York City: the denominator factor. Be forewarned -- it's rather complicated. But it's worth the effort, we swear.

Essentially, institutional investors like pension funds have guidelines as to what percentage of their overall investment portfolios can be dedicated to real estate investment: "Big pension funds, college endowments and insurance companies typically allocate most of their investment dollars to stocks and bonds and sometimes a smaller amount -- about 6% to 10% for pension funds and as much as 30% for other institutions -- to real estate."  read more »

Forgive us, but green really is the new black. How else to explain that, while the rest of the media landscape looks like a bombed out wasteland, the Nature Publishing Group is actually expanding its offices at One Hudson Square.

According to a release sent out this morning, the group, which "publishes journals and online databases across the life, physical and applied sciences and, most recently, clinical medicine," has re-upped its lease at the Trinity Church-owned building and expanded into an additional 16,534 feet, bringing its total space to nearly 70,000 feet.  read more »

From The Real Deal: "Sublet space has grown more rapidly, increasing 123 percent since January to 6.8 million square feet, the company reported. Although the sublet increase was substantial, the total amount did not approach the 11 million square feet recorded for March 2003. 'Sublets are nowhere near as high as they were around 2000 and 2001 after the new media, dot-com implosion. But they are climbing, and climbing fairly rapidly,' Sammons said."

On Sept. 17, The Observer's Dana Rubinstein reported that Viacom would re-up for a chunk of SL Green's 1515 Broadway, where the entertainment giant has over 1 million square feet of space under lease until 2010. The Post's Steve Cuozzo reports this morning that the re-up will keep Viacom in that 1 million square feet-plus into 2015, with renewal options for beyond.

The 1515 Broadway dealings have been among the most closely watched of the latter part of 2008, with the city's largest office landlord and its tenant locked in reportedly contentious negotiations for years. No word on what Viacom will be paying to stay in Times Square, but SL Green, according to Mr. Cuozzo, recently signed new leases at 1515 Broadway for $85 a foot.

Two financial firms are looking to dump 100,000 square feet a piece in the Blackstone Group's 1095 Avenue of the Americas, according to Real Estate Weekly's Dan Geiger. Centerline Holding Company and iStar Financial would sublease the spaces, but not at the high rent of around $140 a square foot that they themselves signed on to pay last year.

Ladder Capital -- the fledgling financial firm that aims to underwrite big projects in New York City, perhaps one day filling the vacuum left by Wall Street's demise -- has hired seven executives with extensive experience in commercial mortgage-backed securities, according to Commercial Mortgage Alert, an industry trade magazine.

Brian Harris, the head of Ladder Capital who at one point led UBS' global commercial real estate team, has hired Mark Fox, formerly at Capmark, as chief financial officer; Ed Peterson, formerly of Eurohypo, as head trader; Lee Warshaw and Jack Weisselberg, formerly of UBS, as loan originators; and Mike Casavant (Lehman Brothers), Michael Scarola (UBS) and Micah Goodman (Credit Suisse) as underwriters.  read more »

It's going to be a dismal year for Manhattan investment sales. That much is already clear: In the first nine months of 2007, $42.4 billion in buildings and building portfolios traded; in the first nine months of this year, $18.7 billion did. That's according to Cushman & Wakefield numbers for deals of at least $10 million.

Above, the C&W Capital Markets Group breaks down the trades in '08 as of Sept. 30.

Note the dominance of Class A office space--55 percent of investment deals this year. That percentage should dwindle in 2009, as the credit markets and foreign investment that fuel the bigger Manhattan trades continue to dry up. Smaller trades could be The New Big!

It's back to the future in commercial real estate!

Howard Michaels, chairman of The Carlton Group, is bringing the live auction back to the industry.

Mr. Michaels will now hold what are known as "oral outcry" auctions for commercial real estate assets--bricks-and-mortar properties and loans--through a new entity called Carlton Auctions LLC.

This is not Mr. Michaels first foray into the live auction format. Back in the 1990s, in the days of the RTC, spawned by the savings and loan crisis, Mr. Michaels auctioned off thousands of real estate assets using live auctions.

Experienced auctioneers Oren Klein and Josh Olshin will lead the auctions.  read more »

Above are the world's 10 most expensive office markets by occupancy costs (rent, taxes, insurance, etc.), according to the latest Manhattan Market Overview by Cushman & Wakefield. The list was compiled pre-financial crisis, so a couple of open-ended questions:

1. Will Manhattan, with Midtown already having fallen from No. 9 in 2007 to No. 10 in 2008, even be on the list in 2009, if its office vacancy rates continue to rise and its rents to drop?

2. Will London stay on top? As reported by various media, the British capital suffers from an impending glut of office space due to a faltering economy and layoffs (sound familiar?).

And, finally, look down the list from London, to Nos. 2, 3 and 4--Hong Kong, Tokyo and Mumbai, all non-Western office markets that have exploded out of the gate in the last decade or so as the Western ones sowed the very seeds of their current troubles.  read more »

From The Real Deal: "There were just three new building permit applications filed for Manhattan construction projects in September -- the lowest number since September 2001, when only a single application was filed. The three applications -- which represent an 87 percent drop from the 23 filed in the same month last year -- were for buildings in Chelsea, the East Village and Harlem. In August there were eight applications for buildings in Manhattan, according to Department of Buildings records."

Hedge funds were supposed to be the saviors of the higher-end Manhattan office market as the credit crunch and the financial crisis claimed Class A leasers like Lehman Brothers, Bear Stearns and Merrill Lynch, and generally contracted what had been a boom real estate sector.

Now, according to Real Estate Weekly, these saviors are starting to pull back. Reporter Daniel Geiger cites several hedge funds that are either shedding space, subleasing it, or edging toward one of the two. These include:  read more »

David Arena, president of Grubb & Ellis New York, sent out the above letter this week. It's attached to some rather optimistic market research that seeks to put the current office downturn in perspective.  read more »

Symptoms of the credit crunch in the Financial District became obvious over the summer, when commercial and residential vacancy rates rose and a slew of new luxury condos spilled onto the market as rentals. Now, signs offering occupants incentives like no brokers’ fees and one month’s free rent are as plentiful on the sidewalks as camera-toting tourists.

The Financial District has certainly become an apartment hunters’ market since Lehman Brothers officially folded just over five weeks ago, on Sept. 15. Elsewhere in real estate, however, the financial crisis' impact remains unclear.  read more »

SJP Properties announced Tuesday that the 600-foot-high core of its spec office tower at 11 Times Square had been topped out ahead of schedule. The tower, undertaken originally during much flusher economic times, is scheduled to be ready for tenants (whomever they may be) in 2010.

Full release below:  read more »

Kudos to Jones Lang LaSalle's research director, Jim Delmonte, for this graph demonstrating the strong correlation between asking rents in New York City and the health of the financial industry.

"This shows the performance of the Standard & Poor's 500 against asking rents for midtown, and you can see there’s a strong correlation between them," Mr. Delmonte said. "In times of upmarket in the S&P, the asking rent follows suit."

Why?

"New York's office market is tied largely to financial services," Mr. Delmonte explained. "Occupancy of financial services is approximately 30 percent of the office market. So obviously, as financial services go, the market tends to follow most of those trends."

The Architecture Billings Index, an industry measure of the level of activity at architecture firms, has dropped for the first time this year, according to The American Institute of Architects. The index, according to AIA, serves as a "leading economic indicator that provides an approximately nine to twelve month glimpse into the future of nonresidential construction activity."

In other words, if architects aren't designing it now, it won't get built nine months down the road.  read more »

Here's the five biggest Manhattan rental apartment building sales by price so far in 2008, according to the new Marcus & Millichap report. (More on the report's other findings here.)

1. 257 Clinton Street for $174 million or $277 a square foot.
2. 1445-1451 Third Avenue for $150.35 million or $732 a square foot.
3. 201-203 East 86th Street for $42.5 million or $165 a square foot.
4. 370-374 Columbus Avenue for $21 million or $675 a square foot.
5. 228-238 East 44th Street for $16.2 million or $120 a square foot.

An ugly little Herald Square office building has traded for $10.5 million, according to city records.

The four-story building in question squats at 49 West 33rd Street, between Fifth Avenue and Broadway. An obscurely named entity called KC129-09 LLC bought the building from another obscurely named entity, 4933 Realty LLC, on Oct. 3. The latter turned a tidy, $3.5 million gross profit, despite the economic downturn, having purchased the building in June 2007 for $7 million.

Our neighbors to the north have a stronger office market and a brighter outlook for said market going into 2009, according to a CB Richard Ellis analysis. Highlights from the analysis, part of an invitation-only Webcast held Oct. 14, include:

• Canada’s commercial real estate market is faring better compared to other downturns, and in comparison with the U.S., with national vacancy rates of 6.3 percent (office) and 6.2 percent (industrial).

 read more »

Dutch insurance giant ING Group signed a lease for 9,600 more square feet at Monday Properties' 230 Park Avenue. ING currently occupies 200,000 square feet in the tower. The lease runs from February through April 2013.

Full release below:  read more »

More troubling news for landlords across the nation!

Cushman & Wakefield is reporting that in 30 central business districts nationwide, office vacancy rates, by the end of the third quarter, rose to 10.6 percent, up from 10.2 percent at the beginning of the second quarter. Meanwhile, office leasing activity dropped 13.6 percent.

We're in solid tenants'-market territory, folks!

The good news, at least for us New Yorkers, is that we have the second lowest vacancy rate in the nation, at 7.4 percent, up 0.3 percent from the prior quarter. Boston, meanwhile, has the lowest vacancy rate, at 7 percent.  read more »

The lines above come courtesy of last week's third-quarter Manhattan office market report by Cushman & Wakefield. Anyone following at home knows the market's taken a grim turn (more here from the current Observer). The asking rents per square foot above are likely peaks for Midtown, Midtown South and Downtown's top-flight, Class A space. At least for a long while.

Well, that is that. We wrote in this week's print Observer that the reign of landlords atop the Manhattan office market has decisively ended. The credit crisis wounded it, and the financial meltdown of last month finished it off. Further proof above from Cushman & Wakefield.

Companies leased 15.7 million square feet of office space in the first nine months of 2008. Barring a year-end bump, the total number of square feet leased will likely not exceed that in 2003 and maybe--just maybe--2001, making 2008 the paltriest year this decade for office leasing.

Midtown south, that region of heavily commercial Manhattan from roughly Houston Street to 42nd Street, may be the crystal ball for New York's financial health. It has a lot of the island’s cheapest office space; and, yet, that same space is emptying slowly as companies trickle out sans successors.

Midtown south’s scruffier buildings—think old Silicon Alley hangouts hastily rewired 15 years ago, groaning under the weights of sporadic upkeep and old infrastructure—have considerably lower rents than midtown’s gleaming towers: In September, the average midtown south asking rent was $52.86 a square foot, according to CB Richard Ellis; in midtown, it was $84.  read more »

Calm down! That was the message CB Richard Ellis honchos impressed upon reporters at this morning's end-of-third-quarter breakfast, at which the brokerage released a "Supply & Demand Special Report."

"Everybody's knee-jerk reaction this month has been wrong," said Simon Wasserberger, senior vice president of CBRE's New York tri-state region consulting group, referring to predictions that the demise of Lehman and other banks would dump massive amounts of sublease space on the market, causing big vacancy rate increases and sizable rent declines. "People underestimate the stability of Manhattan rents."

Mr. Wasserberger went on to argue that Manhattan is incredibly supply constrained. At most, there will be 7 million feet of new construction in the next four years, which, in addition to whatever sublease space comes on the market, will comprise merely a drop in the bucket that is New York's 400 million-square-foot marketplace.  read more »

The above chart from Colliers ABR says it all about the Manhattan office market as it enters 2008's final stretch. Vacancy rates, including for top-flight Class A space, continue to rise as asking rents remain flat. The Wall Street crisis, damaging as it is to one of Manhattan's prime office leasers, financial services, won't help matters in 2009.