New York Market Overview

Manhattan Office

Office Leasing in April was near zero with brokers unable to show, so the only deal done were started long ago. March was dead quiet and all showings stopped in Mid March. February leaving numbers showed a 41% drop in month-over-month leasing volume compared to January, across all three Manhattan sub-markets. Leasing volume for the quarter totaled 6.82 million square feet, the fewest since the third quarter of 2013.

Office leasing in Manhattan ended the first quarter of 2020 on a low note, with the coronavirus pandemic putting a damper on all types of economic activity.

Manhattan Retail:

Retailers think they have leverage here and they are trying to use it. April rent collection has ranged from just 10 to 25% for mall owners with higher concentrations of nonessential tenants, to 50 to 60% for landlords with “essential” tenants such as grocery stores and pharmacies.

With Covid-19 restrictions closing down most city storefronts, retailers both big and small are holding out rent and seeking more agreeable terms for the pandemic. The country's largest retailers and restaurant chains collectively paid just half of the rent they owe for April.

Retail Companies are behind on payments including some of New York's largest franchises. Gap paid no rent this month, after paying at 86% of its locations last month. The retailer has 28 New York City locations. Dunkin, formerly Dunkin Donuts, which is the city's largest chain, with 637 franchised locations, did not pay April’s rent at 31% of its locations nationally. The company's franchisees paid about 77% of rent due last month.

Dean & DeLuca filed for bankruptcy and is on the hook for nearly $33.3 million in skipped rent.

Essential businesses have kept rent current. Trader Joe's and Whole Foods paid at nearly 99% of locations nationally. Bank of America, Chase and Wells Fargo paid rent at nearly all national locations.

The biggest question is which retailers will close up shop like Coach and Topshop.

Vornado’s sold a big portion of its retail as the company changes focus on the office sector. The retail apocalypse hurt Vornado Realty Trust last year when a pair of its largest retail tenants filed for bankruptcy. Coach closed its 6,000-square foot flagship at Vornado’s 595 Madison Avenue, leaving the entire retail portion of the building vacant. Modell’s Sporting Goods was granted a request in bankruptcy for a suspension of proceedings during Covid Modell had shuttered 134 stores.

Pier 1 was granted by Bankruptcy court to pay “essential” expenses, like benefits for workers. The unprecedented scale of the pandemic could have a ripple effect on landlords, many of which are already negotiating with tenants who are struggling to stay in their spaces without having filed for bankruptcy.

Will mall REITs be on the verge of bankruptcy? The landlord is not relieved of its own obligations for the premises and the ‘free storage’ and nonpayment of the rental obligations by the debtors and/or the buyer should not be allowed.

Mall owners with a concentration of non-essential tenants collected 10 to 25% of April’s rent.

True Religion, said in its initial filings that without approval of that financing, it would not have enough money to cover the costs of a Chapter 11 case because of mandated store closures.

Large retail tenants that have failed to pay rent in full include Burlington Stores, Petco Animal Supplies, LVMH Moët Hennessy Louis Vuitton, Victoria’s Secret and Staples.

Time may be running out for many department stores. They were already in trouble before the coronavirus outbreak, as shoppers defected to discounters and web merchants. The pandemic may finish some off: retailers have furloughed workers, cut dividends and sought emergency financing and some are weighing bankruptcy.

All of the Nordstrom stores, plus its Rack outlets, are shut. The company warned in a filing that its financial position could be distressed, if stores remain closed for an extended period.

Now more than 700 Macy’s stores are shut. Macy's is trying to raise as much as $5B in debt financing to avoid bankruptcy. The company would use its inventory as collateral to obtain $3B, and it real estate to obtain as much as $2B,

Hudson’s Bay is paying rent for Lord and Taylor. Layoffs hit Lord & Taylor staff, including senior management, and the retailer is exploring bankruptcy.

Neiman Marcus is said to be mulling bankruptcy in order to ease its $4.3 billion debt load. The company failed to pay interest on some bonds, setting the company up for default if it doesn’t make good on the missing sum.

Premium goods are being forced to cut prices in the stay-at-home era. Saks is already making plans to reopen that will include face coverings for workers, appointments to shop before or after public hours and virtual shopping via video conferencing.

Coworking:

WeWork did not pay rent on any of their locations. WeWork members have already complained about WeWork's decision to keep much of its locations open and still charging fees, despite many of them not using the space. WeWork will trim more staff and announced another round of layoffs for employees..

WeWork CEO Sandeep Mathrani has been contacting landlords and proposing options including revenue-sharing agreements, with the goal of slashing rent by up to 30%.

Roughly one-third of Knotel’s members are looking for a break on rent, Sarva said “collections have been better than expected”.

Knotel has reportedly stopped paying rent at several of its New York locations as it struggles with mounting financial issues. The company is also planning to return about 20% of its portfolio to landlords. The company framed the arrangement to shed about 1 million square feet of office space as a “business deal.”

Industrious is the latest flexible-office startup to make significant cuts to its workforce.

Beleaguered co-working firm WeWork also laid off 250 workers last week but not because of hardship stemming from the health crisis.

A survey of flex office providers around the globe found 31% were undecided about the next three months and 26% felt positively. Morale is higher for the medium term, with 62% optimistic about the sector for the next year and 8% pessimistic, the survey showed.

Occupancy rates are on the decline: Global flex office space was 83% occupied before the coronavirus hit and the number is expected to drop to 71% by June.

With declining leases, many operators are struggling to pay their rent, 31% of coworking operators in North America said they have asked for rent relief. Inquiries for coworking space in North America were reported at 19% of typical levels.

Office:

Empire State Building owner says 31% of tenants are not paying rent. The observation deck which is closed now, bought $129 million worth of tickets last year. SL Green, the city's largest commercial property holder, is struggling to collect rents, and it lowered its earnings guidance. While some landlords are holding the line and demanding payments from their commercial tenants, many are willing to negotiate.

Construction of real estate in the US accounted for 18.1% of gross domestic product in 2019. What we are seeing in many parts of the global real estate market right now is an explosive combination of oversupply, under-demand, and the very worst aspects of financialisation.

Low interest rates fuelled a bubble in commercial real estate in particular.

Signature Bank, a major apartment lender, said half of tenants in rent-regulated buildings in its portfolio are not paying rent.

Lawyers are grappling with whether Covid-19 constitutes a force majeure. A force-majeure clause in a contract occasionally is used to cancel deals after a major, unforeseen disruption.

State unemployment claims near 1.5 million, 625,000 in NYC. Total US unemployment claims more than 30 million have filed. New York now permits gig workers and others who only qualified for unemployment because of the federal Cares Act. A new form launched should speed the claims. New York has paid out $2.2 billion in benefits, far more than states including California.

Owners of New York City’s largest office buildings are drawing up a plan for returning the city’s 1.5 million office workers to their desks.

A deal between Airbnb and RXR Realty that was touted as a “21st-century hospitality model” will never see the light of day.

Time Warner Center is empty and is ready for renovation. Gensler submitted three plans with the Department of Building for removal and installation of interior non-load-bearing walls and finishes at the Related-owned building at West 58th Street and Columbus Circle.

Construction at 10 Columbus Circle which sits on top of the 59 Street Columbus Circle subway station is considered essential.

Only work on projects that include health-care facilities, homeless shelters, transit and affordable housing are exempt.

The eviction ban took care of the “rent issue.” It has since become clear that many tenants won’t be back on their feet any time soon, and no specific policy is in place to forgive or defer commercial mortgage or rent payments.

RXR Realty is developing in the South Bronx. The company is planning a $950 million development that will include more than 1,350 apartments, 30% of which will be affordable.

The New York City Council is introducing a suite of bills aimed at assisting tenants and small businesses, with measures that would allow those impacted by Covid-19 more time to pay rent and debts. It also incorporates anti-harassment measures for renters. The council is proposing legislation that would penalize such acts against those impacted by Covid-19 with fines from $2,000 to $10,000. Apple signed a 220,000-square-foot lease at Penn 11 in February.

The city is moving forward with plans for a new public health laboratory as it grapples with the greatest public health crisis in a century. The roughly $400 million project was expected to open around 2025.

The Department of Health filed plans for a 10-story lab spanning almost 200,000 square feet. It will be based by the Harlem Hospital Center at 22 West 137th Street. The current lab is located at 455 First Avenue. It performs tests on more than 200,000 specimens per year and is equipped for same-day Covid-19 testing.

New York state employers signaled their intention to lay off nearly 15,700 hotel and hospitality workers in March and April because of the coronavirus fallout, a staggering increase from last year’s total.

Governor Andrew Cuomo signed an executive order that extends the deadlines for condo offering plans, giving developers a lifeline as projects fall behind schedule and transactions stall. The order pauses the 15-month period in which offering plans for rental conversions to co-op or condo status must become “effective”, meaning at least 15% of units have gone into contract. That timeline is now on hold until the order expires on May 16.

The coronavirus crisis has ratcheted up the heat on Kushner Companies as it tries to cover the debt payments on a Brooklyn office complex, where one of its biggest tenants is WeWork. S&P Global estimated that the loan-to-value ratio for all the debt on the property, including another $180 million issued by other lenders, was around 140%, which means its analysts consider the debt on Dumbo Heights to be more than what the property is worth.

With the city facing a $7.4 billion hit to tax revenue, Mayor Bill de Blasio announced $2.7 billion in cuts, as well as a bump in revenue from building violations. The city will collect another $4 million in 2021 from “improved penalty enforcement for failure to file elevator inspection reports..

Covid:

Governor Coumo extended his statewide ban on going to non-essential workplaces through May 15

Under the state’s order issued last week, only essential constructruction can continue as officials grapple with the continued spread of Covid-19.

.New York, along with six neighboring states, formed a working group to determine how to best reopen the economy. Each State will have its own strategy for reopening businesses. The idea being that at the very least, the states’ leaders are aware of each others’ actions.

Cuomo signed an executive order that restricted the number of employees of most businesses who could report to work.

Many restaurant owners who’ve been forced to close their businesses because of the coronavirus pandemic wonder if they’ll be able to hold out long enough to re-open.

More than 12,000 New Yorkers have died from the disease.Some landlords are letting tenants dip into their security deposits to make rent.

In its ongoing quest to free up space in medical facilities the city has tapped a lodging logistics firm to help provide hotel rooms for patients who are not sick enough to be hospitalized. .

The city’s Emergency Management department signed a $250 million contract with Texas-based CrewFacilities.com. The rooms will be used to house medical staff as well as patients who have been discharged from hospitals or who are unable to practice social distancing due to cramped housing. The deal will allow hospitals to refer patients directly to hotels.

The city has already occupied hundreds of hotel rooms in its efforts to address the outbreak. Venues such as the Jacob Javits Convention Center, the U.S. Open Complex in Queens, Central Park and the navy hospital ship U.S.N.S. Comfort have also contributed capacity.

New York City Hotels saw occupancy nosedive more than 80% to just above 15%. New York City is looking to rent hotel rooms that can be converted into hospital rooms for non-Covid 19 patients. .

The city is expected to lose up to 475,000 jobs by next March and $14 billion in tax revenue over the next three years. The city lost 475,000 jobs and this would be the worst it has faced since the early 1970s.

Restaurants and hotels have already laid off thousands of workers.

Chapter 11 bankruptcy filings in New York Eastern Bankruptcy Court skyrocketed in March.

Sixty companies filed for Chapter 11 during the month, up 58% from a year earlier and more than twice as many as in March 2009.