New Developments
In the last few days, banks have begun lending to one another, signifying a thaw in credit markets that have been frozen for weeks. But despite those promising signs, a chill still seems to be pervading the commercial real estate market. The inability to line up financing has scuttled some major building and lease sales in the past few months, one such example is 17 State Street in the Financial District.
With Lehman Brothers locked in bankruptcy, many real estate firms do not have financing to complete construction, meet lease obligations or pay vendors to complete sales, raising the prospect of a wave of lawsuits and defaults. Lehman's Chapter 11 filing provides it protection from any attempts to collect funds.
Lehman Brothers' bankruptcy caused another problem for Swig Equities' stalled condominium conversion project in the Financial District . Nova Development Group, of New Brunswick, NJ, which provided asbestos abatement at 25 Broad Street and Exchange Place, filed a lawsuit in Manhattan State Supreme Court, seeking $764,100 for work done between February and July of this year.
Vacancy rates rose across Manhattan's three main office markets in September. At the same time, average asking rents fell in two of the markets.
Almost 1.1 million square feet of sublease came on the market in Manhattan in September, most in Midtown. Since the beginning of the year, over five million square feet of sublease was added to the market as of the end of September.
Midtown South, from Houston to 42nd streets has some of the city's cheapest office space, but it's slowly emptying out. Average vacancy in the area rose to 7.1 percent in September from 5.6 percent in September 2007. The average asking rental price in Midtown South was $52.86 per square foot in September, compared to $84.74 in Midtown.
Tenants are seeking shorter lease terms and extracting more concessions in Manhattan office deals.
Most Manhattan submarkets had higher vacancy rates and lower rents in the third quarter of 2008. Overall vacancy rates in Midtown increased to 9.1 percent in the third quarter from 8.6 percent in the previous quarter. Downtown, vacancy rates in Class A buildings increased to 7.4 percent in the third quarter, from 6.9 percent a quarter earlier, largely because at 1 World Financial Center and 40 Wall Street came online. Overall rental rates in Downtown dropped by less than 1 percent, to $50.76 per square foot in the third quarter from $51.22 per square foot the previous quarter.
Sales of significant commercial properties worldwide totaled $388 billion in the first eight months of the year; a 57 percent decrease compared to the same period in 2007. For the third quarter of 2008, sales are down 64 percent compared to the third quarter last year.
Foreign commercial property investors that had been filling the gap left by American firms burned by the subprime mortgage crisis have cut back purchases in Manhattan as the Wall Street crisis has deepened and overseas banks have liquidity problems of their own.
Harry Macklowe's development site at the former Drake Hotel may unlikely become an office tower. Macklowe purchased the hotel and demolished it, along with surrounding properties. Without having all the neighboring buildings, Macklowe may not be able to create a large enough floorplate for an office building. He may have to consider a hotel or condo project instead.
The State Department of Health may approve Saint Vincent Catholic Medical Centers' controversial plan to build an $835 million new hospital in Greenwich Village. A modernization or replacement of St. Vincent's facilities appears to be warranted. However, the city Landmarks Preservation Commission must still approve the project, which calls for demolishing five buildings in the Greenwich Village Historic District, including the O'Toole Building on Seventh Avenue South between 12th and 13th streets. Some of the funding would come from Rudin Management Co., which wants to build a 21-story luxury condo on the site of the existing hospital.
Whole Foods said it will work with a developer to finish its site at Third Avenue and Third Street in Gowanus. Once the site is developed, Whole Foods may be the only tenant, or it could bring other businesses to the space.
The New York City Landmarks Preservation Commission began its examination of General Growth Properties' South Street Seaport redevelopment proposal. The proposal calls for lifting the Pier 17 shopping mall and replacing it with new shops, boutique hotels, public plazas and a 42-story condo and hotel tower.
The future of several commercial real estate projects is uncertain due to the loans their developers obtained from now-bankrupt Lehman Brothers. Among the projects are the Nobu Hotel at 50 Broad Street, Kent Swig's condominium conversion at 25 Broad Street, and RFR Holdings' Shangri-La Hotel project at 610 Lexington Avenue. Swig has a $37.7 million mortgage with Lehman, and now cannot draw on the loan to pay contractors and others. Toyota signed a 10-year deal for 30,000 square feet at the Citigroup Center at a rent 10 percent lower than the original agreement. This is one of the first major deals negotiated during the financial crisis. Toyota will pay $140 a square foot for the first five years for the entire 49th floor, and then $150 a square foot for the floor the next five years. Toyota was originally supposed to pay $160 to $170 per square foot for the 55th floor of the building, at 153 East 53rd Street.
A hotel is rising at 179 Varick Street, between King and Charlton streets, where the Culture Club used to sit. The 19-story Varick Street hotel will have a rooftop bar.
A 400-foot-long pier located on the East River at North Fifth Street will be given to New York City Department of Parks & Recreation for public use. Under a 2005 rezoning of the Williamsburg waterfront, Toll Brothers must finish this project.
The New York City Economic Development Corporation has awarded FirstFlight a concession agreement to operate the Downtown Manhattan Heliport in Lower Manhattan. FirstFlight agreed to make $2 million worth of capital improvements to the heliport.
A company affiliated with Macklowe Properties paid $5.35 million to buy out a building lease from Sovereign Partners that is part of the Park Avenue Drake Hotel development site in Midtown. The move puts Macklowe Properties a step closer to full control of the building at 38 East 57th Street, which the company bought in 2007 for $60 million. But real estate investment firm Sovereign Partners, which is located in the building, held a lease for the entire building. Macklowe Properties only has to buy out or remove the remaining commercial sublease tenants in the building before he can demolish it.
The Lower Manhattan Cultural Council was selected to run an artists' studio and exhibition on Governors Island. The 14,000-square-foot arts center will be located on the island's north shore. It will be the first building you see when you arrive by ferry from Manhattan.
The city's Economic Development Corporation announced it signed two property acquisition agreements and one business relocation agreement with three landowners at Willets Point.
The Port Authority of New York and New Jersey unveiled designs for its planned, $152 million renovation of the George Washington Bridge bus station on Broadway between 178th and 179th streets, in Washington Heights. The project will include a full renovation of the depot, built in 1963, and will have in total 119,000 square feet of retail space. Work is due to begin in 2010.
Soon after the federal government agreed to back American International Group with an $85 billion line of credit, the company financed a $29.75 million mortgage on a parking garage in Battery Park City.
Goldman Sachs Group will headquarter its U.S. commercial bank in New York City and has applied to the New York State Banking Department to become a full service state-chartered bank. Goldman Sachs currently has a Utah-based industrial loan company and has had a New York-charted trust company since 1990. The Utah company will be merged into the New York bank, retaining a Utah branch, if it becomes a state-chartered bank.
The Central Park restaurant Tavern on the Green may get a new owner. Two contenders to take over the lease include the Gramercy Tavern operator Danny Meyer and Boathouse owner Dean Poll. Bidding for the 23,000-square-foot restaurant is expected to begin this year.
Landlord Jared Kushner may market a 200,000-square-foot block of at 666 Fifth Avenue, suggesting that law firm Orrick Herrington & Sutcliffe will not be renewing its lease there. The firm, which occupies floors 16 through 23, is expected to be leaving in March. They may be looking for around $110 per square foot for the office space.
The four theater groups and four nonprofit organizations renting at the Federal Archive Building, on Christopher Street between Greenwich and Washington streets, may be forced out by rent hikes. Their leases expire this month, and Rockrose is asking for rent increases of as much as 500 percent to renew them.
Due to the weak economy, New York City retailers anticipate a larger-than-normal rise in store vacancies in the first quarter of 2009.
Council Member Robert Jackson is planning to introduce a bill that would require small businesses and landlords to submit to arbitration in negotiating retail lease renewals if the parties cannot agree on a fair rent. The legislation aims to preserve small businesses by prohibiting large rent hikes in short-term lease renewals.
Citigroup backed out of negotiations to acquire Wachovia, and suggested that it may seek $60 billion in direct and punitive damages from Wachovia and Wells Fargo, saying it had first dibs on Wachovia. Citigroup offered a $2.1 billion bid for Wachovia's banking operations, while Wells Fargo bid to acquire the entire company for $15 billion in stock, yet the value has declined to under $12 billion because of falling stock prices. Analysts believe a Wells-Wachovia merger would be better because the banks operate on opposite coasts.
A new fence around Ground Zero will be covered with renderings of the buildings in progress. The Port Authority of New York and New Jersey, which is overseeing the entire project said the fence will surround the 16-acre site so visitors can see what the finished product will look like, and a viewing area on Liberty Street will be set up so people can see into the construction site.
The Italian American Museum in Little Italy, at 155 Mulberry Street at Grand Street, is now open. The museum is in a building that was formerly the Italian bank Banca Stabile, which operated from 1880 to 1932.
Developer Larry Silverstein claims that a 40-foot-tall retaining wall running through the construction site of the World Trade Center's Tower 4 makes it impossible to begin work on its foundation, so he wants to continue charging the Port Authority of New York and New Jersey $2.1 million per week in late fees. The agency has said that the barrier is outside of the tower's proposed footprint, and that no late fee is applicable. Silverstein plans to seek arbitration if the matter is not resolved within 10 days.
While the revised timetable for the reconstruction of the World Trade Center released by the Port Authority of New York and New Jersey restored confidence in the project for some, others remain skeptical. Anticipation of completion for all elements of the site is now between 2010 and 2013.
Despite the direction of market conditions, developer Larry Silverstein wants to move forward with all of the World Trade Center Towers as planned,. Silverstein's current schedule includes delivering all three towers by 2012. If the Port Authority forces Silverstein to delay any work it would likely be at Tower 2, the only one which has not broken ground yet. Delays could also cause the agency to lower the $88 million-per-year rent it is charging Silverstein for the land.
Christopher Ward, the executive director of the Port Authority of New York and New Jersey, stated that the World Trade Center Memorial will not be completed in time for the 10-year anniversary of the September 11 terrorist attacks. The memorial plaza would likely be open temporarily to observe the 10-year commemoration, but would then be closed for about a year, with completion slated for late 2012.
The Borough of Manhattan Community College, a 22,000-student CUNY school, has signed a lease for over 40,000 square feet in the Cunard Building at 25 Broadway in Lower Manhattan.
The Chelsea Antiques Garage located at 112 West 25th Street, between Sixth and Seventh avenues, which Extell Development bought last summer and planned to close after Thanksgiving, will stay open for another year or two because the developer cannot get a hotel license.
Victoria's Secret signed a $100 million deal to take 24,000 square feet at 591-593 Broadway in a 15-year lease. It will include 12,000 square feet on the ground level and 12,000 square feet in the basement.
Manhattan is likely to see bank branches closing, as the industry consolidates, including the recent acquisition of Washington Mutual by JPMorgan Chase, and the pending acquisition of Wachovia by either Citigroup or Wells Fargo.
The city comptroller decided not to block FirstFlight's 10-year contract with the New York City Economic Development Corporation for the Downtown Manhattan Heliport. FirstFlight will occupy the heliport, currently controlled by the Port Authority. The company will pay $100,000 per month in rent for the site.
Harlem businesses and organizations are worried that the neighborhood, which has been a beneficiary of contributions from Wall Street firms, will suffer now that Bear Stearns, Lehman Brothers, and Washington Mutual, among others, no longer exist to provide aid. Bear Stearns provided funding for the $85 million retail and office complex Harlem Center.
The Australian financial services firm Macquarie Group signed a lease for six more floors and portions of two other floors at 125 West 55th Street, in addition to renewing its existing lease of 100,000 square feet in the building. Harry Macklowe sold the 591,000-square-foot building to Boston Properties for $440 million. The building is fully leased and the new rent starts at about $90 per square foot.
The Federal Reserve will start paying interest on the reserves of commercial banks, and increase loans to banks by billions of dollars, to $150 billion per bank. The power to pay interest on reserves was afforded in the $700 billion bailout bill.
Israeli banks are growing fearful that landlord Lev Leviev, chairman of the board of Africa-Israel, will not be able to repay the more than $4 billion he's taken in short- and long-term loans. Leviev may be asked to buttress the securities backing loans by giving the banks liens on an additional 10 to 20 percent of Africa-Israel's shares, which will give the banks 75 to 80 percent of the company's stock. Leviev owns the New York Times building at 229 West 43rd Street and the Clock Tower at 5 Madison Avenue, among other buildings.
A third term for Mayor Michael Bloomberg could help him further some of his green initiatives. In 2007, Bloomberg introduced PlaNYC to reduce the city's greenhouse-gas emissions. The plan calls for planting more trees and converting taxis to less-polluting hybrid vehicles, and putting windmills on top of skyscrapers. The financial crisis currently demands Bloomberg's attention, but a third term could help him put the green plans into effect.
The first public hearing regarding the proposed redevelopment of the Kingsbridge Armory in the Bronx will take place tonight. Community members will meet to discuss the size of the area surrounding the armory which should be subject to studies of potential environmental, economic and traffic impact. The Related Companies' plan to renovate the 575,000-square-foot building, adding big-retailers and a movie theater. The city Economic Development Corporation chose Related to create the mall last year.
After two years of negotiations with a private developer, the Port Authority of New York and New Jersey worked out a deal to renovate the George Washington Bridge Bus Station in a plan that will quadruple the amount of retail at the terminal. Despite recent uncertainty in obtaining financing for large-scale public projects, a joint venture of Acadia Real Estate Trust and P.A. Associates has agreed to preliminary terms calling for a 49-year lease on the station with a minimum rent of $53 million. The developer also made a commitment to spend $102 million on renovations, increasing the retail from 30,000 square feet to 120,000 square feet.
The New York Sun's recent demise leaves 9,200 square feet of office vacant. The Sun occupied the entire second floor and two-thirds of the fourth floor at 105 Chambers Street. The Sun plans to continue to use the through the end of the year hoping thereafter to find a new tenant.
The last effort to find a developer for Pier 40 has failed, leaving the future uncertain for the crumbling pier just off West Houston. After rejecting a proposal from the Related Companies because of lease term differences, the Hudson River Park Trust gave two other developers 90 days to come up with a joint proposal for the 14-acre site, but the new proposal doesn't meet the criteria established by the trust.
New York City's real estate boom is ending as financing disappears and corporations decide not to move to new offices in case layoffs or decreasing rents change the office rental landscape. HSBC backed out of an agreement to move to 7 World Trade Center when the bids for its current at 452 Fifth Avenue turned out to be lower than expected. Law firm Orrick, Herrington, & Sutcliffe decided to remain at 666 Fifth Avenue instead of signing its planned lease of 300,000 square feet at Citigroup Center.
