This Week in Real Estate - 11/17/17
WeWork To Buy London Office Complex
WeWork has agreed to buy the Blackstone Group’s London office complex Devonshire Square for around $785 million. This big deal comes on the heels of another major acquisition by WeWork, the purchase of the Lord & Taylor building in Midtown Manhattan. WeWork plans to take over the management of the entire complex, which encompasses 12 buildings and 620,000 square feet.
(Photo: Devonshire Square, e-architect.co.uk)
Times Square Feels the Heat from Hudson Yards
The Hudson Yards development on Manhattan’s Far West Side has already begun to put pressure on Times Square. Hudson Yards will include 18 million square feet of new residential and commercial space by the time it is fully completed in the mid-2020s. Accounting giant EY is reportedly vacating its million-square- foot headquarters at 5 Times Square in favor of spots in Hudson Yards, Hoboken, N.J., and Lower Manhattan. Morgan Stanley is also considering a move away from its Times Square location at 1585 Broadway to Hudson Yards. Only time will tell if major players in the Times Square market can overcome the competition from Hudson Yards.
Uncertainty in NYC Market
Blockbuster deals like HNA Group’s $2.21 billion purchase of 245 Park Avenue may become obsolete in the coming years as the flow of institutional Chinese cash in the United States slows to a trickle. The Chinese government has started cracking down on the billionaire CEOs of some of the most active investors, including Anbang Insurance Group and the Wanda Group. This is indicative of an overall uncertainty gripping the NYC market caused by the decline in international buyers and investors, the various unknowns in how the government will handle interest rates, and how President Trump’s tax plan will play out.
NYC Landlords That Can’t Find Buyers Turn to Borrowing Instead
At a time when commercial property purchases have slowed to a trickle, Manhattan landlords who can’t sell are still getting money out of their buildings by turning to lenders instead. A growing disparity between what buyers are willing to pay and what sellers think their properties are worth has put the brakes on many deals. In New York City, transactions in the first half of the year declined about 50% from the same period in 2016, to $15.4 billion, the slowest start since 2012. At the same time, the market for debt on commercial properties is booming. Investors of all types are turning to real estate loans as an alternative to lower-yielding bonds, giving building owners another option to capitalize on gains if their plans to sell don’t work out. Across the U.S., sales of office towers, apartment buildings, hotels and shopping centers have been plunging since reaching $262 billion nationally in 2015, just behind the record $311 billion of real estate transactions in 2007. Property investors are on the sidelines amid concern that rising interest rates will hurt values that have jumped as much as 85% in big cities like New York, compounded by overbuilding and a pullback of the foreign capital that helped power the recent property boom.
685 Third Avenue
Japanese real estate firm Unizo Holding Company has just bought 685 Third Avenue in Midtown for $467.5 million. Unizo bought the property from TH Real Estate, an affiliate of financial planning firm Nuveen. TH Real Estate bought the 31-story, 651,492-square- foot building in 2010 for $190 million and renovated it from 2011 to 2013. 685 Third Ave. houses notable tenants such as Salesforce, Tribune and Crain’s. Maison Kayser recently closed a lease for the building’s corner retail space, bringing the building’s occupancy rate up to 93%. This is Unizo’s sixth purchase in New York City. The company’s portfolio also includes 370 Lexington and 440 Ninth Avenue.
5 Bryant Park
Blackstone Group is once again preparing to put Five Bryant Park back on the market after testing the waters last summer. Five Bryant Park, also known as 1065 Avenue of the Americas, encompasses 682,000 square feet of commercial space. The estimated selling price for the building is about $700 million. Tenant departures derailed Blackstone’s previous sales attempt after occupancy dipped below 80% from a high of about 90% in July 2016. However, after acquiring new tenants such as digital marketing company Moveable Ink, which signed a 10-year lease on a 55,000-square- foot space, and Premier Home Health Care Services, which is on the books for 34,000 square feet until 2023, occupancy is back into the mid-90% range. This increase in occupancy is likely the reason why Blackstone has decided to try and sell the building again.
19 West 44th Street
Savanna announced the acquisition of 19 West 44th Street, an 18-story, 303,943-square-foot office building in Midtown. Situated on a block-through lot on West 44th and West 45th Streets between Fifth and Sixth Avenues, it is located between Times Square, Bryant Park, and Grand Central Terminal, within a 5-minute walk of 19 subway and train lines. Originally constructed in 1916, the property features pre-war architecture as well as oversized loft-style windows, outdoor terraces, and a historic masonry façade and entrance. Savanna plans to reposition the building through a series of cosmetic and base building capital improvements, along with a new branding campaign. In addition to upgrades to the entrance and lobby, Savanna’s capital improvements will include renovations of the roof and façade and modernization of bathrooms and corridors throughout the building.
This news update is brought to you by David Reich, a New York-based Corporate Real Estate Advisor whose team has over 40 years of experience representing tenants in New York City for all their office space needs. To learn more, visit www.leaseofficesnyc.com