Sunday Summary: Baby, You Can Drive My Car (Below 60th)

Not since Andrew Cuomo unilaterally torpedoed the planned 15-month shutdown of the L train back in 2019 were New York commuters and straphangers hit with a bigger surprise than last week’s announcement that the city’s long-expected congestion pricing plan was essentially being shelved.

“I have directed the MTA to indefinitely pause [the congestion pricing] program,” Gov. Kathy Hochul said in a taped announcement. “This is not a decision I make lightly … but in this moment of financial stress, high inflation and already the high cost of living for so many New Yorkers … I must stand up for them and say no to implementing the congestion pricing toll at this time.”

The plan would essentially raise money for the Metropolitan Transportation Authority by instituting $15 tolls on cars coming into the city south of 60th Street. Trucks would be charged from $24 to $36. Cries of treachery were almost instantaneous.

“New York City public transit riders gave Gov. Hochul her margin of victory in the 2022 election,” said Riders Alliance Policy Director Danny Pearlstein. “Stopping congestion pricing before it even starts would be an outrageous betrayal of our trust.”

Moreover, the improvements that were expected to the subway system are almost certainly going to languish now that the expected funding won’t arrive.

Even real estate, which had long been an ally of Hochul, seemed taken aback.

“Congestion pricing will provide environmental and transportation benefits that will make New York City more competitive on the national and international stage,” said the Real Estate Board of New York (which had long championed congestion pricing) in a statement. “Any delay in its implementation should be of a limited duration.”

But perhaps the biggest surprise of the announcement might be the fact that Albany feels incapable of acting decisively — even when the notorious legislative gridlock had purportedly been cleared. Everything appeared all set for the program to take effect at the end of this month, and Hochul herself had advocated for it … and then nothing?

The good news is that us outer-borough folk can keep elbowing each other for parking spots before we give up and put our Pontiac Aztek in a $60 lot for the afternoon.

Ah, Bloomberg…

One had to pine for the days when politicians were a tad more decisive.

Even out-of-office Mike Bloomberg, for example, is demonstrating his capacity for boldness.

May office leasing in Manhattan jumped 70 percent from the previous month, and it’s largely thanks to Bloomberg’s 946,815-square-foot renewal at Vornado’s 731 Lexington Avenue.

Even more surprising, Bloomberg shelled out $560 million to purchase 980 Madison Avenue from RFR.

But Bloomberg wasn’t the only one making big plays.

TPG — the private equity firm that used to go by the name Texas Pacific Group — made two big bets on Manhattan: They bought 222 Broadway with GFP Real Estate for $150 million, and 101 Franklin Street (with Skylight Real Estate Partners and Cannon Hill Capital Partners) for more than $100 million with the plan of converting both properties into residential space.

Speaking of adaptive reuse, Flushing-based Sunlight Development is in contract to buy the landmarked 95 Madison Avenue for $65 million, also with plans to convert into resi.

Get moving!

These most recent deals shouldn’t come as too great a surprise. Capital has been building on the sidelines for a very long time, and since nobody can perfectly time the bottom of the market, it makes sense that deployments should happen now.

“I think that the market has sort of found a floor in terms of values,” KKR (KKR)’s Ralph Rosenberg told CO in our cover story last week. “I think that there is a reasonably deep bid for properties that are long-term, demand-driven resilient … in the 5 to 6-plus percent unlevered yield on value. And that is 25-plus percent cheaper than those assets would have traded for in 2022 and ’23.”

Not that Rosenberg is looking at office conversions specifically, but KKR raised some $69 billion last year and is putting the finishing touches on a number of big deals.

“I think that the credit markets are showing signs of thawing,” said Rosenberg. “I think that we’re seeing optimism that while we might not get a rate cut here that rates have sort of plateaued.”

A lot of portfolios that had been in limbo waiting for extensions have had to face their moments of truth, and banks have decided to cut bait. That’s good for firms with lots of capital.

“There are literally multiples of [loan acquisition] opportunities compared to what we saw last year,” said InterVest Capital Partners CEO Michael Gontar. “Things are definitely trading. It’s a much more active market.”

Money is starting to be raised in ways that a few years ago we cynical journalists would have written off as obsolete, like the CMBS market. There’s been some $32.2 billion of CMBS issuance in 2024 so far, compared to only $13 billion in all of last year.

“I’ve been in CMBS for 30 years, and I have borrowers who say, ‘I’ll never do this again,’ and then we’re having a closing dinner,” said Brighton Capital Advisors’ Michael Cohen. “I say, ‘Remember 10 years ago?’ But in this marketplace it’s any port in a storm.”

And, while investors are still being picky about the assets that they choose (Rosenberg, for one, assured CO that he wasn’t going to look at office for a few years), even problem assets can have green shoots. While, yes, FIRE tenants are holding back a little more than they used to, new Class A office space still needs to accommodate the heavy hitters. And the deals continue at great properties such as Hudson Yards.

And guess what? Nobody’s building anything new.

And, guess what?

There will be a Class A drought in the next couple of years.

“If you look at our forecasts over the next five years, 2024 is expected to be a relatively strong year with about 4 million square feet expected to come online,” said Moody’s senior economist Ermengarde Jabir. “But, beyond that, we only expect one other year to be in excess of a million square feet coming online, and the rest will be under a million if we look through to 2029.”

See you next week!