Sunday Summary: It’s the End of the Lease as We Know It
One of the comforting things that CRE pros tell themselves about inflation and a possible recession is that at least such a development would mean all this nonsense about WFH will go right out the window.
After all, if you need your job you won’t argue too much with the boss about showing up at the office when they say you have to.
Yes, that’s one possible future.
Another possibility is that tenants look at pending economic clouds, examine their real estate budget, meditate on what they were able to accomplish when they were under lockdown, and essentially take their ball and go home. Why pay millions a year for real estate when a company has proven it can function remotely?
This essentially looks like what Yelp decided.
The company is rolling up almost half a million square feet of underutilized office in New York, Washington, D.C., and Chicago and telling their employees to work from home. And others are following suit: UBS cut 15 percent of its office space, and Netflix is subleasing tens of thousands of square feet in Burbank. It is the ultimate nightmare scenario for office owners.
And, in another worrying sign, two of the most valuable companies in the world — Meta (a.k.a., Facebook) and Amazon — signaled that their seemingly endless appetite for New York City office space is coming to an end.
Meta declined to exercise their option on 300,000 square feet at 770 Broadway where they already have about 700,000 square feet and Amazon walked away from a sublease they were negotiating with JPMorgan Chase at 5 Manhattan West.
If all that doesn’t hurt, one of the largest private landlords in the city announced a $44 million loss last quarter.
Of course, it’s not as though there were no office leases to mark this week. The fashion brand Alexander Wang is moving its global headquarters to the Fulton Market Building in the South Street Seaport, and TB Alliance and the personal injury law firm Elefterakis, Elefterakis & Panek both took space in Rudin Management’s 80 Pine in FiDi. But for those looking for silver linings in a recession, return to office might not be among them.
For some sunnier news
Meanwhile, it’s as if Miami is having none of these problems in terms of its office desirability!
Exhibit 1: Bacardi Limited, the global liquor company — which owns brands such as Grey Goose Vodka, Martini, Tequila Patron and Bombay Sapphire — is toasting to 80,000 square feet at The Plaza Coral Gables development.
Exhibit 2: Venture capital firm a16z, also known as Andreessen Horowitz, is leasing 8,000 square feet at 2340 Collins Avenue in Miami Beach.
Exhibit 3: Sidley Austin, the 2,000-lawyer national law firm, is taking 60,000 square feet at 830 Brickell.
830 Brickell, 830 Brickell… where did we hear that address recently?
Oh, yes. Exhibit 4: WeWork just backed out of 146,000 square feet at the hot Miami address.
“Wait!” you say. “Backed out? Of a hot address? Wouldn’t that point to the opposite of a desirable market?”
Perhaps the words “backed out” are poorly chosen. With rents at upward of $150 per square foot, the co-working behemoth no doubt was handsomely compensated for walking away.
“There was an opportunity presented to WeWork structured in a way that made the company more than financially whole for the entire term of the lease,” one source told CO. The operative words being “more than.”
Finally, also on Brickell, we have Exhibit 5: Financial firm EFG Capital renewed its 32,480-square-foot lease at 701 Brickell.
Of course, Miami real estate professionals have other problems. Steve Witkoff and Monroe Capital, for instance, are being sued for $125 million by an affiliate of The Clark Estates, which has a 50 percent stake in their 309-key project at the Shore Club Hotel. (Witkoff and Monroe picked up the asset from HFZ after the troubled developer defaulted on its loan from Monroe.) But we probably shouldn’t get into it all in this newsletter — just read about it here.
The point is, Miami office doesn’t seem to have the same problems as New York.
Get OUTFRONT of the problem
Other good office leases landed in L.A., too.
OUTFRONT Media, a real estate investment trust and one of the largest outdoor advertising companies in the country, is moving its headquarters to the entire 34,000-square-foot building at 1520 North Cahuenga Boulevard in Hollywood.
Plus, the fashion brand REVOLVE is relocating and expanding into 42,000 square feet at 1318 Seventh Street, a.k.a., ROW DTLA in Downtown L.A. (BTW, what’s up with this town and all the capital letters this week?)
Of course, L.A.’s industrial market has been hot for ages, and last week did not disappoint. Rexford Industrial Realty announced that it purchased seven more properties, for a total of $660.9 million. Rexford, in fact, acquired 18 industrial properties in the second quarter, constituting 1.4 million square feet of space. (Since the beginning of the year they’ve spent $1.6 billion on 4.3 million square feet of space!)
And the Los Angeles housing market remains an extraordinarily desirable one; construction kicked off on Evermont, a 180-unit affordable housing development on the corner of Vermont and Manchester avenues in South L.A.
Can New Yorkers drown their sorrows in food?
Monday began the city’s 30th annual Restaurant Week! (Man, we feel old.) Make that restaurant month. It will last until Aug. 21.
Mayor Eric Adams appeared at the legendary Brooklyn restaurant Gage & Tollner to kick off the event.
New York restaurants, Adams said, are where you go to celebrate “a new job, a graduation, a marriage…”
Whoa! (Adams was joking.) And while office leasing wasn’t so hot last week, food and beverage didn’t do so bad, despite some mysterious Hale and Hearty closures. Chick fil-A, for instance, announced it was opening a 6,000-square-foot location in East Flatbush, and the Filipino BBQ restaurant, F.O.B., is opening a 2,000-square-foot eatery at 209 Fourth Avenue in Brooklyn.
Food and beverage is something even a character like Jim Cramer is getting in on. The “Mad Money” host and market analyst has apparently gone into the mezcal business with his wife Nina Detwiler. (Although we have to figure that the words “my husband is a Mezcal fanatic” are words that the esteemed Detwiler might regret having made to MarketWatch’s Charles Passy given Cramer’s history of, uh, heated behavior on CNBC.)
But there were other interesting retail developments beyond F&B; Aritzia, the Canadian fashion brand, is opening a 15,000-square-foot outpost at 115 Fifth Avenue. And Devin Gilmartin, the fashion tycoon behind The Canvas, the sustainable apparel company, has been white hot. (If Gilmartin’s name sounds familiar, you might connect it with his mother, MaryAnne.) And the L.A.-based Undefeated sneaker brand is opening its first East Coast store at 75 Kenmare Street.
However, the kid in us was most excited to hear that the resurrection of Toys “R” Us is continuing, thanks to Macy’s.
New Toys “R” Us stores are going to be opening within flagship Macy’s locations in Atlanta, Chicago, Houston, Miami, Los Angeles, New York, San Francisco and Honolulu by Oct. 15, in time for the holiday season.
Just a small-time network executive…
Back in the 1980s Alan Mruvka had an idea. What if there was a television network like MTV that focused solely on movies and the entertainment industry.
That idea would blossom to become E!
While most executives would be satisfied with something so original (and profitable), since Mruvka left E! he has become a mini mogul in real estate.
We mean that quite literally — Mruvka founded the mini-storage firm StorageBlue in 2014, which has been on a tear ever since, buying three new sites this past May alone. One can read Mruvka’s fascinating story here.
See you next week!