Sunday Summary: Musk to Landlords: Drop Dead
By The Editors December 18, 2022 9:00 amreprints
How is it possible that the putative richest man in the world (well, until recently) would decide not to pay rent on his office?
Yes, if you hadn’t heard about it yet, The New York Times reported that Elon Musk has not paid rent for weeks on Twitter’s San Francisco headquarters as part of a “cost cutting” measure that also apparently included stiffing various other vendors.
Uh, Mr. Musk — that’s not what “cost cutting” really means. There’s another term for that which rhymes with “lead feet.”
Naturally, our question was whether the rent is being withheld at 245 West 17th Street where Twitter has a 140,000-square-foot New York office. (Landlord Columbia Property Trust was silent on the matter.)
Look, we all get that it’s hard out there for folks in tech.
Notwithstanding the fact that proptech has largely steered clear of the layoffs that have roiled the big tech companies this fall, we learned some less-than-encouraging news last week that venture capital investment in the sector had fallen by more than a third from 2021. According to a Center for Real Estate Technology & Innovation report, investment was $19.8 billion in 2022, versus $32 billion a year before.
Money will probably stay expensive for the foreseeable future. Despite the welcome news that inflation had slowed more dramatically than experts were expecting, the Fed still instituted a 50 basis point rate hike on Wednesday with no end in sight on hikes in the new year.
That’s right! It’s almost New Year’s!
We have officially entered the “best of 2022” phase of the year. Best restaurants, best books, best movies, best video games … you get the idea.
For real estate, the reminiscences and remonstrations have begun early.
It was not the year that many hoped for last January, even if there were definite improvements in the New York market from 2021; 9.9 million square feet of office was leased in the third quarter, a 24 percent increase from the second quarter. That’s unquestionably positive. But the vacancy is still well above where it was pre-pandemic. And while offices might have been leasing in the third quarter, asking rents slid, too, from $76 to $74 per square foot on average.
CO asked the top New York City firms for their views of the state of the market, and the whole complicated picture is worth reading. (And, as always, Robert Knakal’s thoughts on the year are worth reading and absorbing.)
There are other good ways to take stock of the market; one is to look at the top 10 leases of the year.
Nothing cracked the million-square-foot mark in 2022, even though three did in 2019. In fact, nothing even cracked the 500,000-square-foot line. KPMG took the prize for the biggest New York City lease of the year with 456,518 square feet at 2 Manhattan West. But the list of leases is worth scrolling through.
And sales had more than a couple of pretty notable deals in 2022. For one, Google’s purchase of St. John’s Terminal closed for a whopping $2.1 billion. Two other deals also crossed the billion-dollar barrier. But, after that, the numbers fell precipitously; 1 Manhattan West was the third-largest deal selling for $1.4 billion, while the fourth biggest was 77 West 66th Street for $485 million.
On the environmental, social and corporate governance (ESG) front, more companies transitioned from lip service to action, thanks in part to a growing number of ordinances on the national and city levels. Sandra Benson, global head of industry transformation at construction management company Procore, ranked real estate’s 2022 progress as “fair” (which considering its not-so-recent past performance is a small victory). But there’s still plenty to improve upon.
Things are expected to look even better in 2023 as companies gear up for legislation like New York City’s Local Law 97 to take effect in 2024, and Benson hopes she’ll be able to rate next year as “pretty good.”
In the male-dominated construction industry, recent trends bode well for progress on increasing the percentage of women in the industry — the share was 11 percent in 2021 — with the federal government announcing a 10-year effort to improve those numbers in October.
New Year, new looks
Some of us might be gearing up to make sweeping changes to ourselves in the new year, like finally hitting the gym multiple times a week (and giving up in February). Others are planning to freshen up their offices.
Milstein Properties announced that it will transform its 335 Madison Avenue office building yet again, this time dropping the once-luxe “Madison Avenue” from its address and going with 22 Vanderbilt instead, hoping to cash in on the cachet of nearby hit One Vanderbilt.
On the Far West Side, Brookfield dropped $47 million to revamp its 13-story office property at 424-434 West 33rd Street to fit in with a forest of newly constructed towers in the neighborhood, and gave it the name Four Manhattan West to align with its Manhattan West megaproject.
New York wasn’t the only city getting in on the action, with Brookfield (BN) and The Menkiti Group releasing new details for Phase II of its 48-acre The Yards development in Washington, D.C., last week. Plans call for two residential buildings, a new waterfront public park and a low-cost incubator retail space to house local- and women- and minority-owned shops.
And, in Miami Beach, everybody’s favorite amateur Armani T-shirt model Michael Shvo got the green light to majorly update the 13-story office building at 407 Lincoln Road, adding balconies, floor-to-ceiling glass windows and “wellness amenities.”
The Wall Street influx of Miami Beach continued, too, with New York financial firm Pretium Partners firming plans to open a new 11,591-square-foot outpost at Eighteen Sunset after the building opens next year.
But not everybody’s leaving NYC. Jeweler Pandora inked a deal to move its North America headquarters from Baltimore to Times Square, taking 27,936 square feet at 1540 Broadway.
Law firms in the city also made some moves last week, with Crowell & Moring signing a lease to relocate to 71,000 square feet at 2 Manhattan West and Fried Frank planning to move its conference center to 14,375 square feet at 535 Madison Avenue.
And now for a wee bit of schadenfreude
Who would’ve thought a landlord convicted of fraud and a lawyer sentenced for stealing millions from his clients would have their relationship end badly?
Notorious landlord Steven Croman — who spent months behind bars for jacking up his rents by listing rent-stabilized apartments at market rate — filed a lawsuit claiming he got tricked into a bad deal by his former lawyer Mitchell Kossoff. You might remember Kossoff as the real estate attorney who pulled a disappearing act last year with his clients missing their escrow accounts. He resurfaced later, only to be arrested and sentenced to 13.5 years in prison for bilking his clients out of more than $14.6 million. (Kossoff’s mom even accused him of forging her signature on more than $2 million of defaulted loans.)
Croman claimed in a suit against Besen Partners’ Michael Besen — who was tapped by the New York attorney general to manage Croman’s accounts while he did time — that Kossoff arranged a deal that was “substantially favorable” to Besen and failed to disclose that Besen separately promised Kossoff a $1 million interest-free loan.
But it’s the week of Christmas and Hanukkah, so we won’t leave you on a sour note. Instead, we leave you with our interview with Janet Woods, Savills’ newly minted president of its Eastern United States operations, wherein she discusses getting started in the industry, her efforts to make it more diverse, and her new role.
Happy holidays, and see you next Sunday!