Sunday Summary: Eric Adams Gets in the Zone

reprints


When hearing the words “existential crisis” and “conversion” in the same sentence, we think of some road to Damascus moment of spiritual upheaval and rebirth.

Not in this case.

SEE ALSO: SL Green, Vornado Extend $1B Senior Loan at 280 Park, Buy Back Mezz at Discount

For the past three years New York City has been mired in an existential crisis: The office, as we once knew it, is no longer as attractive to tenants. What’s to be done with tens of millions of square feet of older, obsolete office stock?

On the other hand, as of December the vacancy rate for Manhattan apartments was 2.69 percent, according to Douglas Elliman. That’s slightly higher than it was in November (2.42 percent) but still a very, very low figure.

We have too many vacant offices, we have too few apartments. The answer to the crisis was always simple (deceptively so): convert to residential. Boom.

However, until now this seemingly easy fix has proven elusive to a lot of developers. Why? All sorts of reasons. Location, for one. (Office tends to be next to office, not next to places where people can pick up a quart of milk and diapers.) The age of buildings was another stumbling block. (A lot of the office stock is too young to qualify for any tax subsidy.) Floor plates are another. (A cubicle is not easy to turn into a bedroom, which by law must have a window.) Acquisition and conversion costs are the real biggies.

But one thing that hasn’t helped has been New York’s byzantine zoning rules. There are other zoning boards around the country that probably protect their turf more zealously than Manhattan’s, but not many.

That’s one problem that might be stripped away if Eric Adams has anything to say about it. During his State of the City address last Thursday, the mayor proposed rezoning big chunks of Midtown for residential redevelopment.

“Councilmembers Eric Bottcher and Keith Powers have called on us to help them make Midtown Manhattan a true live-work community,” Adams said in his address. “They’re not saying ‘Not in my backyard.’ They’re saying ‘Build in my backyard.’ Hats off to them.”

While the details were scant, Adams appears to be following the recommendations in the recent New York City Office Adaptive Reuse study, which advocated redeveloping swaths of the West Side between 23rd and 42nd streets.

Of course, redevelopment and conversion have been on a lot of New York politicians’ minds.

Gov. Kathy Hochul laid out a wildly ambitious plan to construct some 800,000 homes in the next decade in her State of the State address on Jan. 10. And while this might be politely called optimistic, it certainly helps that the governor and the mayor share the same priorities for the first time in a very long while.

Speaking of New York’s political / real estate nexus…

As everyone in real estate knows, January is traditionally the time for the Real Estate Board of New York’s annual gala.

It looks like that’s not happening until April (the change sounds permanent) but nevertheless January is a time when the greybeards at Commercial Observer think about the issues that the lobby is also thinking about.

In addition to Hochul, Adams and housing, this week we took a look at the final enforcement rules for Local Law 97 (or, actually, the lack thereof).

We were introduced to the new class of REBNY Fellows.

We looked at the legal issues in leases that COVID accentuated and the issues that landlords and tenants are trying to resolve.

We spoke to REBNY’s tech czar, Chris Beach, about this year’s PropTech Challenge, the board’s relationship with the New York State Energy Research and Development Authority, what the members are thinking about in terms of technology, and more.

Finally, we sat down with someone who makes the real estate / political circle complete: Jessica Tisch, New York City’s sanitation commissioner, who also happens to be the daughter of Merryl and James Tisch, for some serious trash talk.

This is CBS

There was a lot more than just politico / CRE talk last week. There were leases, too.

CBS led the pack with a whopping 186,882-square-foot renewal at SL Green (SLG)’s 555 West 57th Street. And SL Green’s good fortune at the same address extended to the Greater New York Hospital Association, which also inked a 10-year, 58,017-square-foot renewal. Plus, TD Securities secured 25,171 square feet at 125 Park, and 777 Partners got 18,476 square feet at the landlord’s at One Madison.

In non-SL Green-related leasing, Ireland’s government snagged 43,108 square feet at Tishman Speyer’s 200 Park Avenue.

The King’s College, a Christian liberal arts school, renewed 52,542 square feet at 52 Broadway.

Property & Building Corporation signed two tenants, HBK Capital Management and the Swiss-based pharmaceutical company Novartis, at 452 Fifth Avenue, both of which leased more than 15,000 square feet.

There were some smaller leases, too. Retail by Mona scored 6,500 square feet at 477 Madison Avenue, and GFP just renewed two tenants — Avondale Care Group and Manhattan Beauty — at 505 Eighth Avenue. Invenergy, the renewable energy provider, leased its first Manhattan location of 7,187 square feet at RXR’s Starrett-Lehigh Building at 601 West 26th Street.

And there were some tasty food-and-beverage deals, too. Simon Kim, the owner of the Michelin-starred Cote steakhouse, is opening a 15,000-square-foot, three-story eatery at the Sony building; Casa Lever renewed at the Lever House; and even a new Wendy’s is coming to the Penn Station area.

Sales were not bad, either. Stonehenge purchased 408 East 92nd Street from UBS for a cool $115 million.

BTW: The sales are not just in NYC!

Miami’s condo craze continued with Fort Partners finally picking up the land underneath 9165 Collins Avenue for $41.5 million from Wexford Real Estate and Aria Development, which Fort plans to turn into boutique seafront condos. Fort also secured $50 million from Madison Realty Capital for the deal. (Speaking of Madison, CO spoke to Josh Zegen about the $3 billion of originations his firm generated in 2022. Whoa!)

And Landstar Development Group shelled out some $56.7 million for 857 acres of land in Avenir, a master-planned development at the edge of Palm Beach Gardens.

Southern California told a bit of a mixed tale last week.

BentallGreenOak purchased a 361,346-square-foot warehouse development in Riverside, Calif., for $120 million from the Chinese-based Loctek Inc. — which is quite a jump from the $44.4 million Loctek paid for it in September of 2020.

In Downtown L.A., Ivanhoe Cambridge’s PacMutual Building hit the market for half its previous price ($100 million).

And Basis Investment Group poured $30 million of equity into Tishman Speyer’s 3.1 acre Santa Monica Collection in Downtown Santa Monica.

See you next week!