Sunday Summary: Let the Fireworks Fly!
We hope Tuesday’s Fourth of July has inspired you, dear reader, to also take Monday off, and that you’re now lounging comfortably by a swimming pool somewhere, or grilling up dogs, and not thinking about real estate.
Away from this industry’s jealous claws there’s good reason to kick back and relax. The story is reasonably sunny in much of the rest of the economy, with inflation coming down and the stock market good. In real estate, however… well, there has been reason to gnaw the fingernails a little longer.
With job growth beginning its deceleration, a slower hiring pace will no doubt further harm the office market, according to a recent report from Commercial Edge.
“We keep drawing comparisons back to retail and malls 20 years ago,” Peter Kolaczynski, manager of commercial research at Commercial Edge owner Yardi Matrix, told Commercial Observer. “You have malls that are in a good spot, higher-end malls are still doing really well, but over the last 20 years, look at what happened to the B’s and C’s: They are now obsolete, and we are anticipating the same pattern with offices.”
Even some of the stalwart tenant believers in office — like, say, law firms — are beginning to see the virtues of remote work. (“Some firms are moving back toward four or five days a week, some are wanting their support staff in the office a lot, some are actually encouraging them to be more remote,” said Cushman & Wakefield (CWK)’s David Smith. “Overall, we have been seeing law firms getting more dense with their space, using less square footage per attorney.”)
And, in keeping with this unwelcome news, we’ve seen prices adjust downward on office sales. David Schechtman of Meridian told CO last week that New York City’s older office and rent-stabilized buildings are trading at 50 percent of what they had been.
However, the price drops are having their intended effect — and not just in New York. Last week UCLA purchased the Trust Building in Downtown L.A. for $40 million, which is a hair less than half of what the property sold for in 2016.
“When sentiment shifts, you have people from San Francisco, Chicago, who say, ‘We’re looking at your offering memo,’ ” Schechtman told CO. “And I’m like, ‘Wow these people are real, but I never even knew about them.’ ”
And, while the big picture data might certainly not be rosy, CO noticed a number of leases that crossed the finish line just in the last few weeks:
The contractor Skanska and the accounting firm Aprio took 40,000 square feet at the Empire State Building; Basis Investment Group took 10,091 square feet at 180 Maiden Lane; and six different tenants (finance firm Flexibility Capital; theatrical production company Ballad of Mulan; musical production company Crossroads Live; and law firms Levine Plotkin & Menin, Salmen Navarro Law and Miller Korzenik Sommers Rayman) renewed, expanded or signed at 1501 Broadway.
In retail, the Miami-based sneaker shop Yankeekicks is opening its first store in New York at 666 Broadway, and Vornado is diligently hammering away at filling the empty spaces in Penn Station with a dozen new leases.
Why did we have to mention Penn Station….?
Oh, maybe we should’ve left that last item out. At least, Gov. Kathy Hochul’s announcement on Monday that the renovation of the station was being separated from the state’s push to rezone the area did not bode well for those who were hoping for brand-spanking-new office towers nearby.
“We’re decoupling this from the prior plan,” Hochul said at a press conference. “That does not mean we’re not going to be building office space here at some point. … But I no longer want that to be a delay to this process, which I will be moving forward today.”
And there will certainly be plenty of activity surrounding the area, with or without office plans. On Wednesday, ASTM North America revealed renderings for its $6 billion proposal to redevelop Penn Station (which is about $1 billion cheaper than the plan currently favored by the Metropolitan Transportation Authority).
We’ll always have industrial
Slow your roll, slick. That asset class — which we had all assumed to be rock solid — got back some unwelcome data, too, last week.
Sales of industrial properties dropped off a cliff for the first half of the year, according to a new report from Commercial Edge. In 2022, there had been some $31.2 billion worth of industrial sales through the end of May. This year, there were $16.3 billion worth of sales. (Man, Commercial Edge. You’ve been a real killjoy.)
That being said, a good industrial project is still attractive to lenders. To wit, Wildflower and Barings scored $72 million from Bank OZK for a three-building project called Brookhaven Logistics in Long Island.
Is at least life sciences still OK?
Well, that’s another one that we were sort of feeling iffy about a week ago when we learned that Jonathan Litt’s Land & Buildings had issued a report on the weaknesses in the sector.
But that isn’t stopping billions in development, despite the paltry number of leases (tenants leased only 7,000 square feet of lab space in the first quarter of 2023). In New York, at least three major projects are in the planning and construction process, including West End Labs, Iron Horse Labs, and the government-backed Science and Research Park.
And life sciences space still commands strong prices. Alexandria Real Estate Equities sold 268,000 square feet of a planned 660,030-square-foot lab development in Boston to Boston Children’s Hospital for $155 million.
Any other bad news we should leave you with?
Like, say, the second anniversary of the Champlain Towers collapse? Or rental scams? (Actually, Seattle-based Showdigs is on the case.) Or the housing problems and migrant crisis of New York? (Adolfo Carrión is pretty sanguine about it.)
Sorry, we didn’t mean to get you down. There are things to get excited about. There were lots of hirings, for one thing!
Melanie LaRocca, the former Department of Buildings head, just joined BFC Partners.
Rachel Loeb, the former head of the New York City Economic Development Corporation, landed at Benenson Capital Partners as chief investment officer.
M&T Bank lured Tim Gallagher away from Slate Asset Management to be its new head of commercial real estate.
And, while it’s not a hire exactly, Brookfield Properties named Duncan McCuaig as its new head of leasing, following the retirement of Jeremiah Larkin.
Finally, on this second day of July, it’s worth looking back at June, which was Pride Month.
Pride issues are not talked about a ton in real estate circles, but it’s not by any means a small part of the business. There are prominent members of the LGBTQ community in real estate like Seth Weissman of Urban Standard; investors are beginning to look a lot more seriously at LGBTQ senior housing; and to cap off the month we profiled one of the data and numbers wizards of CRE, Sam Chandan, who founded the Real Estate Pride Council.
May the Fourth be with you!