Sunday Summary: Fortress’ $1 Billion Bet on NYC Office

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There are all sorts of euphemisms that one can employ, but when you get right down to it, the office market in New York is not in great shape.

This is not to say that there are no happy stories. There are still occasional big leases, like the 700,000-square-foot renewal and expansion that the white shoe law firm Davis Polk & Wardwell signed at RXR’s 450 Lexington Avenue last week. And Placer.ai just released a report finding that New York has been outshining almost all of its peer cities in terms of return-to-work.

SEE ALSO: NYC Council Nixes Corner Stores and Scales Back Adams’s Rezoning Proposal

However, in that same report, it also noted that office attendance is still significantly below pre-pandemic levels. Office visits were about 14 percent lower than they had been in January of 2020. Not so good. (Better than the 32 percent of the country at large, but still …)

And one sees it in other not-so-great news like Fitch Ratings making the decision to lower its rating on the debt of New York’s biggest private landlord (SL Green Realty Corp.), or Moody’s projecting that commercial real estate lending volume to drop by $500 billion this year, mostly due to sluggish retail and office.

For this reason, we were more than a little surprised (happily surprised!) that one major player just put down a massive bet on New York office.

Fortress Investment Group just acquired $1 billion in office loans from Capital One (COF).

It’s still quite murky what properties exactly Fortress purchased the loans on, or what their theory of the case is, but it is nevertheless a welcome shot in the arm. One cannot count Fortress among New York’s skeptics.

Let’s not forget New York’s other problems…

Office is not the only thing rankling Gotham. Homeless and migrant problems are not going away anytime soon.

However, for the first time in a while we saw three attempts to address those concerns (even if they’re baby steps in the scope of the whole problem.)

First, in Long Island City, Queens, The Collective Paper Factory, a co-living space and hotel, is being converted into a homeless shelter. This coincides with the announcement that the property changed hands for $35.6 million to Jeffrey Zwick & Associates. This represents a large price reduction from when the space at 37-06 36th Street last sold in 2019 for $58 million. (They’re not the only hotel with financial headaches. Margaritaville Time Square just filed for its second bankruptcy last week.)

Across the water, it was announced earlier this month that the Redbury Hotel, which housed Danny Meyer’s restaurants Marta and Maialino, was being converted into a migrant shelter. (Alas, the Danny Meyer restaurants are not expected to survive the month.)

And the city also announced a new low-income senior housing and homeless shelter at 542 Dean Street.

Of course, New York is not the only city that’s attempting to deal with this problem. The Los Angeles City Council’s Housing and Homelessness Committee voted last Wednesday to turn an empty lot across the street from City Hall into interim housing for the homeless.

Countrywide, it’s not something that anyone can offer a quick fix to. But in two cities which have had to cool their heels while the problem worsens, it’s nice to see something happening.

Let’s talk about repurposing

One of the things that those previously mentioned properties have in common is that they were all something else before they became slated for homeless or migrant housing. Office-to-residential conversion is one of the biggest items on Mayor Eric Adams’ agenda, and the one that’s been most frustrating to him. But not all repurposing needs to go to such residential ends.

A number of colleges and universities are on the hunt for space for more space or satellite campuses in the nation’s capital — and rather than ivy and cloisters, some are thinking glass and cubicles.

Colleges “are certainly benefiting from more advantageous deal financials, particularly concessions, which are hovering around historic highs,” said CBRE (CBRE)’s Stephanie Jennings. “Washington is trending similarly to other gateway cities with a flight-to-quality, densification patterns among law firms and the public sector.”

We’re just not sure what the football team is going to think about the repurposing.

Keep calm and science on

One of the unquestioned bright spots in the real estate market since 2020 has been the life science market for all sorts of reasons that must seem dull to our readers at this point….

But has the great life sciences gravy train finally reached its terminus?

A Yardi Matrix report from this week had the unwelcome news that life science sales have only reached $386.6 million through July of this year. In comparison, the industry had $6 billion in sales in 2022.

But a couple of things to keep in mind:

First, the price per square foot of these properties averaged $770 per square foot. (By comparison, national office prices average $190.)

Second, a glut would be expected after three years of incredible build up. Life science accounted for 25 percent of the new construction starts in the last two years, versus only 5 percent in the 2010s. A slight hangover was always going to be inevitable.

Third: CHIPS act. This is the $53 billion federal legislation for semiconductor research, development and manufacturing.

In short: This thing still has plenty of runway.

All I ever wanted…

August is officially more than half over, and that means that summer is almost over.

If you didn’t traipse around Europe as you should have there’s a little bit of Portugal that you can bring to you.

We’re talking, of course, about the Fantastic World of Portuguese Sardines. This is the incredible repository of salty, briny, Mediterranean goodness, which is opening its first store in New York.

Check that — they’re opening their first store in Times Square.

Actually, they’re opening it next to the M&M Store in Times Square.

We’re not about to predict what happens next. Will the tots start complaining about the fishy smell next door? Will a sardine shop find the neighbors like Bubba Gump and the Olive Garden fully welcoming of something more, uh, exotic? Will it take on its own Times Square-tinged uniqueness?

“Times Square is not just tourists,” said Fred Rosenberg of Sherwood, the Fantastic World’s new landlord. “There’s a huge amount of office tenants there also. So I think that it will appeal to tourists and New Yorkers as well. [But] definitely it was not your standard souvenir or ice cream shop.”

Amen, Fred.

See you next week.