Sunday Summary: So Long 2023!

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As the ball prepares to drop in Times Square, we can bid farewell to 2023.

It’s no secret that 2023 hasn’t exactly been the best year for commercial real estate. If you need proof, take a look at Commercial Observer’s top stories for 2023 in Southern California and see how many buildings sold in The Golden State at a sobering loss.

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But we have ended the year with a few bits of good news to fill our hearts before belting out “Auld Lang Syne.”

The wave of six-figure leases closing just before the year ends continued in New York City. This time it was Ralph Lauren renewing its 133,000-square-foot office at 650 Madison Avenue. Although, that wasn’t all good news since the fashion brand cut its space by about 39 percent in the process.

A few blocks north, Ralph Lauren held onto its 28,000-square-foot flagship store inside the Rhinelander Mansion at 867 Madison Avenue for another 10 years.

The last-minute leasing drive helped Manhattan’s 2023 leasing numbers see an 11th-hour recovery. Manhattan closed out the fourth quarter with 6 million square feet of leases signed, an increase from the 4.2 million square feet from the previous quarter, according to JLL (JLL).

“I think in 2023, we were bracing ourselves for a pretty low market given where interest rates were and general economic uncertainty, and actually at the end of the day we found that we ended the year pretty strongly,” Andrew Lim, JLL’s New York director of research, told CO. 

All told, Manhattan ended 2023 with 21.7 million square feet of leases signed, which is still a 20 percent decrease from the amount of space taken in 2022.

On the other side of the country, Los Angeles saw one of its most notable deals of the year land in the final days on the calendar. UCLA is in talks to buy a former shopping center on the city’s Westside that was supposed to be a large-scale office redevelopment fully leased to Google (GOOGL) through 2036.

Details are scarce on price and what will happen to Google’s lease (the tech giant started paying rent in 2022), but sources told CO it will likely become a life sciences development.

Jerome Powell’s gift
Federal Reserve Chairman Jerome Powell couldn’t wait for Christmas to give commercial real estate their gift. On Dec. 13, he signaled that the Fed’s hawkish strategy of fighting inflation with higher interest rates was likely over and 2024 should instead see rate cuts.

That was much-welcome news to an industry where plenty have blamed the high interest rate environment for the frigid state of lending.

“It was a bit of an early holiday gift, and I was pleasantly surprised to see the implications of the projections indicating three rate cuts,” said Xander Snyder, senior commercial real estate economist at First American Financial Corporation. “The prospect of rate cuts has been a little bit of a shot in the arm for the commercial real estate industry. That doesn’t mean there won’t be trouble next year, but it’s a good sign.”

The news has some excited that more transactions will be in store for 2024, and we’ve already seen some major financings close at the tail end of 2023.

Last week, we saw two $220 million financings close in different states. The first was Gary Barnett’s Extell Development landing construction financing for its planned 31-story hotel near Rockefeller Center in Manhattan. And, on sunnier shores, Hines and Urban Street Development secured the same amount to build the first phase of their FAT Village mixed-use development in Fort Lauderdale, Fla.

Aside from that, Pebb Capital scored a $173 million construction loan for a mixed-use development in Delray Beach, Fla.; Avdoo & Partners Development closed on $105 million in senior construction financing for its condominium project in Boerum Hill, Brooklyn; Hall Group got $46 million in Commercial Property Assessed Clean Energy financing for its Hyatt hotel project in Palm Springs; Calif.; and Twining Properties and LMXD secured $59.5 million to build residential and retail development in New Haven, Conn.

We also saw some sales close. A joint venture led by Category Five Real Estate dropped $24.5 million to buy a multifamily property in Deerfield Beach, Fla.; MG Developer paid $11.5 million for a development site in Coral Gables, Fla.; and Harbor Associates dropped $44.7 million for an office property in Los Angeles. The last deal might not be the happiest, as the property changed hands for significantly less than the $92.5 million Goldman Sachs bought it for in 2018. 

Year in review
Before we officially close the book on 2023, CO took a look back at the year.

In South Florida, the Miami area still boasts rents upward of $100 per square foot for the best office space, along with a microscopic unemployment rate outperforming the rest of the country and little new office development in the pipeline, making it an attractive spot to drop money.

However, office building sales in Greater Miami cratered last year, and demand for space may soon crest as the huge wave of new companies setting up shop in and around the city wanes. Add that to the city’s uneven vacancy rates, which range from 7.5 percent along Brickell Avenue to more than 20 percent in Downtown Miami.

Over in our nation’s capital, CO tallied the largest office leases for D.C. in 2023 and found that the biggest ones were mainly renewals as federal tenants and law firms took advantage of dropping asking rents.

The largest lease the city saw was the Securities and Exchange Commission’s 1.1 million-square-foot extension at 101 First Avenue NE. Meanwhile, the biggest new lease in D.C. was law firm Crowell & Moring’s 198,877-square-foot deal at 600 Fifth Street NW.

And with that we’re ready to say goodbye to 2023. Happy New Year!