Sunday Summary: Gearing Up for 55 Million Square Feet of Renewals

It would be difficult to argue that Manhattan leasing hasn’t turned a corner in the last six months or so.

“Every single investor around the world, the No. 1 thing they want to talk about is office — good, bad or indifferent,” said Brookfield (BN) Asset Management’s Ben Brown at Commercial Observer’s Fall State of Office Forum on Nov. 13. “It’s top of people’s minds, and that usually means there’s a good level of likely dislocation, but also opportunity. So the office market has been challenging, but there’s a lot to be optimistic and excited about.”

“Better-quality space is moving,” said Cushman & Wakefield (CWK)’s Bruce Mosler later in the morning. “Space that buildings have been reinvesting in is moving.”

But there was a phrase Mosler used that should give savvy readers of the market pause: “Better-quality.” That’s where the activity is concentrated.

Of course, high quality is not most of the market. And there’s something else to be noted: New York City is poised for about 55 million square feet of lease renewals in the next 36 months.

How many tenants will sign up again at the B and C buildings is the question that a lot of landlords are grappling with.

“We are now entering a Darwinian period, the likes of which we’ve never seen,” Ruth Colp-Haber, president and CEO of Wharton Property Advisors, told CO. “The weaker buildings are going to bear the brunt of these upcoming lease expirations. You have three major problems: No. 1, the mortgages on their buildings are coming due; No. 2, the leases in the building expiring; and, No. 3, the huge cost of construction.” (Whoa. That’s enough to make you partake in some mood-altering substances.)

None of which means that most of these leases won’t be renewed, or that activity hasn’t been on the upswing.

“The data would suggest that people are back, people are coming back, and, whether that’s three as opposed to four days a week, they’re coming back,” JLL (JLL)’s Joe Messina told CO.

Indeed, we’ve seen renewals. Not always office, but just last week Verizon reupped the 172,119-square-foot data center that it leases at 60 Hudson Street in Tribeca. Indeed, the general activity that crossed the 100,000-square-foot mark just in the last month has been a great relief to landlords. (To wit: TPG taking 300,000-plus square feet; Blue Owl Capital taking 238,673 square feet; Bloomberg expanding to a head-spinning 924,876 square feet at 919 Third Avenue, which has not been the biggest least of 2024 … but is bigger than any lease signed in 2023.)

Beyond leasing

Gotham’s buildings are trading. (Or attempting to.) RFR just parted ways with 102 Greene Street for $46 million. Sage is offloading 767 Third Avenue for $88 million. And Durst is putting 675 Third Avenue on the market (and promoting it as a potential office-to-residential conversion) for $100 million.

And New York got some big news with Gov. Hochul’s reversal of her reversal on congestion pricing. Starting at the end of the year drivers into New York City will be charged $9 to enter Midtown.

Oh, and multifamily landlords were hit with another big cost. The New York City Council voted Nov. 13 to prohibit brokers hired by landlords from passing their fees on to renters. (Remember what we said about needing a lift?)

Miami gets hotter

It was not that long ago that we were seriously wowed when Ken Griffin plunked down $363 million just for the land to build the 54-story office tower of his dreams in Miami.

Well, it looks like Oak Row Equities is one-upping him.

The developer is in talks to buy a waterfront assemblage (with up to 3 million buildable square feet) from Aimco for a record-breaking $500 million.

While CO didn’t learn exactly what Oak Row is planning for the site —  which already consists of a 32-story office tower and a 31-story rental —  the smart money would be on luxury condos.

Because, isn’t everyone building luxury condos?

13th Floor Investments and Midtown Equities is building a 17-story development consisting of 23 condos and 40 hotel rooms at 3611 Collins Avenue in Miami Beach, and they just signed Casa Cipriani as part of the branding.

And Fort Partners landed a $110.7 million construction loan for the Kobi Karp-designed luxury condo Surf House at 8995 Collins Avenue.

OK, OK … South Florida isn’t all luxury hotels and condos. There are offices, non-luxury condos, and even retail.

If the New York office market is largely holding onto its blue-chip tenants, South Florida added one in the form of UBS, which inked a 33,180-square-foot lease at 4225 Ponce in Coral Gables.

And the refinancings are happening. Dallas-based Lincoln Property Company nabbed $68.2 million in refinancing from Barclays for the two-building, 465,000-square-foot Royal Palm Office Park in Plantation, Fla.

Plus, PGIM provided $171.4 million in refinancing to Branch Properties and Corebridge Real Estate Investors for their 1.2 million-square-foot, eight-property portfolio of grocery-anchored retail properties (in Florida’s Bradenton, Sarasota, Melbourne and Palm Coast as well as locations in the Southwest.)

Don’t forget about L.A.

This publication doesn’t often get to report on the machinations of singer-songwriter John Mayer, or the Charlie’s Angels director McG (birth name: Joseph McGinty Nichol), but when they buy a $40 million production lot that’s when we come in.

The duo just purchased the 80,000-square-foot Jim Henson Company Lot from (you guessed it) the family of the late great Muppeteer Jim Henson at 1416 North La Brea Avenue. And it looks like the Hensons did right by this deal: They originally purchased it for $12.5 million in 1999.

There’s also some attractive retail trading hands. Macerich is in contract to sell The Oaks shopping mall in Thousand Oaks to Stockdale Capital Partners for $157 million. The deal is expected to close by the end of the year.

Sunday reading

One of the asset classes that a lot of real estate professionals believed in during the pandemic was life sciences. It was one of the few property types that would never support work from home — those scientists need to be in a lab, not in their pajamas.

Some 20.5 million square feet was added to the market in the last year (almost 14 percent of the national inventory), according to a recent JLL report. However, occupancy has actually declined by 200,000 square feet.

Hopefully, though, things are turning around.

“I think that the worst is actually behind us,” said JLL’s Michelle Westoby. “We’ve been seeing an uptick in tour activity recently and increased transaction volume. We’re definitely heading into 2025 much stronger than we went into 2024. Tenant demand is also up, and, nationally, deal volume is up 14 percent year-over-year.”

And, if one wants to understand a life sciences cluster’s relationship to the surrounding community and its real estate, one needs to take a deep dive into Watertown, Mass.

This Boston suburb went from hardly any life sciences space in 2020 to nearly 4 million square feet today — almost all of which is spoken for, and there’s more to come.

The story of this remarkable town is definitely worth a leisurely read this Sunday.

See you next week.