Sunday Summary: Back to the Billion-Dollar Days?

It was not so long ago that a sizable, well-positioned office building in Midtown Manhattan could fetch a billion dollars on the open market without breaking a sweat.

Are we about to go back to that?

The State Teachers Retirement System of Ohio seems to think so. They put a famed, 1 million-square-foot asset — 590 Madison Avenue, also known as the IBM Building — on the market for $1.1 billion last week. (Gary Phillips, Will Silverman and Roy March at Eastdil Secured got the plum assignment.)

If the right buyer is found at that price, it will be the first $1 billion-plus trade for a Manhattan real estate asset since 2022. (Although Kering came close when it purchased 717 Fifth Avenue last year for $963 million. Another Phillips and Silverman production!)

And there’s a pretty good reason to think that a well-situated office could do well. “As of now, the macroeconomic environment as it pertains to property is largely favorable,” said Cushman & Wakefield (CWK) CEO Michelle MacKay during the company’s earnings call last week. “The economy is growing, creating jobs. Corporate profits are healthy. Odds of a recession have receded.

“All of these factors have created a healthy backdrop for leasing, and our own performance confirms that leasing has momentum, as we have now had five straight consecutive quarters of year-over-year leasing revenue growth.” (JLL had a similar story to tell on its earnings call. And, not only did ESRT have its best leasing year since 2019, but it also signed a big, fat renewal and expansion with iCapital that totaled 219,928 square feet.)

Of course, the B-word has been a little more free-flowing when it comes to financing.

Blackstone (BX) scored a three-year extension on a $1.3 billion CMBS loan on Willis Tower in Chicago. (Fun fact: Back when Willis Tower went by the moniker Sears Tower, it was the tallest building in the world, and it’s made some memorable movie cameos. Alas, the world record is no longer true. Thanks a lot, Petronas Towers and Burj Khalifa.)

And there are still a number of multibillion-dollar projects in the works.

Like the $5.2 billion One Beverly Hills that Cain International is forging in — you guessed it — Beverly Hills. Last week the developers bagged a $300 million investment from Vici Properties and Eldridge Industries in the 17.5-acre project, which the developers hope to finish in time for the 2028 Los Angeles Olympics. (Vici sounds like they’ve got money to spare after their most recent earnings call.)

Hi, Gary!
It’s been a couple of months since we’ve heard from Gary Barnett, but we can never stay away that long. Or, rather, he can’t stay passive for that long.

Extell Development just laid out $24.8 million for 15 West 46th Street from the Bassalali and Hematian families, prominent names in the jewelry business (which Barnett got his start in).

Where did Barnett get the capital for that purchase? Could it be the retail condominium that he sold at 171 West 57th Street for $25 million to Cindy Chan? (Actually, probably not. But the figures are coincidentally similar.)

What is Barnett going to do with his new West 46th Street property?

Extell is not telling. But one thing we can say after Barnett filed plans in December to build two residential towers on the Upper West Side, got a $1.2 billion loan for a 127-unit condo down the block from those two towers last summer, and announced a partnership with Ikea franchisee Ingka Group on a 29-story mixed-use building at 570 Fifth Avenue is that this guy is not shy about this market.

Disruption cometh
One thing about 2025 that is slowly dawning on us all is that it’s going to be a year of disruption.

Just a month into the new federal administration, Elon Musk’s Department of Government Efficiency (DOGE) has terminated (or quietly allowed to expire) some 2.3 million square feet of federal leases across the U.S., according to DOGE’s government website.

Also, a big wrench was thrown into New York City’s congestion pricing plan when the Federal Highway Administration revoked federal approval for the $9 tolls going into central Manhattan.

And then there’s the little matter of Gotham’s mayor, Eric Adams, who (as of Friday afternoon) was not expelled from his job by Gov. Kathy Hochul, despite the fact that allies are leaving him in droves.

But we should all recognize that disruption is probably going to spread beyond the realm of politics. The big, looming disruption question is what artificial intelligence does to the working world that we were all once familiar with. (Hey, did you hear that Henry AI just raised $4.3 million? And data center developers like DigitalBridge raised a hair-raising $9 billion last quarter?)

Moreover, disruptive technology will face its own disruptions — namely, the electrical supply issue.

With hundreds of billions of dollars primed to be invested in new data centers, is our electrical grid capable of handling a sudden surge of activity? Some are extremely skeptical the grid can handle future demand.

“There’s no doubt we’re seeing strains on the grid from a couple different levels, and one is the ability to transmit power from the generation source to the data center,” said Carrington Brown, senior managing director at Affinius Capital. “If you look at the size of the industry, it’s growing 25 percent to 30 percent per year in terms of total power, but more generation and transmission capacity is needed to meet demand we’re seeing today and into the future.”

Of course, smart minds are already thinking about adaptation and change, not just in the AI/data center space but also in heretofore unaffected areas of real estate that are ripe for sudden change.

“The architecture, design, real estate and construction industry has never really experienced massive disruption,” Jordan Goldstein of Gensler told Commercial Observer in a joint sit-down with his co-CEO, Elizabeth Brink. “Buildings and the process itself hadn’t changed, really. There’s design process, bid process, build process. But with AI, it just feels like there’s a wave of disruption that’s coming into this industry.”

Gensler has already tried to get a jump on this by creating their own software in-house with items like gBlox, gFloorz and gDiffusion (Goldstein: “We always put a G in front of everything.”) to help with design. But to find out more you’ll have to sit down and read the interview with the two titans of architecture.

See you next week!