Sunday Summary: Nobody Knows Anything

William Goldman, the late, legendary screenwriter of favorites like “Butch Cassidy and the Sundance Kid,” “All the President’s Men,” “The Princess Bride” and “Marathon Man,” famously had a line about the movie business that resonated only as something that’s profoundly true does:

Nobody knows anything.

Goldman was talking about what works on the screen (and at the box office) versus what doesn’t — but he could have just as easily been talking about the U.S. economy circa 2025.

Recession? Inflation? Credit crunch? Bull market?

Any of the above can happen, and each scenario has its persuasive defenders.

For the moment, let’s talk about retail. We’re seeing very mixed signals in the market.

Putting aside the big question mark around tariffs, there’s bad and good news to report. For instance, on Friday, the California-based fast-food chain Jack in the Box announced it was closing 150 to 200 underperforming locations. That’s never a great sign.

Likewise, mall giant Unibail-Rodamco-Westfield is delinquent on payments on its 1.7 million-square-foot Westfield Wheaton in Maryland, which was transferred to special servicing. Also, not good.

But then you see something like Acadia Realty Trust plunking down $60 million to buy three Williamsburg, Brooklyn, retail properties from City Urban Realty after dropping another $47 million a week earlier for 85 Fifth Avenue, and you start to rethink things.

Moreover, there were healthy retail leases — at least in New York.

In Williamsburg at 774 Grand Street, Whole Foods is opening a 10,707-square-foot… bodega? Yup, that’s the plan. (We’re not sure we’ve ever heard of a bodega that big, but there’s always a first.)

Luxury clothing and decor shop L’Ensemble inked a 1,121-square-foot lease at Two Trees Management’s 99 Water Street in Brooklyn; the 90-plus-year-old Italian steakhouse Pietro’s plans to reopen in 5,022 square feet at Stellar Management’s 890 Second Avenue (they lost their previous lease at 232 East 43rd Street); and Estée Lauder leased not one but four adjacent SoHo storefronts at 120 through 126 Prince Street, which the company intends to turn into four separate showcases for different Estée Lauder brands.

In the end, much of retail and hospitality will come down to the individuals. REITs like Vici, which are invested in hospitality and gaming, are projecting a brave face for whatever comes down the pike, as Vici CEO Ed Pitoniak told CO in last week’s cover story.

Let’s talk about office

It’s a slightly different story for office — but still one that tells both a positive and a negative tale at the same time. During the pandemic, the asset lost a lot of ground that landlords are still making up. But, up until April 2, it was being made up fast.

Indeed, there have been months of 100,000-plus-square-foot leases in Gotham, and even previously battered markets like San Francisco have not been looking so bad. That trend continued last week with deals like coworking company ElevatedNY bringing its footprint up to 130,000 square feet at the Hippodrome Building, and law firm Benesch Friedlander Coplan & Aronoff taking 90,000 square feet at Paramount Group’s 1301 Avenue of the Americas.

Even Class B office space, which had long been dismissed as a largely toothless force in city real estate (and certainly not to be compared to the likes of  One Vanderbilt or Hudson Yards), has started to see some turnaround. Leasing volume in the first quarter of the year was 25 percent above its 10-year average, with availability trending downward.

“We ended the quarter with strong pipelines,” said Bob Sulentic, CBRE (CBRE)’s chair and chief executive officer, on the company’s earnings call last week before adding, “but some corporations who are uncertain about what’s going to happen to them due to the tariffs, whether we might go into a recession, have started to slow down on some of their bigger programs.”

Which sort of sums things up in the world of office more broadly: One step forward, one step back.

Yes, offices (and other forms of real estate) are still untangling themselves from financials that got scrambled when interest rates shot up. Even relatively healthy buildings, with good occupancy, have found themselves in special servicing lately.

And, beyond office, seemingly safe assets have had to rethink things. CO reported last week that Amazon Web Services is re-evaluating a number of data center leases.

Sluggish assets like life sciences are certainly not getting a boost from the cuts planned by the National Institutes of Health and the U.S. Department of Health and Human Services.

“The market wants to keep moving forward, but there are just a lot of headwinds,” said Scott Metzner of Janus Property, “and this NIH uncertainty is one more headwind.”

True enough. Thankfully, one can distract oneself with a nice William Goldman movie. May we suggest his adaptation of the Stephen King novel “Misery”?

See you next week!