Sunday Summary: The Rise of the $300-Per-Square-Foot Office

Earlier this spring, Class A office developers the city over felt their hearts go pitter-pat.

Soloviev Group had set a New York City record: $340 per square foot at 9 West 57th Street. (Widely misreported as $327.50 at the time.)

How did we get here? How did New York City go from a handful of leases that had barely cracked the $200-per-square-foot barrier (and the vast majority well below) all the way up to $340? That was the question Commercial Observer sought to answer last week.

To be clear, Soloviev is not the only company to have cleared such a lofty bar.

Citadel head Ken Griffin was the first to throw down way back in 2016 when he could tell which way rents were going and ponied up for the top floors of L&L Holding Company’s still-under construction 425 Park Avenue.

“Ken Griffin is a man who’s familiar with pricing and auctions,” said CBRE’s Mary Ann Tighe, who marketed 425 Park. “There’s an auction price where you’re competing in the market, or there’s a ‘buy it now’ price where you take it off market. … That’s how we achieved the first $300 rent, because Ken Griffin said, ‘I get it. I understand. I want it now. I’m taking it off the market.’”

Of course, that price point will remain rarefied for quite some time. “These are outliers, not the baseline,” Victor Rodriguez, senior director of market analytics for CoStar Group, reminded CO. And, in a normal neighborhood like, say, Hudson Square, the average price per square foot is an extremely respectable $90 or so per square foot.

That being said, “There are definitely discussions for several new construction buildings that are well above $300 per square foot,” said Cushman & Wakefield’s Michael Movshovich. “I think it is likely that there will be at least one transaction around $350 per square foot, or potentially a bit above it, before the end of the year.”

So, get ready, people. With not a single piece of new construction to be unveiled in the Manhattan office sector in 2027, this market could get even crazier.

Deals, deals, deals

Indeed, the deals were certainly flowing last week in New York City — and beyond.

In the Big Apple, SL Green Realty (which has one of those $300-PSF leases at One Vanderbilt) sold a 49 percent stake in 346 Madison Avenue to Mori Building Company, which valued the property at $175 million. The pair are now planning a new Class A tower there.

After a massive 164,545-square-foot lease last June at 229 West 43rd Street (the former New York Times Building), the media company Versant decided it could go even bigger, adding 84,509 square feet to its footprint and bringing its total to 249,054 square feet at the property.

Gary Barnett’s Extell Development spent $39 million to purchase 165 East 56th Street (because … it’s Sunday and Gary had nothing better to do this week?) and Capstone Equities decided to plunk down $51.4 million for 140 Crosby Street in SoHo.

And New York City’s world of drinking, dining and retail seemed to crave new spots to showcase their wares:

Stout NYC, the Irish pub, took a 13,900-square-foot lease at 373 Park Avenue South. (Slàinte!)

Who says the written word is dead? Book superstore Barnes & Noble took an 11,300-square-foot retail lease at Steiner NYC’s 181 Avenue A.

Last, but certainly not least, SomeraRoad bagged one of the best names one could get in F&B for the former Hotel Bossert at 98 Montague Street: Danny Meyer’s Union Square Hospitality Group.

… and beyond!

Last week’s big deal would have to be Tilman Fertitta’s acquisition of Las Vegas casino operator Caesars Entertainment for… $17.6 billion.

We feel bad for anyone trying to top that, but there were a number of other deals that caught our eye.

Bain Capital and 11North Partners are shelling out a good $300 million for five open-air malls across four states.

Walmart Realty (the real estate arm of Walmart, obvi) bought a 507,000-square-foot cold-storage facility in the Inland Empire from State Street Corporation for $223 million.

DLC Management and Principal Asset Management put down (we think) $114 million for Legacy Place, a 419,936-square-foot, open-air shopping center in Palm Beach Gardens, Fla.

And Harbor Group International, the Garrett Companies and Telis Group scored a $351 million loan facility to refinance eight developments in four states comprising 1,572 rental units.

Housing initiatives, mayoral races, and AI brokering

New York Mayor Zohran Mamdani unveiled a new initiative last week called “Block-by-Block: The Housing Plan for a New Era” which the administration is hoping will forge a whopping 200,000 new homes in Gotham, as well as lower rental rates and subsidized housing for low-income New Yorkers by stabilizing another 200,000 units.

This was greeted with tentative approval by some in the real estate world.

“Mayor Mamdani has put forward a wide-ranging housing plan that we look forward to reviewing and assessing how its pieces come together to drive production and improve affordability,” said Real Estate Board of New York President James Whelan — but he also questioned the $40-per-hour minimum wage for union laborers on these projects included in the mayor’s proposal.

Others were blunter in their assessment.

“The uncomfortable truth is that many of the policies surrounding New York housing today are making both preservation and production materially harder, not easier,” wrote Bob Knakal in a column for CO. “If we continue down this path, the rent-stabilized housing stock in particular will deteriorate before our eyes while new housing production continues to collapse.”

But those are the conundrums at the heart of NYC’s housing policy. The local pols and the industry often can’t decide what to prioritize: good wages, good housing, or cheaper construction. No one has ever figured out how to do all three.

Of course, this is not just a New York problem. Los Angeles has a lot of the same housing issues in its upcoming mayoral election, and it seems few in real estate are satisfied with their options.\

But, while we’re talking California, if you want something interesting for this Sunday, check out how NewMark Merrill Companies’ Sandy Sigal is using AI to find tenants to fill his malls — and actually using the technology to come up with persuasive arguments for getting reluctant retailers to sign on the line that is dotted.

See you next week!