As the city's real estate market tries to recoup losses in the pandemic's aftermath, exceedingly rare opportunities for building purchases will sprout up, says the owner of the Empire State Building.
"The crisis created by the capital dislocation, rising rates and heavy near-term market maturities will create a once-in-a-lifetime — once-in-a-generation — opportunity to buy into certain New York City assets," Empire State Realty Trust CEO Tony Malkin said on the firm's first quarter earnings call. "And we have begun to see cracks."
Malkin did not get specific about what distressed properties his company might target apart from saying that multifamily purchases would likely be the most straightforward, and office purchases would be the trickiest, with retail falling in the middle.
But the firm also spent much of the call touting the success of its own office portfolio despite the overall sector's ongoing struggles amid the persistence of remote and hybrid work. Its earnings report for the first quarter of 2024 showed that its Manhattan office properties were 92.7% leased, while its total commercial portfolio was 91.1% leased. Both figures were up year over year and quarter over quarter.
The company signed about 248,000 square feet of new leases, renewals and expansions across 23 deals. Highlights included an 11-year, roughly 57,000-square-foot lease with the trendy skin care company Sol de Janeiro at 1 Grand Central and Burlington Stores expanding to about 171,000 square feet on a 16-year lease at 1400 Broadway.
Empire State's office portfolio appears to be holding up better than Manhattan's overall office sector, which hit a record-high availability rate of 18.1% during the first quarter, according to data from Colliers. This has tempered the company's interest in office-to-residential conversions, despite growing momentum behind the idea and a new incentive package for them in the recently passed state budget.
"We certainly don't have anything in our existing portfolio for which it makes any sense because our portfolio is extraordinarily well leased," he said. "We do believe that we can find a lot of really good opportunities without the need to do office conversions into residential, so we don't put resi conversions from office high on our list of to-dos."
The firm's multifamily portfolio was 97.1% leased at the end of the quarter, a very slight drop quarter over quarter and year over year. Empire State purchased residential buildings at 561 10th Ave. and 345 E. 94th St. in 2022 and bought out its partners' 10% interest in the properties last quarter for about $14 million and the assumption of $18 million in debt.
And net operating income at the firm's famed Empire State Building observatory was up 13% year over year at $16.2 million, the earnings report says. This was down compared to the prior three quarters, but tourism is traditionally slower in New York at the beginning of the year.
Mark Zuckerberg’s fortune plunged $20 billion as shares of Meta Platforms tumbled, allowing Tesla’s Elon Musk to cement his status as the world’s third-richest billionaire.
Meta shares fell as much as 16% Thursday in New York after the social media company said second-quarter sales were likely to come in below estimates. Zuckerberg’s one-day drop in net worth is the fourth-largest ever related to a stock move among those in the Bloomberg Billionaires Index, with his fortune now at $155 billion. Musk, 52, gained $400 million in wealth to $178 billion as Tesla stock continued its post-earnings rally.
The two billionaires switched ranks earlier this month, when Zuckerberg, 39, overtook Musk for the first time since 2020 following news that Tesla’s vehicle deliveries fell in the three months through March.
Shares of Menlo Park, California-based Meta fell Thursday by the most since October 2022 after the company increased spending estimates for the year and projected second-quarter sales that were below Wall Street’s expectations, once again raising questions about whether its bets on artificial intelligence will eventually pay off for investors.
The stock is still up 22% for the year and has been trading near all-time highs for the past month, in part reflecting excitement around AI.
Shares of Austin-based Tesla surged 12% on Wednesday after Musk vowed to offer less-expensive vehicles as soon as this year, easing concerns about disappointing earnings results and diminished growth prospects. The stock was the worst performer on the S&P 500 Index before the rally, falling 42% through Tuesday’s close.
Musk derives his wealth primarily from his stake in the EV manufacturer, as well as his holdings in Space Exploration Technologies and X, formerly known as Twitter. Zuckerberg’s fortune is largely tied to Meta shares.
The two billionaires’ rivalry extends beyond their wealth: Musk and Zuckerberg have been engaged in an ongoing public spat that intensified when Meta launched Threads, a social-media platform that competes with Musk’s X. The two even traded barbs last year about a possible cage fight.
The number of New Yorkers commuting to work each week is nearly back to its post-pandemic peak.
The city's in-office occupancy clocked in at 51.4% for the seven day period ending April 17, up 1.4% from the week prior and just 0.7% from the city's post-pandemic peak, which it hit the week of Feb. 7 when office activity totaled 52.1% of what it was in 2019.
That's according to the latest data from real estate technology firm Kastle Systems, which tracks badge swipes at commercial office buildings in 10 major U.S. cities. Those metro areas are seeing similar trends as New York: Office occupancy across cities came in at an average of 51.9% last week, up slightly from where it has been in recent weeks.
Still, New York's return to the office rate continues to trail some major U.S. regions. The city lags behind Chicago, for example, the country's third largest city, where in-person activity clocked in at 55.9% of prepandemic levels. The city also sits behind major metro areas like Austin (67.4%), Dallas (59.8%) and Houston (59.4%).
On the other hand, New York's in-office recovery is slightly higher than that of Los Angeles, the country's second most populous city, which reported office occupancy of 47.1% last week. New York's rate also sits above that of Philadelphia (43.1%), San Francisco (43.8%), San Jose (42%) and Washington D.C. (48.9%).
Hybrid work makes it so not every day is created equal. Whereas Friday is the least popular in-office day, Tuesday is the busiest with New York clocking in at 64.3%, according to Kastle.
The Kastle Systems data represents commercial office buildings equipped with Kastle Systems security technology in 10 major U.S. cities and does not reflect a national average of the entire U.S. workforce.
Kastle’s tracker is one of multiple data points offering insight into the city's pandemic recovery.
The Real Estate Board of New York, for example, releases a separate report looking back at in-office visitation data each month. According to the latest REBNY, which analyzes mobile data provided by Placer.ai, New Yorkers were in the office during the month of February at a rate of 61% compared to prepandemic levels.
General contractor Hely Duarte is considering laying off half his workers because New York City’s transit system is halting most capital projects as its legal battle with New Jersey over congestion pricing lingers on.
The Metropolitan Transportation Authority, which runs the city’s subways, buses and commuter rail lines, has said that because of the litigation it can only commit to a quarter of the $12 billion it had planned to contract out this year to repair and update the aging system. The delay has reverberated down to small businesses — including those like Duarte’s that are owned by underrepresented groups the MTA has made a point of supporting. It awarded $833 million in contracts to about 500 minority- or women-owned businesses last year, more than any other state agency or authority.
Duarte’s Zion Contracting rehabilitates train stations and bus depots, with MTA projects accounting for nearly all his business. “The subways not only move people, it moves the economy,” Duarte said. “People rely on it to go to work, to go to school, to go to the malls. There is a lot of us that work to sustain that system and all that is being affected.”
The nation’s biggest transit operator plans to launch a first-in-the U.S. congestion toll in June by charging $15 to drive into Manhattan’s traffic-clogged central business district and bond against that money to modernize infrastructure that is more than 100 years old. But politicians in New Jersey and Staten Island, along with labor unions and district residents, are contesting the plan in court. That has forced the MTA to suspend awarding new construction contracts as long as the revenue stream that would fund them remains in limbo.
Contractors like Stacy Seecharan, owner and president of B&S Iron Works, have been left uncertain about normal purchasing decisions. Her Bronx-based shop fabricates steel to make handrails, canopies and mechanical closures to protect the subway system from heavy rain. But for now she’s stopped buying materials ahead of time even though prices continue to rise. The situation is even worse and more unpredictable than the pandemic, Seecharan said, when work resumed fairly quickly and businesses could still plan ahead.
“I’m in limbo basically,” Seecharan, who built her business and her career entirely on MTA projects, said in an interview. “I’m not sure if I should be taking any other work as yet because I don’t know what their situation’s going to be.”
The $15 toll would apply once a day to E-ZPass cars driving into Manhattan’s central business district, which begins at 60th Street and includes Midtown office buildings, Times Square, the Theater District and the World Trade Center. Passengers in taxis and other for-hire vehicles would pay a lower fee for each ride. It’s expected to bring in $1 billion a year, revenue that the MTA will borrow against to raise $15 billion for subway signal upgrades, new electric buses and a Second Avenue subway extension into Harlem.
But New Jersey Governor Phil Murphy and others are seeking to postpone or halt the tolling program. Those legal battles put the June start date at risk and forced the MTA in February to notify contractors that it would suspend entering into new construction contracts.
Murphy has said that congestion pricing will force New Jersey commuters who drive into the city to pay for the MTA’s expenses, and he wants a court to require the agency to delay implementation and undertake a longer environmental analysis to consider how the tolling plan would saddle his state’s residents with more traffic and pollution.
A report in February estimated the MTA will need $43 billion during the next five years for repair projects. Nearly 40% of its 6,500 subway cars are more than 30 years old. Almost 70% of its signaling system uses a structure that dates back more than century, requiring more space between trains to operate safely.
The MTA has already postponed subway signal upgrades in Manhattan and Brooklyn that would cut down on train delays and boost service for 1.5 million daily riders. Other projects are at risk of being sidelined: Extending the Second Avenue Subway to Harlem, accessibility projects at 20 different subway stations, $1 billion to replace subway cars from the 1980s and the purchase of 270 electric buses. Even some repair work to keep the system operational will have to wait.
The transit agency’s construction contracts are tools for advancing equity, Janno Lieber, the MTA’s chief executive officer, said during a March 7 event where he signed the Equity in Infrastructure Project Pledge, a national initiative to award more government contracts to small and disadvantaged businesses.
Lieber said the MTA is seeking to increase the number and size of contracts. But that will be difficult with the agency slowing down its capital work. Still he said “we’re confident that the court business is going to run its course in the next couple of months and then we’re going to be able to resume that.”
Jennifer Herman, owner of MKJ Communications, has built her business around providing intercoms, digital signs, closed-circuit surveillance equipment and street-level totems to the MTA. Herman now has more than 60 employees that she has spent time training. Retaining them without taking on more MTA work will cut into her already-narrow profit margins, but rehiring and retraining later on when activity resumes also has a cost, she said.
“Either way it’s a lose-lose game for me,” Herman said. “What’s better, keep an employee even if it’s going to negatively impact the financial aspect of the project or let them go and then try and rehire someone down the line when that job starts up again?”
Contractors and other small businesses who work for the MTA would need to pay the congestion toll when driving into the district. Trucks with an E-ZPass will pay $24 to $36, depending on their size, during peak hours. That’s an additional expense, but one that’s manageable, said Duarte, owner of Zion Contracting.
“The benefits outweigh the downside by a lot,” Duarte said. “The benefits of doing all these capital projects will improve the economy.”
Amid a housing shortage, only a few New York City neighborhoods are building the majority of new housing. The Department of City Planning on Thursday released two new interactive map tools illustrating where new housing is being permitted and built across the five boroughs by looking at City Council districts, community districts, and neighborhood tabulation [...]
The post New maps show which NYC neighborhoods build the most housing first appeared on 6sqft.
Leases
Finance firm inks deal in Midtown
Address: 675 Third Ave., Manhattan
Landlord: The Durst Organization
Tenant: Elite Financial Solutions
Lease size: 5,007 square feet
Asset type: Office
Brokers: Cushman & Wakefield’s Haley Templeton, Adam Ardise, Stephen Bellwood, Lei-Lani Keelan and Rachel Rosenfeld represented the tenant. Thomas Bow, Ashlea Aaron and Bailey Caliban represented the landlord in-house.
Sales
Fashion house picks up a third Midtown berth
Address: 730 Fifth Ave., Manhattan
Seller: Wharton Properties and Brookfield
Buyer: Prada Group
Sale price: $12.6 million
Asset type: Retail
Read more about the deal here.
Flatiron Building owner picks up office tower near City Hall
Address: 222 Broadway, Manhattan
Seller: DWS
Buyer: GFP Real Estate
Sale price: $147.5 million
Asset type: Mixed use
U.S. economic growth slid to an almost two-year low last quarter while inflation jumped to uncomfortable levels, interrupting a run of strong demand and muted price pressures that had fueled optimism for a soft landing.
Gross domestic product increased at a 1.6% annualized rate, below all economists’ forecasts, the government’s initial estimate showed. The economy’s main growth engine — personal spending — rose at a slower-than-forecast 2.5% pace. A wider trade deficit subtracted the most from growth since 2022.
A closely watched measure of underlying inflation advanced at a greater-than-expected 3.7% clip, the first quarterly acceleration in a year, the Bureau of Economic Analysis report showed Thursday.
The figures represent a notable loss of momentum at the start of 2024 after the economy wrapped up a surprisingly strong year. With the inflation pickup, Federal Reserve policymakers — who were already expected to hold interest rates at a two-decade high when they meet next week — may face renewed pressure to further delay any cuts and even to consider whether borrowing costs are high enough.
Treasuries slid and the S&P 500 opened lower, with traders pushing out the expected timing of the Fed’s first interest-rate cut to later this year.
“The hot inflation print is the real story in this report,” Olu Sonola, head of U.S. economic research at Fitch Ratings, said in a note. “If growth continues to slowly decelerate, but inflation strongly takes off again in the wrong direction, the expectation of a Fed interest rate cut in 2024 is starting to look increasingly more out of reach.”
The first-quarter pickup in inflation was driven by a 5.1% jump in service-sector inflation that excludes housing and energy, nearly double the prior quarter’s pace. March figures on inflation, consumer spending and income are due Friday.
Federal government spending subtracted from GDP for the first time in two years. Business inventories dragged for a second straight quarter.
Stripping out inventories, government spending and trade, inflation-adjusted final sales to private domestic purchasers — a key gauge of underlying demand — rose at a 3.1% rate.
The GDP report showed outlays for services rose by the most since the third quarter of 2021, fueled by health care and financial services. Spending on goods decreased for the first time in more than a year, restrained by motor vehicles and gasoline.
Residential investment jumped at a nearly 14% annual rate, the fastest since the end of 2020 and underscoring builder efforts to boost inventory.
At next week’s Fed meeting, traders will parse Chair Jerome Powell’s comments for clues about the latest thinking around easing policy. He’s previously said that growth can run at a faster rate without stoking inflation thanks to supply-side improvements like immigration, which is boosting the size of the workforce.
Separate data out Thursday showed initial applications for unemployment benefits fell to 207,000 last week, the lowest level in two months. Continuing claims also decreased.
The GDP and inflation figures represent more hurdles for President Joe Biden, who has been trying to convince Americans he’s been doing a good job on the economy. Consumer sentiment has moved sideways in recent months, and voters in key swing states are pessimistic about the outlook.
Prada seems to have tied up some loose ends in Midtown.
The Italian fashion giant has bought a storefront space on West 56th Street to complement the blockbuster $822 million pickup it completed on Fifth Avenue at the end of last year.
The new site, which is tucked inside the Crown Building, the hotel-and-condo redevelopment project from Aman Resorts, sold for $12.6 million, according to a deed that appeared in the city register Thursday.
There's some ambiguity about the seller of the property, which sits in a glass-walled wing of the Crown. On the deed the seller is listed as the developer Brookfield, which controls the bulk of the retail square footage at the site after acquiring it from General Growth Properties in 2018 as part of a $9 billion merger.
But other sources close to the deal say the seller of the property, at an intersection considered the highest-profile shopping strip in New York, was in fact the developer Wharton Properties, a former Crown investor that also happens to be the firm that sold Prada the other two properties. In fact, Prada’s new berth is directly behind 720 Fifth Ave., one of the two buildings involved in the 2023 deals.
The complicated Venn diagram of ownership of the Crown Building, which also counts the firm Shvo has an investor, may be contributing to the confusion.
An email sent to Prada Group’s press office was not returned, and both Brookfield and Jeff Sutton, Wharton’s founder, had no comment.
Prada provided a notable lift to the fortunes and spirits of the beleaguered commercial real estate sector when it grabbed 720 Fifth for $397 million and next-door 724 Fifth for $425 million from Wharton in December.
Seemingly not content to just be a tenant at 724 Fifth, where it has leased a berth for years, Prada made a move to buy its home outright, while also picking up an adjacent property long occupied by the clothing chain Abercrombie & Fitch.
Prada’s hefty investment also seems to epitomize a broader trend of luxury retailers deciding that a better way to lock in costs in an inflationary era is to own properties as opposed to renting them, though Prada had apparently considered buying a permanent home for years.
Still, a few weeks after Prada’s deals closed, Gucci’s parent, Kering, dropped a staggering $963 million for the retail portion of 715-717 Fifth, across the street.
The Crown Building, whose official address is 730 Fifth Ave., is a 1921 office building with a pyramidal top made over in the past few years as an 83-room hotel layered beneath a 26-unit condo. Though Aman and its development partners contained much of the redevelopment inside the prewar structure’s walls, they also added a wing, which faces West 56th and offers the entrance to the condo section.
Condo sales have been brisk at Aman’s condo though the pandemic, though secrecy shrouds most of the buyers because they completed their purchases using opaque shell companies. The developer sold the last sponsor unit in March. The condo is now in resales mode, with sellers apparently hoping for big returns.
An 18th-floor three-bedroom with a private outdoor pool that went for $35 million in 2022 hit the market March 22 at an asking price of $40 million. And on Thursday, a second owner also took a stab at a flip, listing a 19th-floor three-bedroom that cost $22 million for $28 million, a 27% markup.
Aman Resorts, whose CEO is Vlad Doronin, hauled in $893 million from sponsor sales at the Billionaires Row property, according to its offering plan.
Prada seems to have tied up some loose ends in Midtown.
The Italian fashion giant has bought a storefront space on West 56th Street to complement the blockbuster $822 million pickup it completed on Fifth Avenue at the end of last year.
The new site, which is tucked inside the Crown Building, the hotel-and-condo redevelopment project from Aman Resorts, sold for $12.6 million, according to a deed that appeared in the city register Thursday.
There's some ambiguity about the seller of the property, which sits in a glass-walled wing of the Crown. On the deed the seller is listed as the developer Brookfield, which controls the bulk of the retail square footage at the site after acquiring it from General Growth Properties in 2018 as part of a $9 billion merger.
But other sources close to the deal say the seller of the property, at an intersection considered the highest-profile shopping strip in New York, was in fact the developer Wharton Properties, a former Crown investor that also happens to be the firm that sold Prada the other two properties. In fact, Prada’s new berth is directly behind 720 Fifth Ave., one of the two buildings involved in the 2023 deals.
The complicated Venn diagram of ownership of the Crown Building, which also counts the firm Shvo has an investor, may be contributing to the confusion.
An email sent to Prada Group’s press office was not returned, and both Brookfield and Jeff Sutton, Wharton’s founder, had no comment.
Prada provided a notable lift to the fortunes and spirits of the beleaguered commercial real estate sector when it grabbed 720 Fifth for $397 million and next-door 724 Fifth for $425 million from Wharton in December.
Seemingly not content to just be a tenant at 724 Fifth, where it has leased a berth for years, Prada made a move to buy its home outright, while also picking up an adjacent property long occupied by the clothing chain Abercrombie & Fitch.
Prada’s hefty investment also seems to epitomize a broader trend of luxury retailers deciding that a better way to lock in costs in an inflationary era is to own properties as opposed to renting them, though Prada had apparently considered buying a permanent home for years.
Still, a few weeks after Prada’s deals closed, Gucci’s parent, Kering, dropped a staggering $963 million for the retail portion of 715-717 Fifth, across the street.
The Crown Building, whose official address is 730 Fifth Ave., is a 1921 office building with a pyramidal top made over in the past few years as an 83-room hotel layered beneath a 26-unit condo. Though Aman and its development partners contained much of the redevelopment inside the prewar structure’s walls, they also added a wing, which faces West 56th and offers the entrance to the condo section.
Condo sales have been brisk at Aman’s condo though the pandemic, though secrecy shrouds most of the buyers because they completed their purchases using opaque shell companies. The developer sold the last sponsor unit in March. The condo is now in resales mode, with sellers apparently hoping for big returns.
An 18th-floor three-bedroom with a private outdoor pool that went for $35 million in 2022 hit the market March 22 at an asking price of $40 million. And on Thursday, a second owner also took a stab at a flip, listing a 19th-floor three-bedroom that cost $22 million for $28 million, a 27% markup.
Aman Resorts, whose CEO is Vlad Doronin, hauled in $893 million from sponsor sales at the Billionaires Row property, according to its offering plan.