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No One at the Wheel: What Will Driverless Cars Do To Real Estate?

To say that the introduction of driverless vehicles will have both macro and micro effects is a macro understatement.

Automation has and will continue to change the way Americans travel, commute and consume, distribute and own things—everyone from economists to Facebook’s Mark Zuckerberg agrees. And driverless cars are on their way. With Intel’s August acquisition of sensor and navigation software firm Mobileye, another major company formally entered the cutthroat race to develop mass-market driverless cars. Both Ford and GM have already acquired software and artificial intelligence companies; Tesla offers an “autopilot” feature, and Elon Musk contends his Tesla cars ship with adequate hardware to go driverless already. The House of Representatives, in early September, approved legislation that paves the way for driverless cars to, well, get on the road. Comparable legislation has been introduced in the Senate.

What will the inevitable shift toward cars that drive (and park) themselves do to the real estate market? That’s one thing no one agrees on, yet.

“I think the future rarely plays out the way people anticipate that it will,” said Seth Pinsky, an executive vice president at RXR Realty and former president of the New York City Economic Development Corporation. “I think it’s very difficult in the real world to know that what you’re doing will avoid obsolescence many years down the line.”

It’s perhaps a fool’s errand to attempt to anticipate what something as profound as self-driving cars might do to any industry, but Commercial Observer learned that many of the largest real estate companies feel that—at this point—they have no recourse but to try.

The general sense is the industry got caught flat-footed with the housing crisis. It doesn’t want to repeat that with self-driving cars.

Tech experts and real estate pros say the possible effects range from different underwriting to societal upheaval. One industry leader believes that a significant percentage of the American workforce could be rendered moot—and how many office buildings will we need when no one has a job? To say nothing of what that does to the housing market.

At the other end of the spectrum are more immediate, practical changes. For instance, it seems likely real estate developers will build less parking in the future, as the personal vehicle fades from view (not that this is as big an issue in New York City as it is in the rest of the country, but it’s certainly something to consider).

Real estate executives find themselves pondering the smaller, pragmatic choices they face as they brace for the pending larger, more fundamental challenges to their business. Changes in demand and valuation for certain kinds of real estate are already being felt, partly in anticipation of driverless cars’ ubiquity and partly because ridesharing is already a preview of the changes we’re likely to feel.

“For every disruption there is opportunity,” said Spencer Levy, the head of research for the Americas at CBRE. “[But] there are going to be unexpected impacts on certain areas of commercial real estate [no matter what].”

Nico Larco, an architecture professor and co-founder of the Sustainable Cities Initiative at the University of Oregon, was less circumspect. “Land valuation should, in theory, go completely crazy,” he said.

If the cost of transport plummets, it won’t matter nearly so much what’s nearby (unless it’s so nearby it’s walkable).

“The things that will retain value will be based on things that are next to it that create buzz,” Larco argued. “It’s not that distance won’t matter, but it will matter less.”

As a result, real estate is atwitter about driverless cars, with both doomsaying and unbridled optimism—at least on the surface—on show in equal measure.

“It’s like, this weird time where it’s obvious this is going to be a transformative moment in real estate,” said Brandon Huffman of real estate investment manager Rubenstein Co. “There are all types of theoretical social impacts, including job loss across the board.”

The real estate industry might not need to panic yet, because technologists are taking a longer view. Robert Seidl, a managing partner at Motus Ventures, a fund that focuses on transportation and related industries, is surprisingly sanguine about the issue.

“I think we’re a good 10 or 15 years out on a scale where typical pedestrians would see it,” Seidl said. “Just like electric vehicles take up a tiny, tiny part of the electric space, though they have been poised to take off for a long time.”

John Krafcik, the chief executive officer of Waymo, Google’s robocar company, said much the same thing at Bloomberg’s recent “Sooner Than You Think” conference at the Cornell-Technion campus.

“It’s going to be a transformative technology,” Krafcik said, “but it’s going to unfold over quite a long period of time.”

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Google’s Lexus RX 450H Self Driving Car. Photo: Mark Wilson/Getty Images

The Death of the Parking Lot

While Huffman believes we’re 10 years away from a full shift away from personal automobiles, he said the way owners value office buildings is already changing.

“For urban office [product], one-third of the value is in the parking,” Huffman said.

As parking becomes less important, the underwriting to buy and finance such buildings will have to change. Already, those revenue streams have been impacted by Uber, Lyft, Via and the like, he added. “That cash flow is dropping off a cliff,” he said. “We are very wary of investing in a property where value is predicated on parking.”

Levy said developers are more often “opting for horizontal parking decks instead of ramped decks,” because they will be easier to convert to another use when parking is no longer needed.

Georgia Tech City and Regional Planning Professor Subhro Guhathakurta recently supervised research modeling self-driving cars’ impact in the Greater Atlanta area. “We found almost 90 percent of parking would not be necessary,” he told Commercial Observer.

Michael Comras, a Miami-based developer and the owner of an eponymous retail brokerage, said civic leaders are ahead of the curve on the parking issue, like the Miami Beach Planning Board director who told Comras he wishes the city would no longer require parking for new developments.

“Over time, I think this will become more prevalent,” Comras said. In San Francisco, the city has relaxed parking requirements for new buildings, where “a half dozen” residential projects have been built without parking included in recent years, according to the San Francisco Examiner.

Still, what will happen to the existing oceans of parking surrounding suburban apartment buildings, malls and big-box stores? Build on it or raze everything? It could go either way.

Those spaces are already seeing less use thanks to ridesharing.

Ridesharing with drivers will probably never be profitable, so Seidl predicts strange days ahead as the ridesharing startups run out of venture capital money before the software can drive cars.

“We might actually see—before we go forward—a few steps back,” Seidl said.

If Lyft and Uber can’t make money with drivers, they could run out of investor cash before the technology that will save their businesses is ready. If that happens, lawmakers might lose the will to write rules for this new industry. That’s where we might see steps backward.

On the other hand, were the ridesharing companies to wither on the vine, the carmakers might be ready to take their place. That means Detroit still has a shot at dominating the future of the automobile.

Of course, driverless cars will still have to be stored somewhere even if there should likely be many fewer cars in aggregate. Huffman imagines that most people won’t own their own cars. Krafcik described a future where each car costs more and a rider has to pay some kind of subscription to the cloud intelligence that drives it.

On multiple levels, every mile in a self-driving car will cost more, but transportation will probably still make up less of the average American’s budget because people will pay per ride. Levy said many businesses and offices will develop a drop-off and pick-up format, like airports have currently.

There is a consolation prize for the consumer to counter the unpleasantness of continually being dropped off at the airport: the concomitant death of traffic. As smarter cars, which communicate with one another, rule the road, hesitation and error will be nearly eliminated. A surprising side effect of this, in Huffman’s view, will be how viable suburban living could become.

“The biggest problem with living in the suburbs, which is dealing with the commute, is eliminated,” Huffman said, because not only will traffic be largely mitigated but also the car becomes another space where many people can get work done (if you don’t get motion sickness, of course). As the millennial generation—already about a quarter of all Americans—forms households and has children, their renewed interest in the suburbs, which is already evident, is likely to grow, he added. Indeed, almost 50 percent of millennial U.S. homeowners lived in a suburban market in 2016, according to Zillow’s Group Report on Consumer Housing Trends. Meanwhile, 33 percent lived in urban markets—figures contrary to the received wisdom that millennials largely reside in cities (the rest live in rural communities).

But foretelling the death of traffic could be premature. Robin Chase, the founder of Zipcar and an investor in self-driving car companies, said last year that traffic could be just as bad or worse with all the deliveries self-driving cars will make. Policymakers need to think now about rationing those trips.

Policymakers also need to think twice about closing down mass transit options. Even in the robot car future, the dedicated lanes of a rail system could remain the fastest route for many commuters.

Public transport dollars are very long-term dollars, Seidl cautioned. “If they shut down, they are not coming back,” he said.

But there are significant hurdles to a suburban renaissance, as author Richard Florida pointed out in his book The New Urban Crisis. “With their enormous physical footprints, shoddy construction, and hastily put-up infrastructure, many of our suburbs are visibly crumbling,” Florida wrote. The cost of reinvigorating them will not be minor.

Seniors are also likely to be more mobile and self-sufficient with driverless cars providing goods seamlessly and easily escorting the elderly to their doctor appointments and bridge games. The result? Senior housing might not be as important, Levy said.

The sectors that attract the most capital now could be uprooted by this technological change, from senior housing (which provided an average 13.64 percent return on investment over the seven full years prior to second-quarter 2017, per CBRE) to urban housing (about $158 billion in trades in the multifamily sector closed in the U.S. last year, according to data from Real Capital Analytics). Suburban housing and office buildings may recoup those sectors’ losses. “Demographically, [senior housing] looks like a great place to go,” Levy said. “But this is the type of disruptive technology that could change demand.”

The return of the suburbs could in turn reinvigorate the suburban office market, which is practically a dirty word in real estate these days.

“The pendulum may swing back” for the maligned asset class, said Daniel Parker, a senior vice president with Hodges Ward Elliott, an investment sales and real estate financing brokerage. “More and more places could be viable office districts.” One day, inking a lease in Midtown South might not be payday for brokers as it has been of late.

Larco agreed that the suburbs could win. “We point toward more and more sprawl,” he said. “The rest of the city should see a drop in value.”

Guhathakurta isn’t so sure. “Our conclusion was that there will be some amount of dispersion, but it’s not going to be so dramatic as other people have been afraid of,” he argued.

This can be explained in part by price. People behave very differently when a cost is fixed versus when a cost is marginal. Because they pay money each time they get in a car, people who rely on ridesharing take fewer trips than people who own cars. Even if the overall cost is lower, consumers will be aware that they are paying something every time they ride.

Suburbanites without cars will also face a new cost of transport: waiting. If the out-of-pocket cost drops with ridesharing, waiting for your car will be a new cost. Denser areas should have shorter waiting times, though.

Both of these factors could constrain the pressure to live farther away.

Or Musk will invent something no one anticipates that makes owning robot cars super cheap, too. Then, all bets are off.

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Local Motors’ Olli automated trolley car. Photo: Local Motors

Pilot Cities

These days, the U.S. is usually left in other countries’ dust when it comes to rolling out infrastructure—just ask anyone who has used Wi-Fi in South Korea. It’s likely that driverless cars, though developed at least in part by American companies, will be no exception, sources said.

Israel, Singapore and other Asian countries are much more likely to become a lab for driverless cars’ implementation than the U.S. for regulatory and logistical reasons, they said.

In the U.S., metropolises could also easily become “have and have-not” cities, Levy said.

In Ann Arbor, Mich., for instance, you can already navigate the University of Michigan’s engineering campus via driverless shuttle buses developed by a French company, NAVYA, as The New York Times reported in July. NAVYA recently opened its North American headquarters in Saline, Mich. It’s one of several companies betting that small commuter buses will be the West’s gateway drug to life without steering wheels. A similar company, EasyMile, also just opened offices in Colorado.

America also has its homegrown trolley companies, such as Local Motors in Chandler, Ariz., which makes a trolley called Olli that can only be described as adorable (like a shoe box with all its edges rounded off and little wheels on the bottom). Seidl’s partial to one of his portfolio companies, which retrofits existing shuttles and cars, Auro Robotics.

All of these companies agree that university and corporate campuses, resorts and amusement parks will see the driverless renaissance first. “Where you have a private, large-ish area and private roads,” Seidl said, “you can go to implementation much faster.”

Meanwhile, in Pittsburgh, Uber’s attempt to roll out driverless cars for ridesharing with the mayor’s blessing seems to be falling apart after nine months, as the Times also reported. The startup allegedly began charging for rides despite its initial promise that they would be free while part of the pilot program, causing Mayor Bill Peduto to lose political capital. City officials and citizens are frustrated that Uber has not created any of the jobs it promised or even shared the traffic data generated by its cars.

But the experimentation in trucking has begun. Uber-owned Otto has already made one autonomous delivery in Colorado. The vehicle automation firm Peloton Technology is winning new laws across the country that lets diesel trucks talk to each other so they can drive very close together, reducing air resistance and fuel costs for trucks. And Starsky Robotics is testing a platform in Florida where humans are still needed, sometimes, but they can drive via remote control from a cubicle in an office.

Distribution Revolution

Driverless cars and improved drone technology, which economists and futurists are even more sure is on its way, will only further cement Amazon’s role as America’s distributor of choice.

“The highest cost in the supply chain for shipping is labor,” Levy said. Eliminating that cost is an obvious call, and driverless cars are going to help. Amazon, needless to say, is likely to be at the forefront of this effort.

Seidl echoed this sentiment. “For Amazon, the end of the supply chain is the house,” he said.

But there’s good news for brokers. While everyone we spoke to generally agreed that warehousing will largely get bigger and more spread out, Larco added that there will also be a need for lots of small warehouses in the most dense urban areas. In fact, we already see Amazon doing just that in New York City with a 50,000-square-foot facility in Midtown and the forthcoming massive fulfillment center on Staten Island. Maybe that’s what we can do with the parking garages?

Various accommodations to facilitate drop-off in urban areas will be needed. Think of how, when Fresh Direct launched its business, New Yorkers complained bitterly about the trucks pausing in the street for deliveries. A whole infrastructure to handle driverless cars’ arrival will be necessary.

Apartment buildings will likely be redesigned to accommodate new modes of distribution, Parker said. Already, the industrial sector is bracing for the changes. “In talking to investors, they are thinking about ways industrial properties can accommodate Amazon’s model where [goods are] delivered in a few hours,” he said. He imagines shopping taking the form of scanning the items you want, leaving the store and finding the items at your door, delivered via driverless car or drone, a few hours later.

And there is likely to be further consolidation among distributors, Parker said, with the gargantuan and expensive task of erecting an infrastructure being possible only for, well, Amazon.

“I saw a tweet recently,” Parker said. “It said, ‘If Amazon wants to be in your business, sell now. If Amazon doesn’t want to be in your business, sell now because your business sucks.’ ”

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An Uber self-driving car drives down 5th Street in San Francisco. Photo: Justin Sullivan/Getty Images

Diseases of Despair

While there’s always the chance that building that whole new infrastructure can help the job market, this budding technology augurs massive shifts in employment, at best, and a huge uptick in unemployment, at worst.

“We cannot think about autonomous vehicles as a transportation issue. We need to think about autonomous vehicles as an everything issue,” Larco said.

Automation has already been eating into the market for lawyers (with computers doing the lion’s share of tasks that consumed hundreds of hours like document review), and law school admissions have plummeted in response. For the first time in decades, an accredited American law school, California’s Whittier Law School, shut down.

What happens to the massive chunk of the American workforce that drives for a living, when driverless cars dominate the highways? A speaker at the CREFC conference earlier this year pegged the number of Americans who drive for at least part of their job as 30 percent of the workforce; the Los Angeles Times recently said 5 million Americans will lose their jobs when driverless cars are fully implemented. Either number would be devastating to the economy and to real estate.

“The most complicated and controversial of questions [centers on] drivers and jobs and the housing market,” Levy said. With a healthy portion of America automated out of professional relevance, prospects for housing—where the majority of Americans have a financial stake of some kind, either through their own equity or a retirement fund that is tied in some way to real estate—darken. With the lessons of the Great Recession still fresh, real estate executives are scrambling to think of ways to ease this potential shock.

The proposition floating in real estate circles may surprise you: universal basic income.

“The solution that has been suggested is basic income,” Levy said. “But it is the wrong answer.”

Universal basic income (UBI), which has been implemented in pilot programs in Canada and the Netherlands recently, is often explained as “paying people for being alive.” Citizens are given a monthly, unconditional stipend that is sufficient to meet their needs, making income from employment all icing on the financial cake (although it would likely be taxed more heavily). The idea has been around in various forms for centuries but has gained more traction recently. Switzerland held a referendum to offer all citizens a 2,000-francs-per-month UBI last year, but 77 percent of voters said no.

Arguments for UBI range from the philosophical—Thomas Paine thought true individual freedom meant freedom from your employer—to the practical: When disruptions to the economy create shocks like 2008, money, talent and resources go to waste. Putting an easily administered universal safety net in place could cushion people from shocks. Think of providing liquidity to an individual’s personal financial system to incentivize longer-term planning.

A study in Ireland in 2012 showed UBI could be funded there by implementing a 45 percent flat tax with no exemptions—they wouldn’t be needed, after all—on all personal income. In their simulation, they improved financial prospects for more than half of the country’s citizens.

Of course, the idea is usually suggested by thinkers on the political left. But even economists and political scientists on the right, like Charles Murray and Milton Friedman, have argued for versions of UBI, partly because it would streamline the welfare-administrative state.

In America, UBI sounds impossible, but it might be the best mechanism to administer benefits to the growing segments of Americans who are no longer looking for work. In September 2015, the total proportion of Americans participating in the workforce hit 62.4 percent—the lowest percentage since 1977—according to FiveThirtyEight. While employment proportional to the total population has been ticking up slowly since early 2016, the larger trend remains profound, given that unemployment is predicted to grow quickly as automation improves.

Levy thinks UBI won’t help. He cites statistics on the growing number of “deaths of despair” in the U.S., usually defined as those from opioid abuse, alcoholism or suicide. Such deaths have risen steadily since the turn of the last century, according to numerous academic studies.

Clusters of deaths of despair are apparent in areas where industries have died and people, especially men, who want to be gainfully employed sit home, possibly collecting a social benefit. White Americans without a college degree between the ages of 45 and 54—a dominant rust belt demographic—have seen a half percentage increase in mortality rates every year from 1999 to 2013, according to Princeton University economists Anne Case and Angus Deaton.

Levy said that vast swaths of the unemployed, subsisting on UBI, will be even more prone to such deaths. And education is not a fix for this demographic quagmire, he said, because it “takes too long.”

But there aren’t any other apparent answers.

Source: commercial

Regus Renews 60K-SF at 5 Penn Plaza

Office provider Regus has signed a renewal for 60,000 square feet at 5 Penn Plaza, Commercial Observer has learned.

Regus, which occupies the entire 19th and 23rd floors, of the 26-story building on Eighth Avenue between West 33rd and West 34th Streets will continue to operate in that space for 10 years. The asking rent in the transaction was $68 per square foot, according to information provided by CBRE, the building’s leasing and managing agent.

CBRE’s Peter Turchin, who represented landlord Haymes Investment Company in the deal, said Regus wanted to re-up in the building, because the area is attracting creative companies, Regus’ target market.

“With the ongoing revitalization of Penn Station and the Farley Building directly across the street, 5 Penn Plaza has emerged as a premier leasing option for creative and tech firms,” Turchin said in a prepared statement.

Turchin’s team on the deal included Jason Pollen, Dave Caperna and Hilary Whittier. JLL’s Jim Wenk and Patrick Heeg (now at Transwestern) represented Regus in the transaction.

“It’s a great location because of its proximity to Penn Station,” Wenk said via a spokesman.

Earlier this year, Remedy Partners, which develops and manages bundled payments programs for health insurers, signed a 28,640 square feet of space for pre-built space at 5 Penn Plaza, as CO previously reported. Other tenants at the building include Thomasnet and the Visiting Nurse Service.

Source: commercial

CIM Seals Deal on 16 Court Street Buy, Nabs $111M Loan from Barclays and Citi

CIM Group has nabbed a $111 million loan from Barclays and Citi Real Estate Funding for 16 Court Street, property records show. The transaction occurred concurrently with SL Green’s  $171 million sale of the property to CIM, with both the loan and the deed transfer filed today.

The new debt replaces and consolidates a $79 million loan, provided by Wells Fargo in 2014, with a new $32 million gap mortgage.

As previously reported by Commercial Observer, SL Green announced in August that it would sell the downtown Brooklyn office tower to CIM in a deal that would close in the fourth quarter.

The 38-story, 317,600-square-foot property is located between Montague and Remsen Streets near Brooklyn Borough Hall. It is Brooklyn’s tallest commercial tower, according to SL Green’s website, and its offices vary in size from 500 to 14,000 square feet.

SL Green acquired the building for $107.5 million in 2007 along with Fisher Brothers and City Investment Fund, before obtaining full ownership of the property in 2013.

According to an announcement from CIM regarding the purchase, the company intends to improve 16 Court Street by modernizing the fire system and upgrading common areas. “Since 1994, CIM has made a commitment to enhance its properties by increasing sustainability, efficiency, and quality for tenants, residents and visitors as well as enhancing the character and value of the communities,” the announcement read. And it’s not CIM’s first Brooklyn project—other buildings in its portfolio include 25 Columbia Heights, 85 Jay Street, and 109 Montgomery Street and it plans to “build new or repurpose existing buildings in response to growth and changing market demands,” according to the announcement.

CBRE’s Tom Traynor and James Millon brokered the debt in the transaction while Darcy Stacom represented SL Green. 

Representatives for Citi, Barclays and CBRE declined to comment. 


Source: commercial

Squarespace Grows to 143,000 SF at 225 Varick Street

Hosting platform and website builder Squarespace has leased two more floors at 225 Varick Street in Hudson Square.

Squarespace inked a 12-year deal for 49,700 square feet on the fifth and sixth floors of the building, where it already leased 93,000 square feet on the 10th through 12th floors in 2014. Asking rent on the new lease was in the high $70s per square foot, according to The Real Deal, which was the first to write about the transaction.

The tech firm is expected to move into its new space in April 2018, according to CoStar Group.

Shake Shack also signed on for 27,000 square feet of office and retail space in the property between Clarkson and West Houston Streets last month. The upscale burger spot will open a flagship restaurant in the ground-floor retail space and a test kitchen on the lower level in mid-2018. It will also move its offices, which are currently located in Union Square, into part of the third floor in the spring of 2018.

Rocco Laginestra and Paul Myers of CBRE represented Squarespace in the deal, and CBRE’s Howard Fiddle, Paul Amrich and Neil King represented landlords Trinity Real Estate, Norges Bank Real Estate Management and Hines. A spokeswoman for CBRE declined to comment.

Source: commercial

Manhattan Office Leasing Activity Held Strong in Q3: CBRE

The Manhattan office leasing market continues to show signs of strength via positive net absorption figures and double-digit percent increases over last year, according to CBRE’s latest Manhattan office market report released today.

Total leasing activity of 7.4 million square feet in the third quarter outperformed the five-year quarterly average by 12 percent, and took total Manhattan office leasing activity for the first nine months of 2017 to 21.1 million square feet—a 24 percent increase, year-to-date, on 2016.

But perhaps the strongest indicator of the market’s strength so far this year was the 1.45 million square feet of positive net absorption registered last quarter. The Midtown market, in particular, posted more than 1 million square feet of positive absorption for the first time since the second quarter of 2015.

At a media briefing discussing the figures, Nicole LaRusso, CBRE’s director of research and analytics for the tri-state region, cited strong employment growth figures in New York City that she said “has really been fueling a lot of this [leasing] activity” in the Manhattan office market.

LaRusso was joined by CBRE Vice Chair Paul Amrich and Executive Vice President Neil King at the briefing, held at Rockpoint Group and Highgate Holdings’ office development at 412 West 15th Street in the Meatpacking District.

The property, which is still under construction as workers continue to build out the interiors, served as an ideal setting for a discussion on the state of the Meatpacking District and Hudson Square office market. According to the brokers, the area has changed “drastically” as larger, more mature companies view it as an increasingly viable office destination.

King said that the West Side neighborhood’s culinary and cultural amenities are among the reasons “why people want to be here”—citing Shake Shack’s recent 27,000-square-foot deal for its new headquarters and flagship restaurant at 225 Varick Street in Hudson Square, as well as institutions like the Whitney Museum of American Art, which moved to the Meatpacking District in 2015.

Amrich noted that more than ever, companies are using their real estate as a tool to recruit new, young talent—a trend that has extended from tech, media and creative firms into the realm of financial services and insurance companies. He cited insurer Argo Group, which inked a 48,000-square-foot lease at Rockpoint and Highgate’s Meatpacking project earlier this year, as well as Aetna’s recent agreement for 150,000 square feet at nearby 61 Ninth Avenue, developed by Vornado Realty Trust.

As far as Manhattan leasing activity on a submarket-by-submarket basis, CBRE said the Midtown market saw 4.84 million square feet of leasing activity in the third quarter, which constituted a 19 percent increase on the five-year average. Asking rents in Midtown stood at $80.54 per square foot, flat from the previous quarter but down 1 percent from the same period last year.

Midtown South registered 1.14 million square feet of activity—down 8.8 percent below the five-year average for the supply-constrained market and fueled mostly by small deals below 25,000 square feet, which constituted 59 percent of all transactions in the submarket last quarter. Midtown South asking rents of $71.90 per square foot—which LaRusso noted have run up dramatically over the past decade from their range in the low $40s per square foot in 2009—are flat from the previous quarter but up 4 percent year-over-year.

In the Downtown market, 1.43 million square feet of leasing activity in the third quarter was 9 percent over the five-year average, with government tenants—such as the city agencies that have flocked to the Verizon Building at 375 Pearl Street—accounting for 30 percent of all activity in the quarter. The submarket continues to see tenant migration trends work in its favor, with 1.5 million square feet of space in the year-to-date period comprising tenants who have moved Downtown from elsewhere in the city. Downtown asking rents were up 1 percent from the previous quarter, to $61.95 per square foot.

Source: commercial

Baseball App Hits Home Run With New FiDi Offices

GameChanger Media, the technology firm behind the baseball and softball scorekeeping app of the same name, is moving from just west of City Hall to the Financial District.

The Dick’s Sporting Goods subsidiary just inked a 16,906-square-foot lease for the entire 11th floor of Equity Office’s 44 Wall Street, according to a release from the landlord. The app company will relocate from the 6,700 square feet it currently occupies at 86 Chambers Street.

Asking rent in the deal, which was first reported by The New York Post, was in the high $50s a square foot. The length of the lease wasn’t disclosed.

Haley Fisher and Mitch Arkin of Cushman & Wakefield represented GameChanger.

Equity Office was represented in-house by Zachary Freeman and Scott Silverstein, as well as by Adam Foster, Michael Rizzo, Zachary Price, and Caroline Merck of CBRE.

“The ownership prebuilt to a standard that was creative and high-end, which perfectly fits the culture of GameChanger,” Fisher said in prepared remarks. “Also, given [that] it was already under construction, the space gave them the option to move in quickly.”

CBRE spokespeople didn’t return a request for comment.

Source: commercial

Convene Takes 58K SF for Largest Location at 101 Greenwich Street

Meeting space provider Convene has signed a lease for a 58,000-square-foot space at 101 Greenwich Street in the Financial District to relocate its headquarters and establish its 11th New York City location and largest in the country, Commercial Observer has learned.

The company is planning to occupy 2,500 square feet on the ground floor, which will house a coffee shop run by high-end purveyor For Five Coffee Roasters, and the entire second through fourth floors of the 26-story building (formerly 2 Rector Street) at the intersection of Rector and Greenwich Streets.

The second floor will feature a kitchen and a mix of meeting spaces, in which tenants in the building as well as other companies can rent on demand, and the third and fourth floors will house coworking spaces.

Convene is planning to move its headquarters from a 6,000-square-foot space at 366 Madison Avenue between East 45th and East 46th Streets to a 4,000-square-foot section on the fourth floor. The company will move its 75 corporate employees into the space in March next year, which will be designed more efficiently so that more workers can fit in less space, Convene Chief Executive Officer and co-Founder Ryan Simonetti told CO. And, of course, its employees will have access to the café, meeting and shared office spaces. A Convene spokeswoman declined to disclose the rents in the 15-year deal.

“As an organization we are building what we believe will be the future of workspaces,” Simonetti said. “And to be able to move out of a five-year, prebuilt space and into what is a best-in-class experience, we think our entire organization is excited to get a chance walk the walk.”

Convene is partnering with landlords Cove Property Group and pension fund investment manager Bentall Kennedy to improve the experience of the building. The meeting space provider will offer discounts for tenants for meeting spaces and the ability for tenants to order catered food from Convene’s kitchen or the café via a mobile app.

“In Convene, what we see is basically unparalleled enterprise in this kind of market,” Kevin Hoo, the founder and managing partner of Cove, told CO.  Convene “has very keen insight into how an amenitized building should run.”

The landlords are spending an estimated $70 million to transform the building into a mix of modern office spaces, after purchasing the building in March 2016 from Kushner Companies and CIM Group for $225 million, as CO reported at the time.

The renovation, which will be completed in November, will include upgrades to the building’s mechanical systems, as well as a new lobby, refreshed common spaces, and new elevators and prebuilt spaces.

Convene currently has 10 locations around the city, including an outpost in 1 World Trade Center. The company also has three in Philadelphia, one in Washington, D.C. and one in Boston. It expects to open two more in Los Angeles early next year.

CBRE’s Rocco laginestra, Jared Freede and Michael Wellen represented Convene in the transaction, while JLL’s Mitch Konsker, Scott Cahaly, Clayton Kline and Kyle Young handled the deal for landlords Cove and Bentall Kennedy. Spokesmen for the brokerages did not immediately return requests for comment.

Source: commercial

The Mothership: There Is Only One Starrett-Lehigh

In the pursuit to perfect the work-play formula needed to drive the velocity and pricing for commercial properties, few real estate owners have experienced the same level of success found in RXR Realty’s Starrett-Lehigh Building. The West Chelsea icon has given the likes of Tishman Speyer the aspiration of converting the office tower of the Downtown Brooklyn Macy’s to the “Starrett-Lehigh Building of Brooklyn,” as quoted in The Real Deal.


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Views from Starett-Lehigh

Starrett-Lehigh is desirable to today’s tenants who see the opportunity that comes with a historic manufacturing building: expansive floor plates, generous floor loads, column spacing conducive to a multitude buildouts and ceiling heights rumored to have hosted a giraffe for a photo shoot. Pair these features with natural light and unobstructed views of the water and downtown and midtown skylines, you have an asset that demands attention. Georgina Chapman and Keren Craig of Marchesa admit they “were drawn to Starrett for the breathtaking views of the entire city – from the Empire State Building to the Hudson River—and the most beautiful sunsets year round.”

Recognizing the innate appeal of the structure to the increasingly powerful TAMI audience, RXR Realty committed to making the building a “destination icon” when they purchased it for $920 million in 2011. RXR’s efforts and long-term vision were noticed by tenants, such as Surface Media’s CEO Marc Lotenberg, who when they were searching for a permanent home noted, “It isn’t about today; it’s about tomorrow. Just as our company is evolving and innovating, so is this neighborhood, and we are confident that with all the development unfolding on the Manhattan’s west side, from the Meatpacking District to Hudson Yards, RXR’s Starrett-Lehigh will be perfectly positioned to become the city’s nucleus of culture and commerce.”

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Rooftop Whiskey Tasting

The building did not come without challenges, from the lack of proximity to major transportation to elevator wait times that historically had people arriving 30 minutes early for meetings just to be punctual. Not to mention its status as a landmark, which can protract upgrades and the renovation process. However, the hands-on RXR has equipped Starrett-Lehigh with the tools benefiting a modern workplace and evolving workforce, which included modernizing the building’s infrastructure, augmenting elevator count, upgrading the lobby and common areas with food amenities and repurposing unique spaces like loading areas into dynamic communal space. RXR Realty streamlined the loading and delivery process along 26th Street to improve walkability for the significant visitor foot traffic and created a unique 24-hour food truck and freight elevator service available to all floors. The company also implemented a tenant shuttle service connecting tenants readily to major transportation hubs.

The company has also executed a nationally recognized sustainability program that went beyond simple “box checking” for accreditation but integrated community gardens, farm-to-table programming, reducing the building’s carbon footprint by 80 percent and serving as an anchoring force in the outside community through the creation of the West Chelsea Energy Alliance. The building won two BOMA awards: the 2016 Operating Building of the Year and the 2017 Earth award.

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Starrett-Lehigh Event (Photo by Andrew H. Walker/Getty Images for Battersea Power Station)

RXR Realty took Starrett-Lehigh one step further with the introduction of the Centre for Social Innovation, or CSI, as the answer to the shift in population of Starrett-Lehigh’s tenants, who are more socially conscious and culturally focused than the presumed typical Class A office building. CSI produces a variety of events and activations on global concerns. They have partnered with other Starrett-Lehigh tenants like Johnson & Johnson to boost workplace community. As Gabe Marans, corporate managing director of Savills Studley, puts it, “Starrett-Lehigh is the rare building that offers a true tenant community. The building is increasingly becoming the destination for employees seeking a creative, yet serious environment.”

RXR manages a robust engagement program into their work-play balance formula. “Redefining the ‘play’ in live-work-play, they are creating a highly curated combination of relevant food markets, pop-up retail, wellness and events to tap into the highly evolved cultural landscape of the surrounding marketplace,” said Peter Fine, senior managing director at Newmark Knight Frank. Much of Starrett’s program touches on wellness, culinary interests and social issues, such as wine tastings, panel discussions on fashion design and gay rights, and rooftop fitness classes ranging from high intensity to holistic yoga practices. In addition, Starrett-Lehigh launched a fully equipped fitness facility, SL Fitness. Since its launch in 2016, membership has doubled and continues to grow.

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Fitness Event

It would be remiss to not consider the impact of the High Line, designed by Diller Scofidio + Renfro, another Starrett-Lehigh tenant. This project transformed West Chelsea into a district synonymous with the city’s most innovative architecture, engaging recreational areas and a world class contemporary art scene. Naturally, these features appeal to Starrett tenants, such as Haynes Roberts, Amy Lau, Jes Gordon and influential designer Vanessa DeLeon. In the spirit of authenticity, DeLeon is currently working with RXR to roll out a new prebuilt program for loft spaces and to transform original truck bays into high-quality communal spaces.

The building meets the needs of a continuously diversifying culture within all industries from fashion labels such as Ralph Lauren, Club Monaco and Canada Goose, technology companies like littleBits and Verizon, publications like Surface Media and The Players’ Tribune to hedge funds and law firms. This diversity and demand for the building also drive pricing.

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Speaker Event

Unique tenants like Security Industry Specialists, who secure some of the world’s largest clients and individuals, fell in love with Starrett-Lehigh. Its founder and CEO, John Spesak, states, “As a unique entity in the otherwise traditional security industry, it was important that we find a commercial partner and environment where we could showcase our brand, while embracing our strong company culture. We have created a one-of-a-kind workplace experience and forged an incredible relationship with the tenants and the RXR management team. Each continues to evolve and innovate while representing the very best the NYC commercial space has to offer. My only regret is not finding Starrett years prior.”

While the summer has been busy for the leasing team on expansions and new deals, Starrett-Lehigh is always looking to provide a better experience for its tenants. Currently, this includes reactivating 40,000 square feet on the ground floor for the first time in a century. “In the ever-evolving retail, dining, and event landscape, we feel like the Starrett Lehigh building offers the perfect palette to deliver something truly unique and authentic to the New York City market,” reflects Mitchell Friedel, executive vice president at Newmark Knight Frank. Sources close to RXR did not elaborate on whom they are in talks with, but they have hinted that the 11th avenue frontage will transform into a destination in and of itself.

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Vanessa Deleon, A Starrett Tenant

David Hollander, executive vice president at CBRE, comments, “The building embodies every aesthetic that creative tenants desire and RXR has upgraded the infrastructure to support today’s tenants’ needs.” However, the landlord also goes beyond the physical space to create a social community for its tenants. Reaching across active social media, digital spotlights with tenants at every company level and thoughtful work with artists, like The Selby (who collaborates with the likes of Nike, Fendi, Iris Apfel and Tom Wolf), Starrett-Lehigh speaks directly to the end user—the tenants that fill the building.

Aram Rappaport, founder of creative agency The Boathouse, admits, “We never thought we’d be able to afford a prestigious address catering to amazing brands like Martha Stewart, not to mention, find the perfect space to fit our unique agency and studio hybrid model.” Rappaport found that Starrett-Lehigh was the solution, further commenting, “after months of searching Manhattan, coming up short with buildings that felt too ‘old’ or weren’t equipped with space conducive for creatives,” Rappaport “pulled the trigger on Starrett the same day” he saw it and has “no plans of leaving ever!”

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Starrett-Lehigh Prebuilt Sample

David Seabrooke, founder of Canoe Studios, perhaps sums it up best: “The building is a landmark and its location represents New York at its finest. The staff and leadership team understand my needs and do everything they can to help me and my company to realize our dreams in this space.”

At the end of the day, one may try to create a place that brings tenants of all stripes together, builds an internal mechanism for innovation and social impact, and fuels collaboration across top tier talent; but there is only one place to find this all under one roof. Owners can build the Starrett-Lehigh of Brooklyn, Queens, or anywhere for that matter, but there’s only one original.



Source: commercial

Real Estate Firm GTIS Partners Takes 29K SF at 787 Seventh Avenue

Real estate investment firm GTIS Partners has agreed to move its Manhattan headquarters to 787 Seventh Avenue after agreeing to a 28,677-square-foot lease at the Midtown office tower.

GTIS is leasing the entire 50th floor at the 54-story, 1.7-million-square-foot skyscraper between West 51st and West 52nd Streets, also known as the AXA Equitable CenterThe New York Post reported this week. The company will relocate to the property from its current office on the 31st floor of Tishman Speyer’s 45 Rockefeller Plaza at nearby Rockefeller Center.

In addition to large arched windows providing views of the city skyline, the space also features ceiling heights of up to 40 feet and a 51st-floor mezzanine accessed by private elevators, the Post reported.

Asking rent for the space was in the triple digits and featured “strong” tenant concessions, according to the publication. CoStar Group data indicate that the 10-year lease, which was signed this past spring, was inked at a starting rent of $75 per square foot and an effective rent approaching $78 per square foot.

A CBRE team of Rocco Laginestra, Michael Laginestra and Scott Gottlieb represented the tenant, while CBRE’s Howard Fiddle and Keith Caggiano represented the landlord, pension fund manager CalPERS and its external investment manager CommonWealth Partners.

The California-based firms acquired 787 Seventh Avenue from AXA Financial for $1.9 billion in early 2016, in one of the largest commercial property transactions in the city’s history. They financed the purchase with a $780 million mortgage from Deutsche Bank, as Commercial Observer reported at the time.

A CBRE spokesman declined to comment on the GTIS lease.

Other tenants at 787 Seventh Avenue include financial services firms BNP Paribas and UBS, as well as law firms Willkie Farr & Gallagher and Sidley Austin.

Source: commercial

Data Provider Inks 14K-SF Deal to Relocate HQ Within Midtown

Data and trading technology provider Thesys Technologies has signed a 13,787-square-foot lease at Equity Office’s 1740 Broadway for its headquarters, the landlord announced today.

The financial technology company will occupy a portion of the 14th floor of the 26-story building between West 55th and West 56th Streets in Midtown. The asking rent in the seven-year lease was in the high $70s per square foot, according to a source with knowledge of the deal.

“The cutting-edge, stylish design of our prebuilt spaces at 1740 Broadway proved to be the perfect fit for an innovative fintech company and industry leader like Thesys Technologies,” Zachary Freeman of Equity Office, which is a subsidiary of Blackstone Group, said in a prepared statement.

Thesys expects to move in November from its current address nearby at The Moinian Group’s 3 Columbus Circle, a full-block building that runs on Eighth Avenue and Broadway between West 57th and West 58th Streets.

Thesys, founded in 2009 in New York City, also has offices in South Carolina. Its new pre-built digs at 1740 Broadway will feature concrete floors, exposed ceilings, high-end finishes and an open pantry, the landlord said in a press release.

“These are exciting and dynamic times for our organization,” Mike Beller, the chief executive officer of Thesys Technologies, said in a prepared remarks. “The move to a new corporate headquarters reflects the hard work and commitment of our employees, who have all contributed to our rapid growth.”

Brad Gerla and Brad Auerbach of CBRE handled the deal for Thesys Technologies. Freeman and Scott Silverstein of Equity Office represented the landlord in-house alongside a CBRE team of Howard Fiddle, Zak Snider, Arkady Smolyansky, Alexander Golod and Ben Joseph.

“After a thorough analysis of our client’s technical requirements, their projected growth and employee and client commuting patterns, we felt that the space at 1740 Broadway was a perfect fit,” Gerla said via a spokesman.

The building at 1740 Broadway was erected in 1950, and Equity Office purchased it in 2014 for approximately $600 million from Vornado Realty Trust. Existing tenants at the 620,000-square-foot building include fashion retailer L Brands and law firm Davis & Gilbert.

The Real Deal was first to report the news about Thesys’ new digs.

Source: commercial