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Category ArchiveCBRE

Hedge Fund Kepos Capital Inks 20K-SF Lease at 11 Times Square

Alternative investment firm Kepos Capital has agreed to move its Manhattan headquarters to a 20,000-square-foot space at SJP Properties11 Times Square, Commercial Observer has learned.

Kepos signed a 10-year deal last month for part of the 35th floor at the 40-story, 1.1-million-square-foot office tower at 640 Eighth Avenue between West 41st and West 42nd Streets, according to sources with knowledge of the transaction.

The firm is expected to relocate to its new Midtown West space in August from its current location just one block south at the New York Times Building at 620 Eighth Avenue, where it presently occupies around 17,000 square feet on the 44th floor.

Asking rent in the deal was not immediately clear. Paul Glickman and Diana Biasotti of JLL represented landlord SJP—which owns 11 Times Square in partnership with PGIM and Norges Bank—while CBRE’s Ben Friedland and Michael Movshovich represented Kepos

In a statement, SJP CEO Steven Pozycki said Kepos wanted to “maintain its presence in the city’s premier transit hub,” referring to 11 Times Square’s proximity to Port Authority Bus Terminal across Eighth Avenue and Penn Station several blocks south. “For today’s financial services firms, it’s critical to have an office that provides state-of-the-art connectivity and is outfitted with the latest technology infrastructure,” he said.

Matt DesChamps, Kepos’ COO, said in a statement that the new space’s larger footprint and the firm’s “ability to design the space to our requirements” provided it the “opportunity to create a customized work environment to serve our clients and support our growing business in the years ahead.”

“Kepos Capital joins a roster of leading financial and technology firms attracted to one of the city’s most advanced and sophisticated commercial towers,” JLL’s Glickman said in a statement to CO. Law firm Proskauer and tech giant Microsoft anchor the office building, which was completed in 2010.

Representatives for CBRE did not immediately provide comment.

Kepos was founded in 2010 by former Goldman Sachs partners Mark Carhart, Giorgio De Santis and Bob Litterman, who previously led the quantitative investment strategies division at Goldman Sachs Asset Management. The firm manages $3 billion in assets for a global base of institutional investors.

Madrid-based amusement park operator Parques Reunidos signed a lease last year to anchor 11 Times Square’s retail space, where it is developing a 45,000-square-foot indoor entertainment complex, known as Lionsgate Entertainment City, in partnership with film studio Lionsgate.

Source: commercial

Euro Retailers Sense Opportunity Here While US Brands Look to Old World for Salvation

Last week, while JLL retail pro Michael Hirschfeld was in London for business, he learned of three U.K. retailers collapsing.

Those were the U.K. arm of Toys “R” Us, which went into insolvency administration, Maplin Electronics, which failed to find a buyer to get it out of administration, and dining chain Prezzo, which is being restructured. In addition, the 600-fleet London fashion chain New Look is looking to make deals with landlords to close underperforming stores and reduce rents.

The news sounds eerily similar to headlines in the U.S. as bankruptcies, e-commerce and the popularity of discount department and specialty stores have impacted the retail business on both sides of the pond.

“I think the retail challenges are universal,” said Hirschfeld, a vice chairman of national retail tenant services at JLL who spends 80 percent of his time bringing retailers from Europe to the U.S. and vice versa.

This comes, however, with a big caveat.

It is often said that what happens in the U.S. market will then follow in Continental Europe and Great Britain. But JLL warned in a retail report comparing the U.S. and Europe at the end of 2017, “we shouldn’t assume markets automatically mirror each other.”

In Europe, and the U.K. in particular, retailers braced themselves for the change in shopping patterns due to e-commerce faster and earlier than did their U.S. counterparts, according to the JLL report.

And beyond the internet, there are clear differences between the two markets.

One of the big ones is the sheer amount of retail space available in the U.S., in large part due to an excessive number of shopping centers. In the U.S., there is 13,713 square feet of leasable shopping center space per 1,000 people, JLL determined at the end of last year. In the U.K., by contrast, there is 3,175 square feet per 1,000 people, and in Europe as a whole, there is 2,335 square feet.

And the European retailers smell the opportunity—many view the U.S. as if “it’s on sale,” Hirschfeld said. “You’re seeing rent levels that you could achieve in the financial crisis. It’s a very opportune time. The demand is super strong.”

Hirschfeld brokered deals to bring British clothing company Superdry to various cities in the U.S. and is working on a deal for British toy store Hamleys to come to New York City. Accessories brand Furla, which comes from Milan and already has a store in Manhattan, is expanding with a new lease in Aventura Mall in Miami, Fla. (one of the top malls in the country), and one in the Forum Shops at Caesars in Las Vegas (another top U.S. mall) with likely another three or four more in major markets, he said of his client.

Susan Kurland, an executive vice president and a co-head of global retail services at Savills Studley, said that the difference between retail in Europe and the U.S. is the vacancies.

“The difference is their spaces are filled,” Kurland said. “You walk down our Madison Avenue, and almost every store on Madison Avenue is available.”

She is working with a high-end Chinese-owned Milan-based company, which is looking to enter the U.S.

“[The owner] feels the only places to expand are China and the U.S. as those are the two most important markets,” the broker said. “They’re in…the exclusive places in China. They’re on the important street in Milan. He feels that the U.S. is really important for his expansion.”

While there will be more store closures in Europe, JLL determined that the continent is “unlikely to experience the sheer volume of closures currently being forecast in the U.S.”

Another distinction between the U.S. and Europe is that most of Europe employs a high-street model rather than a shopping-center model. Furthermore, in shopping centers, the U.S. has relied on department store anchors (which have been one of the worst victims of e-commerce and commoditization), JLL noted. In Europe, on the other hand, shopping mall owners have been quick to switch gears with their anchor tenants, often turning to food-and-beverage concepts, and they are more diverse in their offerings.

Yet another important difference between European and U.S. leases is the rent structure. In the U.S., when a tenant signs a lease it knows what the rent is for the entire term. In the U.K., for example, you may sign a 10-year deal, but every couple of years you go through a fair-market rent review process, Hirschfeld said, so you don’t know your rent.

But one thing both places have in common is that consumers have so many options for how they want to shop.

“We’re seeing across the board a fragmentation of distribution,” said Betsy McCullar of Hilltop Alliance, who develops and executes marketing and strategy solutions for brands and businesses. “Western Europe is even more fragmented than the United States because, for example, the U.K. and Germany—and France, to some extent—have a big mature structure of department stores. But Italy and Spain are still dominated by one-off specialty stores.”

Among the European brands that are on the fast track in the U.S. are fast-fashion brands Swedish Hennes & Mauritz (H&M), Zara from Spain and the U.K.-based Reiss Ltd., The Wall Street Journal reported in May 2017. Amsterdam-based Scotch & Soda is also popping up in the U.S. with 28 free-standing retail stores, with a store at Woodbury Common Premium Outlets in Central Valley, N.Y. opening on March 30. European discounters like German grocer Aldi, German competitor Lidl and Irish clothing company Primark are on a tear in the U.S., Bloomberg Gadfly pointed out last October. International cosmetics companies like Rituals from Amsterdam are taking New York City by storm. Plus there are food chains like Wagamama, an Asian food concept that actually hails from London, that has set up shop in New York City and Boston.

When entering the U.S., European retailers focus on major cities for entrée.

Since they’re used to high streets at home, European retailers want to rent on a U.S. high street. And they generally enter by way of one of the gateway markets of New York City, Miami, Los Angeles, San Francisco, Chicago and Las Vegas, Hirschfeld said. They often choose a U.S. location that is most similar to where they hail from, Hirschfeld said.

“Brands usually like to do either the East Coast or the West Coast initially, and I believe that most start on the East Coast first,” said Robin Abrams, a vice chairman of retail at Eastern Consolidated, with New York City being a priority due to its tourist population, ease of navigation, walkability and great public transportation. For U.K. retailers, New York is logical, Abrams said, “because it is more similar” than other places in the U.S.

Interestingly, CBRE’s most recent annual global retail report highlighted Philadelphia as a target city for international retailers in 2016. That year, Italian furniture company Natuzzi Italia and Superdry set up shop in Philadelphia, the fifth-largest city in the U.S. The market was appealing, the report said, because of its increased millennial population, income growth, new multihousing developments, burgeoning food and retail scene and reputation as a tourist destination.

But there’s no refuting that New York City often is the beau ideal market for European retailers looking to expand abroad.

21 Euro Retailers Sense Opportunity Here While US Brands Look to Old World for Salvation

“Retailers looking for a first or second opportunity look at New York,” said Mark Kostic, a vice president of retail leasing in the U.S. at Brookfield Property Partners. “Everyone’s next step is a global flagship in New York.”

Kostic worked on the deal to bring European suitmaker Suitsupply to Brookfield Place. The brand has fared well since the men’s store opened about a year ago, and the women’s store Suitstudio opened this past November, he said.

Jason Pruger, an executive managing director at Newark Knight Frank, said he will be helping Black Sheep Coffee expand from London into the U.S. come springtime. He anticipates that Black Sheep will enter the country by way of New York City.

“We are looking to expand in the U.S. because we have be inundated with customer requests, particularly in the last few months—mostly Americans living in the U.K. or who came across Black Sheep while visiting the U.K.,” said Gabriel Shohet, one of the co-founders of Black Sheep Coffee. “New York City has many Black Sheep fans but is one of four U.S. cities [including Chicago, Washington, D.C.. and Atlanta] we have shortlisted as a potential starting base for a U.S. market entry.”

Faith Hope Consolo, the chairman of Douglas Elliman’s retail leasing, marketing and sales division, said that New York City is “the shopping capital of the world, and the No. 1 leisure activity in this country is shopping. Yes, New York City is the center of the world. Companies are willing to risk everything to make it here. Just like the song goes, ‘If you can make it here, you can make it anywhere.’ ”

Going the other way, U.S. retailers often start in London for their European expansion, where English is the native language. Indeed, companies from the U.S. marked the majority of new international retail entrants to London in 2016, according to CBRE’s global retail report. (Hirschfeld called London “probably the retail capital of the Europe in many ways.”)

But London is desirable for just about any retailer looking to make an entrance on a global stage. “Overseas brands continue to see London as the pathway to greater expansion” in Europe, the Middle East and Africa, or EMEA, the CBRE report said. London was the second most-targeted market globally for international retailers entering new markets in 2016 (behind Hong Kong) and 10 markets in EMEA made the list of 19 global cities with the greatest international retailer presence. And this was the year of the Brexit vote for the U.K. to leave the European Union, so presumably the vote did not rock anybody’s faith in London retail.

At the end of last year, New York-based high-end fitness brand Equinox opened its first standalone E by Equinox location—an even higher-end Equinox—in central London. “Opening our first standalone E by Equinox in one of the most esteemed neighborhoods in London was only fitting,” Gentry Long, the managing director of U.K. operations for Equinox, said in a press release in December 2017. “We’re thrilled to introduce an elevated take on the private members’ establishment with fitness at its core.”

Some in-demand cities for U.S. retailers going abroad are Germany’s Munich, Berlin, Hamburg and Frankfort for fashion brands and food and beverage brands, Hirschfeld said. And there’s Paris, France and Milan, Italy. He has not seen a lot of demand for a Spain brick-and-mortar location.

In the last coupe of years, Hirschfeld’s team has brought Detroit-founded Shinola watch, bicycle and leather company to London. And his team brought Seattle-based outerwear company Filson to London.

“What you must look at when you’re looking throughout Europe, or Asia or South America is products that are transferrable to other markets,” Virginia Pittarelli, a principal of Crown Retail Services whose clients have included Sephora and Godiva, told Commercial Observer late last year.“That’s really the key.”

Source: commercial

Changes Afoot at Savills Studley 

There’s a bit of musical chairs going on at Savills Studley, Commercial Observer has learned.

Facing retirement within the next few months, John Pantazis has stepped down from his COO post at the firm and has become an executive vice president and director as the firm transitions to a new COO, Mitchell Steir, the chairman and CEO of Savills Studley, told CO. Savills Studley former CFO Al Petrillo has become the COO.

No new CFO has been named, but Vic Russo, who was the senior vice president of finance under Petrillo, has assumed his former boss’ duties, Steir said.

“These are just personnel changes that happen within a company,” Steir explained.

The firm has also promoted Patrick McGrath to a newly created position of CIO and head of client technologies. He was the head of cross-border transactions at Savills Studley, executing traditional commercial real estate transactions and developing best practices, technology solutions and analytic tools for companies with multi-national footprints, a company press release about the new position provided exclusively to CO indicates.

In a more sweeping measure, Savills Studley—which came out of the 2014 acquisition by international real estate adviser Savills of U.S.-based tenant representation firm Studley—has promoted 87 professionals throughout the United States in all service offerings. Of them, 39 were made vice chairman, 17 of them in New York City, a spokeswoman said. One broker speculated that this move was done to try and retain its talent. Steir said that he didn’t think a title would “lead anyone to stay some place they don’t want to stay.”

Steir said the 800-person company is always promoting people, and naming people vice chairman for the first time “in many ways was long overdue.”

He added: “The vice chairman promotions is because if you look around at our peer group you’ll notice that there are hundreds of vice chairman that are employed and we have had none. So, the fact that we haven’t had any has been the anomaly. “

On the West Coast, Savills Studley suffered a blow with the loss of a big retail investment sales broker.

At the end of January, power broker Bill Bauman, who co-headed Studley’s national retail services group in Los Angeles, left for Newmark Knight Frank, as The Real Deal reported. He took with him his four team members, including Kyle Miller, according to Mark Sullivan, the regional manager of Savills Studley in Southern California. (Bauman and Miller didn’t immediately respond to requests for comment.)

Sullivan explained the Bauman team, which specialized in retail investment sales, as such: “It was a self-contained, self-sufficient team who for the most part worked together, closed deals together [and] didn’t have a lot of interaction with other professionals in the company.”

The team has already been replaced.

“The hole we need to fill was [retail] investment sales and we have filled that hole,” Sullivan said. The five “replacement” agents hail from CBRE and Colliers International.

Source: commercial

WeWork Ups Pay for Brokers at Trio of Firms Who Find and Fill Coworking Space

WeWork has signed agreements with CBRE, Cushman & Wakefield and JLL in North America, offering brokers at the firms greater compensation if they find and fill coworking space, Commercial Observer has learned.

“WeWork is unique in that as we become more sales driven with our real estate approach we can partner with real estate firms on both sides—on the site selection and lease sourcing side and the client member introduction side,” Julia Davis, the head of transactions and analytics for WeWork, told CO. “We are hoping to leverage those relationships.”

Brokers at CBRE, C&W and JLL will get a 20 percent fee on a one-year lease and 5 percent on expansions and renewals. That compares to the sums WeWork has been offering individual brokers across the board for the last year: 10 percent on year one of a lease and 2 percent for expansions and renewals, Davis said.

“WeWork will partner with these firms on a non-exclusive basis to source a set (i.e. agreed upon) square footage for WeWork locations in North America, and in return, the [commercial real estate] firms will introduce new clients to WeWork, leading to more closed sales and strengthened relationships,” according to bullet points WeWork provided to CO. Davis declined to provide the square footage.

The idea is that the CBRE, C&W and JLL brokers will be “ambassadors” for the brand, Davis said. WeWork will “reward those CRE firms that introduce new members to WeWork with additional real estate sourcing assignments,” the company promises.

It seems that WeWork’s efforts to ingratiate itself in the broker community are working.

“One-and-a-half years ago, there was little [broker] contribution,” Davis said. “Now it’s 20 to 25 percent of desks on a monthly basis due to brokerages across all markets company-wide.”

The partnership initiative is starting in North America and if successful, WeWork will scale it globally and establish other such relationships.

A broker at one of the partner firms said of the agreements: “It is a minor development. Not even sure what it means other then we will get a few assignments as will the others to find them space and offer WeWork [spaces] to our clients as an option.”

Another broker, at a different partner company, said that while he would put a tenant in a WeWork space if it was appropriate, the increased payout would not compel him to do so.

The office-space provider business has been getting increasingly crowded, and one broker suggested WeWork has upped the ante to one-up the competition.

But WeWork is not the only office space provider forging relationships with brokerages. Knotel has partnered with Newmark Knight Frank and secured an undisclosed investment from NKF’s Barry Gosin. (Gosin is also an adviser to Knotel.)

NKF “is a very valuable partner of ours. In addition to the partnership, they made a financial investment,” Eugene Lee, Knotel’s global head of real estate and business development, told CO. “It’s an integration between Newmark and Knotel where they’re helping us find spaces and bringing spaces they represent into Knotel.”

According to a January press release from Knotel: “The partnership will allow NKF’s audience of owners and other clients to have streamlined access to Knotel’s footprint across New York City, San Francisco and London.”

Lee said that unlike WeWork, Knotel is not increasing the pay for NKF brokers.

“We are paying them standard rates as they would get compensated in a standard lease format,” he explained.

So why would a NKF broker be inclined to put a tenant in a Knotel space?

Knotel will “give preference to the company we have a relationship with,” Lee said, when faced with multiple companies competing for floors.

As for what WeWork is doing, Lee said, “When you’re having to give promotional commissions and pay brokers to bring you members, that’s generally a sign of weakness. In general if you’re discounting and giving out promotional incentives, it’s not a good sign for the business.”

Spokespeople for CBRE and C&W declined to comment. A spokesman for JLL didn’t respond to a request for comment and a NKF spokeswoman didn’t respond with a comment.

Source: commercial

City Strikes Pricey Deal for Pre-K at Extell’s UES Condo Tower

The New York City School Construction Authority has leased the ground floor of Gary Barnett’s 30-story condominium building on the Upper East Side for a pre-kindergarten program, according to public records.

The agency, which develops and leases on behalf of the city’s Department of Education, inked a 15-year deal for 11,492 square feet at the base of The Kent, Extell Development Company’s 83-unit condo project at 200 East 95th Street at the corner of Third Avenue. The DOE will open a public pre-kindergarten in September in the Beyer Blinder Belle-designed building, according to a spokesman for the SCA.

Although it’s still under construction, the Kent is set to open at the end of 2018 and currently has apartments for sale ranging from a two-bedroom, two-bathroom unit asking $2.5 million to a five-bedroom, four-and-a-half-bath pad for $8.4 million.  

Howard Kesseler of Newmark Knight Frank represented the SCA in the transaction, and it’s unclear if Extell had a broker. Kesseler didn’t immediately respond to a request for comment. A spokeswoman for Extell did not respond with a comment.

The city will pay $1.97 million annually ($171 a square foot) for the first five years of the lease, per the memorandum of lease on file with the Department of Finance, $2.17 million ($188 a square foot) annually for the following five years, and $2.38 million ($207 a square foot) for the 10th through 15th years of the lease. Asking rents for educational and medical space in Manhattan averaged $47 a square foot in 2017, according to data from CBRE.

While the rent seems expensive, schools have few alternatives when it comes to leasing space in pricey areas of Manhattan and Brooklyn. Commercial Observer recently talked to private school administrators about the struggle to find affordable locations to rent or buy in Brooklyn, and the public school system faces similar financial pressures as it hunts for space to expand throughout the five boroughs.

David Lebenstein, who heads C&W’s not-for-profit advisory group and handles deals for the SCA in the outer boroughs, said the rent might be justified if there’s a usable basement in addition to the 11,492 square feet stated on the lease.

“My gut tells me that they got a usable basement with high ceilings and some light and that it’s probably really 22,000 square feet, so that’s how they can justify it,” Lebenstein said. “It’s priced like retail, there’s no two ways about it. We did deals [for the SCA] all over Queens and it’s $30 to $50 a square foot, and rents are similar are in Washington Heights and Harlem.”

He added, “There are not a lot of options. They had a pressing need in this district, and they were probably oversold on whatever pre-k they had and needed more school seats.”

The pre-k lease comes as Mayor Bill de Blasio is aggressively expanding the city’s public pre-kindergarten programs. When the mayor took office in 2014, he announced that he would offer free, full-day pre-k for every 4-year-old in New York City. Then in April 2017, he rolled out universal pre-k for 3-year-olds, which would serve an expected 62,000 children.

Source: commercial

Los Angeles Becomes a Mecca for Interactive Gaming and E-Sports

Interactive gaming is big business with an estimated 2.2 billion people who play video games worldwide. And Los Angeles reigns supreme, with many top game developers including Riot Games, Activision Blizzard, Electronic Arts and ESL Gaming headquartered here.

From the Westside to Burbank, Los Angeles currently leads the nation with 331 gaming companies operating in the metropolitan area and was second only to San Francisco when it came to being the largest employer in the industry segment (14,484 compared with the Bay area’s 16,466 employees across 307 companies, according to data from the Entertainment Software Association.)

JLL charted the locations of gaming companies—from Fortune 500 developers to related businesses—throughout town in a recent snapshot research report on the industry, dubbing the region a mecca for the sector.

Top dog Riot Games, owned by Tencent—which reported more than $12 billion in revenue in September 2017, according to Newzoo, a leading provider of market intelligence on global games and e-sports, or electronic sports—occupies 500,000 square feet of prime office space in West Los Angeles.

Furthermore, the interactive gaming industry’s impact on the office market in Los Angeles is poised to increase with the growing interest and investment in e-sports—multiplayer video game experiences and competitions in which players play against one another through a digital platform—which is driving additional demand for studio and creative office space, according to findings from a CBRE industry report released in December 2017.

Despite their sizable footprint, landlords have been skittish about entering into leases with gaming and e-sports businesses—which inspired the CBRE research report.

“Our clients and our brokers from several different offices around Los Angeles have seen some large tenants in the market looking for office space and a lot of these are new tenants to the market,” David Nusbaum, a senior research analyst at CBRE, told Commercial Observer. “They are venture-backed companies or privately funded e-sports companies that don’t have a long track record. The landlords’ concern was these tenants were new to the market. They didn’t have a credit history and a lot of these landlords were very hesitant to give high-end, Class A office space to [these] tenants.”

E-sports allow teams to compete in tournaments sanctioned by specific game developers. The field is evolving with the formation of leagues specific to popular games. Erase that outdated image of solitary players competing for bragging rights in their own domicile and enter major sports franchise owners and investors, broadcast rights and million-dollar arenas and studios being constructed to aid competitions.

Underscoring the trend, Blizzard Entertainment built out a 60,000-square-foot broadcast studio at 3000 West Alameda Avenue, at the site of the former Burbank Studios in Burbank last year for an undisclosed sum. Just this year, as the CBRE findings point out, two prominent North American leagues organized: Overwatch League and North American League of Legends Championship Series. Franchise fees range from $10 million to $20 million and owners and investors include Stan Kroenke, Robert Kraft, Peter Guber, Joe Lacob and other traditional sports team owners.

UC Irvine in Orange County opened the UCI Esports Arenaa 3,500-square-foot facility in 2016—the first of its kind at a public university—and actively recruited players with scholarships.  Major television and digital platforms have struck multi-million-dollar broadcasting deals. (For a sense of scale, West-L.A. based Riot Games, League of Legends’ developer, signed a seven-year, $300 million dollar deal last year with BAMTech, the streaming technology arm of Major League Baseball.) Heck, the 2024 Paris Olympic Committee is even considering adding e-sports to the Summer Games, according to ESPN.

Like other creative content providers that have expanded their business model and presence in the L.A. market—Amazon, Netflix and Hulu among them—gaming ventures are drawn to the area because of the talent base and concentration of entertainment studios and facilities, he said. “It goes along with everything else that you see in content creation and all sorts of digital media content that is being produced in Los Angeles,” Nusbaum said.

The gaming companies located in Los Angeles are not necessarily price sensitive, but are making business decisions in which they are prioritizing proximity to talent over real estate costs, Kevin Carroll, a research analyst at JLL, said.  This drive toward talent contributes to the high density of gaming companies in areas where tech and media employees are located on the Westside in Santa Monica, Culver City, Playa Vista and Venice, which consequently are some of the most expensive markets in Los Angeles. (Office rents in West L.A. averaged $4.61 per square foot at the end of 2017, according to research from Colliers International.)

Additionally, Downtown and Pasadena are also home to a cluster of gaming companies.  Gunslinger and WhiteMoon Dreams moved to Pasadena in 2016 and 2017 respectively, while Magnopus made the move Downtown in 2014, with Section Studios following a year later.

“This speaks to the demographic of those markets, and access to a young, educated work force. We continue to see a clustering of gaming companies around larger, more established tech firms as an effort to draft off of their success,” Carroll said.

And CBRE predicts the growth of e-sports will continue to fuel investments in the sector by game studios. Industry growth is also expected to spread into ancillary businesses including training facilities and broadcast studios and add to the demand for these hard-to-get commercial spaces in Los Angeles, especially in key markets, Nusbaum said. These include Burbank, which has become an epicenter of e-sports because of the Blizzard Arena, the suburban city of El Segundo and the West LA markets, including Culver City and Playa Vista.

“We are at the beginning of this industry. It’s an emerging trend and something our clients and brokers should be looking out for in 2018,” he said.

Source: commercial

WeWork Inks 177K-SF Deal for New Chelsea Location Near Its HQ

WeWork, the Chelsea-based coworking giant, has signed a roughly 177,000-square-foot lease for a new location at 18 West 18th Street a block from its current headquarters, Commercial Observer has learned.

The company will occupy the entire office portion of the 11-story building between Avenue of the Americas and Fifth Avenue. WeWork will open the location in stages, with the first encompassing the fifth through 11th floors, or approximately 117,000 square feet, this summer, according to information provided by the landlord’s broker, Cushman & Wakefield.

Then it will occupy about 50,000 square feet in the second through fourth floors. Those floors are currently occupied by the Association for Autistic Children, and WeWork will assume the space in a few years, according to C&W’s David E. Green.

“The property is a classic Chelsea loft building with great light and air,” Green, an executive director at C&W, told CO.

Green and colleagues Tara Stacom and Connor Daugstrap handled the deal for 17-18 Management Company LLC, owned by a partnership led by the Schaffer family.

CBRE’s Derrick Ades, Timothy Dempsey and Brett Shannon represented WeWork in the transaction. They declined to comment via a spokeswoman.

Green declined to provide the terms of the deal, and a spokesman for WeWork did not immediately return a request for comment.

WeWork’s current headquarters is located at 115 West 18th Street between Avenue of the Americas and Seventh Avenue. But, the company plans to move its corporate offices to the Lord & Taylor building at 424 Fifth Avenue between West 38th and West 39th Streets. In a joint venture with Rhône Capital, WeWork announced last October a deal to purchase the 676,000-square-foot building from the store’s parent company Hudson’s Bay Company for $850 million, as CO previously reported.

Source: commercial

USA Arm of Spirits Giant Moving to Grace Building From San Fran

Campari America, the U.S. arm of the spirits company Campari Group, has signed a 10-year, 64,658-square-foot lease at Brookfield Property Partners and The Swig Company’s Grace Building to relocate its headquarters from San Francisco.  

The company, known for brands like Skyy Vodka and Wild Turkey, has been based in San Francisco since 1992. It will occupy the entire 18th and 19th floors in the 48-story building between West 42nd and West 43rd Street near Bryant Park when it moves in the fall, according to a news release from Brookfield.

The entire U.S. team, comprising 165 employees, is moving to the building, which has an official address of 1114 Avenue of the Americas.

Campari executives expect the new location will boost its connectivity with its other offices, as it puts the Grace Building office closer to its worldwide Milan headquarters, and operations in Kentucky, Jamaica, Mexico and Canada, according to Jean Jacques Dubau, the managing director of Campari Group’s business unit in North America.

“This move will help to increase collaboration with key business partners and our Milan counterparts; allow us to more easily hire candidates with deep spirits experience; and give us the room to expand as we grow our portfolio of premium brands,” Dubau said in a prepared statement.

Gensler has been selected to design the new Campari America office. Colliers International’s Joseph Cabrera, David Glassman, Tim Kuhn, Brendan Cavender and Steve Maneri handled the deal for Campari America. CBRE’s Ken Rapp, Sarah Pontius, Peter Turchin, Zak Snider and Cara Chayet represented Brookfield. Spokespersons for the brokerages did not immediately return requests for comment.

The asking rent in the deal was not immediately clear. However, in a recent Bank of America deal at the 1.6-million-square-foot tower, the starting rent was $70s per square foot, as Commercial Observer previously reported. And Humanscale, a designer and manufacturer of office products, signed a 33,000-square-foot lease to move its headquarters to the Grace Building. The asking rent in that deal was in the high-$80s per square foot, as CO reported last month.

Retail tenants in the building include Gabriel Kreuther, Bluestone Lane, Joe & the Juice, Sweetgreen and STK.

Source: commercial

Going Back to Cali

Los Angeles is a town that loves snapshots—heck, the entire paparazzi industry has risen from it. This is a snap shot, if you will, of what the L.A. real estate market is looking like in 2018.

Transit Expansion

Los Angeles, the land of sprawl and traffic jams, has made a serious commitment to expanding mass transit options. The Olympic Games, which the City of Angels will host in 2028, has been a major impetus, with Mayor Eric Garcetti pledging to complete 28 key road, transit and bicycle and pedestrian projects in time for the Summer Olympics. The “28 by 28” plan will be funded in part by Measure M, a sales tax increase passed by L.A. County voters last November that allocates $120 billion to transit projects over the next 40 years.

It can’t come too soon for a city that, once again, was named the worst in the United States for traffic, with commuters spending 102 hours stuck in traffic congestion in 2017 during peak hours, according to an annual scorecard by INRIX.

The continued expansion and creation of transit services will not only ease commuters’ pain, but will add to property values around transit options. As previously reported by Commercial Observer, the growing public demand to be close to transit hubs has given landlords the confidence to push rents higher.

In Hollywood, for instance, office rents have climbed 19.8 percent in the past two years because of access to talent, neighborhood amenities and transit, rising to $52.20 per square foot in 2017 from $43.56 in 2015, according to JLL research.

“Tenants are willing to pay a little bit more [because] if you’re thinking about how to keep your workforce happy or at least less stressed, one of the first ways you can do that is to eliminate some of the pain that comes with their commute,” Amber Schiada, a senior vice president and national director for JLL research in the Southwest, told CO.

Keeping workers happy—given negatives like a chronic lack of affordable housing in the Southland, is paramount for continued growth, she added.

To call the lack of affordable housing a crisis is not hyperbole. As the Los Angeles Times reported in an Op-Ed in January, when housing expenses are tallied with incomes, the U.S. Census officials estimate that one in five Californians live in poverty. Thus, California has earned the ignominious distinction of having the nation’s highest poverty rate despite having the sixth-largest economy in the world.

“We cannot sustain long-term growth if our workforce cannot afford housing,” Schiada said. “In Los Angeles, there is certainly a lot of housing development underway and density is no longer a dirty word, but it’s not enough. This will ultimately be what impedes long-term growth.”

If S.B. 827, introduced by San Francisco State Senator Scott Wiener on Jan. 3, is passed, it will address two important impediments—the statewide affordable housing crisis and residential zoning restrictions that can bog down commercial development in California’s urban centers. (See here for more on the bill.)


The recent federal tax overhaul is expected to benefit commercial real estate statewide in almost all sectors, according to The Winter/Spring 2018 Allen Matkins/UCLA Anderson Forecast California Commercial Real Estate Survey. The biannual survey compiles the views of supply-side participants—commercial developers and financiers of such development—to create a three-year outlook for industry sectors in major Southern California and Bay area markets for office, industrial, retail and multifamily development.

The most recent poll, taken this past December, indicates that the federal tax overhaul will probably moderately increase the rate on return on commercial real estate and make investment more attractive in all sectors except retail (see retail and e-commerce section below). The Tax Cuts and Jobs legislation disincentivizes homeownership in California by imposing lower limits on home mortgage interest and reducing property tax deductions.

Starting in 2018, homeowners can deduct interest on mortgages only up to $750,000. The previous cap was $1 million, with an additional $100,000 allowed for home equity loans. Interest on home equity loans and lines of credit will no longer be deductible. For the first time, homeowners also will face a $10,000 cap on what they can deduct on their state and local taxes, according to NPR.

As a result, the law should push up the demand for multifamily rental housing and the desirability of such commercial projects for investors.

The new tax structure changes how “pass-through” income can be taxed, with owners of pass-through entities eligible to claim a 20 percent deduction for business-related income. As the National Real Estate Investor reported, the change would mainly apply to individuals and family trusts investing in real estate through partnership entities, such as limited liability partnerships and private equity funds, as well as individuals who receive income from real estate investment trust dividends.

Matt Levis and Jack Levis, both in CBRE’s property sales division, said the multifamily market in Greater Los Angeles remains strong with high-net individuals looking for long-term investments, viewing apartment rentals as low risk. The brokers (and brothers) based out of CBRE’s South Bay office cited rent-control ballot measures (there are no such controls in place today) being proposed by tenant advocates for several SoCal cities, including Long Beach and El Segundo, as potential impediments for growth.

“Introducing rent control in the South Bay and Long Beach markets will impede industry growth every way possible. Landlords will have no incentive to invest in their property and velocity will slow down; over time there will be more dilapidated buildings,” Jack Levis said.

Not Your Father’s Office

Content is still king in Los Angeles and, with the emergence of new content creators, where companies and individuals are developing content that can be distributed across a variety of media platforms, such as YouTube, the demand for creative office space is sky high and shows no sign of slowing down anytime soon.

Even companies whose main purpose is not content at all, are diving into producing or partnering for new content at a rapid rate,” said Jeff Vertun, a broker in CBRE’s downtown Los Angeles office. “Technology, media and entertainment-related tenants continue to attract impressive talent to fill those jobs,” Because of the enormous entertainment industry, Los Angeles is positioned as the ideal location for all content-related companies, which, in turn will lift the synergistic businesses with it.”

Last year alone saw streaming giant Netflix fully lease 415,226 square feet of office space between the ICON and CUE buildings on the Sunset Bronson Lot at 5800 Sunset Boulevard at an estimated rent of $4.75 to $5 a square foot per month. Entertainment Weekly is slated to relocate its headquarters from New York to 11766 Wilshire Boulevard in L.A. in March.  Meanwhile, Facebook opened its second L.A.-based location at 8500-8550 Balboa Boulevard in Northridge, in the once-uncool San Fernando Valley.

The recent expansion in interactive gaming—including live eSports tournaments—will also add to the race for suitable creative space around town.

According to Vertun, companies looking to attract and retain top talent have turned to properties that have souped-up amenities including wellness programs, and companies looking for flexibility have sought out coworking solutions.

“We’ve witnessed not-so-small companies take full floors of coworking space,” said Vertun, citing Heineken and Sketchers, which are utilizing WeWork, as examples of the trend.

The Los Angeles office market remains strong with moderate growth and Vertun’s outlook continues to be cautiously optimistic. He pointed to an 11 percent year-over-year increase in asking rates, though there is rising concern that an influx of new construction may lead to a glut in the market.

While the L.A. office market closed 2017 with rents and vacancy holding steady, downtown fared worse as vacancy rates there spiked, according to Colliers International’s fourth-quarter 2017 report.

The area’s 1.7 million square feet of office space under construction is far higher than the amount seen in the two other Greater Los Angeles submarkets the brokerage tracked with 80 percent of that space still available.

The strongest markets for rent values continue to be West Los Angeles, where average rents are currently over $5 per square foot, an 8 percent year-over-year increase, the Colliers data indicate. Downtown Los Angeles, meanwhile, has a high average rent of $3.51 a foot. Of note, the Arts District is commanding rents that rival the Westside.

Cushman & Wakefield also projects that this year non-central business districts downtown, including the Historic Core and Arts District, will account for 1.6 million square feet of new supply.

Justin Weiss, a vice president of brokerage at Kennedy Wilson, and an expert on the Downtown L.A. market, concurred, saying both the Arts District and the once-sleepy Bunker Hill, where Frank Gehry’s mixed-use Grand Avenue Park is set to break ground this fall, are areas to watch.

In one of the largest office lease transactions of 2017, anchor tenant Bank of America extended and expanded its lease at its namesake plaza at 333 South Hope Street in Bunker Hill, growing within Brookfield Property Partners’ 55-story, 1.4-million-square-foot property to 218,000 feet from 164,000, according to an official company statement. Though neither BoA nor Brookfield would disclose financial details of the lease, a spokeswoman for Brookfield said the lease was for more than 10 years.

The South Bay

Geographically, the continued influx of media, digital and high-tech players to the Westside of Los Angeles in Silicon Beach—which stretches from Santa Monica south to Venice and Playa Vista—has led to greater interest in the nearby South Bay market for office property. Vacancy rates have been dwindling and square footage has become costlier by the minute. (Google, Facebook and Snapchat are among the biggies who have set up shop in the area.)

According to CBRE’s fourth-quarter 2017 report, institutional investors have turned to suburban markets such as the Tri-Cities (Glendale, Pasadena and Burbank) and El Segundo in the South Bay as a more economical option for their offices.

CBRE’s Vertun said the average asking rates for office space in the South Bay was $2.59 a square foot. (In comparison, asking rates for West L.A. ARE $5.02 a square foot.)

Institutional investors including Brookfield, J.P. Morgan and Blackstone Group were new to the market in 2017.

One of the biggest deals last year was Blackstone’s acquisition of a group of Southern California warehouses in the South Baby and San Gabriel Valley and related properties from Principal Real Estate Investors for $448 million in October, according to Tina Arambulo, the industrial research director for the Los Angeles Basin at C&W. Another indication of the sector and area’s growing appeal was Starwood Capital’s acquisition of Pacific Corporate Towers in El Segundo for $611 million, or $385 per square foot, in late October.

Retail and e-commerce

Like elsewhere in the nation, brick-and-mortar retail in California has taken a hit, particularly as big-box and mall-anchor mass retailers including Macy’s and Toys “R” Us dramatically scale down operations.

Though the tax overhaul in D.C. was supposed to create higher returns of investment throughout the commercial real estate sectors, in retail that is not the case, the Matkins/UCLA Anderson Forecast found. Panelists in each of the six California regions surveyed were more pessimistic than before the tax bill passed.

In the Bay Area, none of the survey’s panel of retail developers started a new project last year, and very few are planning on doing so this year. In Southern California, just over half of the panel began new retail projects last year, while only a third plan to develop retail in the next year.

Despite the market apprehension and general sentiment that retail is overbuilt, CBRE found that, in Greater Los Angeles, the retail market concluded 2017 with stable and optimistic fundamentals. The brokerage’s fourth-quarter report analyzed all retail centers of 50,000 square feet and greater.

Vacancy rates remained unchanged throughout 2017, standing at 5.2 percent at the year’s end and anticipated to hold in the low 5-percent range through 2018, according to CBRE. Leasing momentum remained positive with 231,104 square feet of positive net absorption by the end of 2017. Average asking rents further increased by 9.3 percent year-over-year, ending the final quarter of 2017 at $2.71 per square feet.

Alex Kozakov, a senior vice president at CBRE, said that the ongoing growth in online shopping will ultimately reduce the brick-and-mortar footprint of retailers, while increasing the demand for warehouse and industrial space.

Greater Downtown ranked the highest in vacancy rates at 11.1 percent in the final quarter of 2017, according to CBRE, which the firm attributed to numerous smaller spaces becoming vacant versus major move outs. Fitness, grocery and discount tenants were among the notable retail categories in the region. Kozakov said the strongest markets and neighborhoods for retail include West Los Angeles, Hollywood, Silicon Beach, Santa Monica and Culver City, all of which are due to their good average household incomes and abundance of jobs, amenities and density, which together enable and encourage consumer spending.

Rents in some of the best retail markets in West Los Angeles ranged as high as $10 per square foot and cap rates of 4 percent in the fourth quarter of 2017, Kozakov said.

In response to rising rents, retail tenants with existing locations in Greater Los Angeles slowed expansions, hoping that a slowing cycle will lead to vacancy increases and eventually some rent relief, according to CBRE.

On the flip side, the ongoing growth of e-commerce has fueled an increase in industrial property values. As demand outpaces supply, rents for Class-A properties will continue to escalate and lead occupiers to consider functional Class-B warehouses, according to Ryan Foley, a senior associate at CBRE. (Current Class-A asking rates are in the upper $0.08s on a triple-net basis, pushing low $0.90s on a triple-net basis on brand new construction. Class B asking rents, meanwhile, are in the mid $0.70s. Both class rates are almost double what they were in the recession.)

Tina Arambulo at C&W agreed, saying that Class B properties which five years ago may have been considered obsolete will continue to be sought after in in-fill markets.

“Greater Los Angeles continues to have the lowest vacancy of any major industrial market in the U.S. with vacancy of just 1.3 percent,” she said.

The need for industrial property is also fueling the continued rise of the Inland Empire, which CBRE labeled its own “North Star” in its fourth-quarter 2017 report. A sizable portion of activity came from pre-leasing activity earlier in the year, while demand for industrial space smaller than 300,000 square feet did the rest.

Real estate investment trust Liberty Property Trust started 2018 with a move that confirms the overall trend: It purchased a 400,169-square-foot Class-A industrial building at 5959 Randolph Street in the city of Commerce for $92.7 million. The fully leased building is among three other major industrial properties Liberty purchased at the tail end of 2017.  These include the acquisition of a 702,668-square-foot Class A building at 1221 N. Alder Avenue in Rialto for $94.2 million, a 210,710-square-foot property at 16325 Avalon Blvd. in Carson for $46.3 million. In all, Liberty has nearly doubled its footprint across Southern California in the last year, investing a total of $176.3 million in 2017 in acquisitions and development in Southern California, and the portfolio now includes 3.7 million square feet, according to an official company release.  A Liberty Property Trust spokeswoman told CO that at the end of 2016 the company owned 2.1 million square feet in SoCal. Today, that stands at 3.8 million, including what is currently under development.

Foreign Capital

The Golden State is, well, golden in the eyes of foreign investors as L.A. moved ahead of New York for the first time in terms of the volume of foreign capital it attracted in 2017, according to research released by JLL last month. While London still topped the list—despite Brexit uncertainty—attracting $33 billion in foreign capital, L.A. shifted up to second place in the top 30 with $23 billion and New York dropped to third with $21 billion. The research from JLL references 300 global indices and benchmarks that assess the relative performance of cities. The most recent study found that while the global investment landscape continues to be dominated by the “Big Seven” cities, which include London and New York, “contender” cities like L.A. have attracted investors because of a lack of product and high pricing for prime assets in the core seven.

The 26th annual survey from the members of the Association of Foreign Investors in Real Estate (AFIRE) also back up L.A.’s growing draw as the City of Angels tied with New York for the first time as the top U.S. city for foreign real estate investment. (London took the top spot as the reigning global city for real estate investment.)

In last year’s survey, L.A. ranked second among U.S. cities and fourth globally. AFIRE members are among the largest international institutional real estate investors in the world and have an estimated $2 trillion or more in real estate assets under management globally.

“With the growth of on-line shopping, foreign investors continue to rank industrial/logistics properties as their No. 1 investment opportunity,” Jim Fetgatter, chief executive of AFIRE, said in an official release.  “The cargo coming into the Port of Los Angeles represents 43 percent of all cargo coming into the United States. Respondents also say online shopping is likely to have the biggest affect on real estate over the next five years. With these as benchmarks, it’s easy to see why investors would be bullish on Los Angeles.”

Source: commercial

Financial Services Firm StepStone Group Takes 30K SF at 450 Lex

StepStone Group, a financial services firm, has signed on for 30,000 square feet at RXR Realty’s 450 Lexington Avenue between East 44th and East 45th Streets, Commercial Observer has learned.

The tenant will occupy the entire 37th floor in the 39-story, 910,273-square-foot building via a 10-year lease, a spokeswoman for RXR indicated. The asking rents in the top of the tower, where RXR has rolled out prebuilts, range from $115 to $130 per square foot. StepStone will replace JLL Partners when the new tenant moves from the Lipstick Building at 885 Third Avenue on Aug. 1.

RXR picked up the property via a ground lease in September 2012 for $720 million, property records indicate. The seller was Istithmar World, the Dubai-based investment firm, as CO reported at the time. Tenants include David Polk Wardwell.

RXR’s Lauren Ferrentino represented the landlord in-house along with CBRE‘s Michael Affronti, Silvio Petrillo and Ryan Alexander. Affronti said in a prepared statement provided by RXR: “45o Lexington Avenue is an exceptional asset, and the success we continue to achieve certainly comes as no surprise. The building’s close proximity to Grand Central, panoramic views, high-end installations and strength of ownership are just a few of the components that continue to attract prominent firms to 450 Lexington Avenue.”

Savills Studley’s David Carlos represented the tenant in the deal. A spokeswoman said he was out of the country.

Source: commercial