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Move Over, Plaza District: Meatpacking Is the City’s New Office Jewel

The names TenJune and Lotus have long since disappeared from the Meatpacking District.

Behold the new names to keep in mind when talking about the area: Google, Live Nation, Alibaba among others.

As companies focus on how to attract and retain employees, they are looking for cool and trendy areas in which to move, and the Meatpacking District has emerged as a top choice, brokers and developers told Commercial Observer.

“You are going to start hearing ‘21st century Plaza District,’ ” said William Silverman, a managing director and group head of investment sales at brokerage Hodges Ward Elliott.

Silverman is co-listing the converted eight-story office building at 430 West 15th Street with Cushman & Wakefield. He sees the influx of big, established companies in Meatpacking as the reason for why it will emerge as the next inevitable high-end office area.

“Fifty years ago your tycoon wore a suit and tie everyday and sent his kids to the Upper East Side [private schools], and they walked to their offices from a classic six on Park Avenue,” Silverman said. “Today, your business tycoon is more likely somebody who lives in the West Village or Chelsea, sends their kids to Avenues and wants to walk to their modern office in Meatpacking.”

And it’s really not that crazy to compare the Meatpacking to the Plaza District in terms of price. The average asking rent for office space in the Meatpacking District was $100.16 per square in the fourth quarter of 2017, up from $77.77 per square foot in the fourth quarter of 2016, according to a C&W report. The Plaza District’s average asking rent was $95.26 per square foot in the last quarter of 2017 and $95.99 in the same period in 2016, as per the report.

The price surge in Meatpacking is attributed to the influx of new developments that command much higher prices and to Meatpacking’s small office stock, which has roughly 5.8 million square feet of space. (By contrast, the Plaza District has about 87 million square feet of office space.) Moreover, Meatpacking only had a 2 percent vacancy rate in the fourth quarter of 2017, according to the C&W report.

Times have changed. Over the past decade, asking rents in the neighborhood mostly were in the $60s and $70s per square foot and even reached the $80s, according to C&W.

“In Meatpacking the decision makers want to be there and their employees do too,” Silverman said. “Meatpacking is a place where you start to see real estate being used as a recruiting tool.”

Meatpacking is bounded by West 17th Street to the north, Horatio Street to the south, Eighth Avenue to the east and the Westside Highway to the west, according to the Meatpacking Business Improvement District, a not-for-profit organization that advocates for the businesses in the area. And while the New York City Landmarks Preservation Commission designated the area a historic district in 2003—making it challenging to redevelop existing properties—developers are still building new projects to meet demand.

Perhaps the most notable of the developments is Rockpoint Group and Highgate Holdings’ renovation and expansion of 413 West 14th Street between Ninth and 10th Avenues. They are revitalizing the 109,515-square-foot property and joining it with the new 144,268-square-foot 412 West 15th Street to create one 255,000-square-foot 18-story office building.

The CetraRuddy-designed tower will be the tallest in the neighborhood at 270 feet and asking rents in the building range from $125 to $200 per square foot. So far six leases have been signed, totaling about 65 percent of the building, according to CBRE’s Paul Amrich, who is leasing the building with colleague Neil King.

In one of those deals, Paris-based asset management company Tikehau Capital signed a 10,000-square-foot lease for the top two floors of the building at $195 per square foot, according to The Real Deal.

“We started to see this area truly appeal to office tenants in general maybe eight years ago. What’s been really interesting is the change of industry type and maturity of tenants,” Amrich said. “In the past it was fashion firms and [startup] tech companies. Now, it’s insurance and financing companies.”

Aurora Capital Associates, which owns numerous buildings in Meatpacking, and Vornado Realty Trust recently completed a 165,000-square-foot building at 61 Ninth Avenue between West 15th and West 16th Streets. The property features 145,000 square feet of new office space with 12-foot ceiling heights and 20,000 square feet for retail. It also has private terraces on each floor as well as a rooftop green space.

buildingphoto35 Move Over, Plaza District: Meatpacking Is the Citys New Office Jewel
860 Washington Street. Photo: CoStar Group

And Aurora Capital and William Gottlieb Real Estate are finishing construction of a new 139,000-square-foot office and retail building at 40 10th Avenue between West 13th and West 14th Streets. The Studio Gang Architects-designed building, which is called the “Solar Carve Tower,” has office asking rents ranging from $135 to $200 per square foot.  

“It has unparalleled views of the Hudson River, the High Line, 15-foot floor-to-floor ceiling heights, uninterrupted views and an incredible roof deck,” said Jared Epstein, a vice president and principal at Aurora Capital. “It connects Meatpacking with the [Hudson] River and the High Line.”

In 2016, Romanoff Equities, the family development firm of C&W Vice Chairman Stuart Romanoff, and Property Group Partners completed the 114,000-square-foot glassy 860 Washington Street, just off the High Line. The office property has attracted Chinese e-commerce giant Alibaba, developer Delos Living and online lender SoFi as tenants.

“We produced on spec the project understanding that there was such demand by tenants who felt they needed an alternative to Midtown product, because the need to be in Midtown has changed,” Romanoff said. “Tenants want to be in more creative areas.”

And older properties are fetching top rents in Meatpacking as well.

Even corporate tenants want cool space,” said Leslie Himmel, a partner in Himmel + Meringoff, who has looked at buying buildings in the area. “They want exposed brick, open floor plans, wood, where they can see the bones of the building.”

William Kaufman Organization completed a repositioning of its 1912 property at 2 Gansevoort Street in 2015 with the addition of a new artwork-focused lobby, replacement of all of the windows and construction of an outdoor roof deck on the ninth floor (the top floor). At the time the asking rents in the Class A property were in the $100 to $115 per square foot range.   

The roughly 200,000-square-foot building, which William Kaufman Organization has owned since 1948, is fully leased save for the seventh floor and achieved rents in the high $80s per square foot and more than $100 per square foot for the top floors, according to Jonathan Iger, the CEO of William Kaufman Organization and the chairman of the Meatpacking BID.

On the seventh floor, William Kaufman Organization created a shared office floor called Swivel. Amenities for Swivel tenants include a pantry, a lounge, meeting rooms and conference rooms in a core area of the floor. In addition to the shared space, there are five prebuilt office suites that range in size—between 3,604 square feet and 5,677 square feet—with asking rents of $110 per square foot, Iger said.  

Since marketing for the Swivel office suites commenced in February, the landlord has already signed a lease and is in talks with three more tenants, Iger said. (Iger declined to name the tenant it has already placed in Swivel because of a contract agreement.)

As a testament to the area, Iger also noted that when Coronado Biosciences, a Massachusetts-based biopharmaceutical company, leased the ninth floor after the renovation of the property, the tenant informed him it looked at only two other properties in the city before choosing 2 Gansevoort Street: the GM Building and the Seagrams Building in the Plaza District.  

A big part of choosing 2 Gansevoort Street was the allure of the Meatpacking District and appealing to millennial employees, Iger said.

“I don’t think within a six-block radius [in the city] there is a better offering of food, culture and fashion that you can find with an office environment,” Iger said. “You see Google gobbling up as much space as they can. I think that we are just so centralized for everything that a young millennial employee wants.”

gallery at 2 gansevoort rainbow mountains Move Over, Plaza District: Meatpacking Is the Citys New Office Jewel
The gallery in the lobby of 2 Gansevoort Street. Photo: William Kaufman Organization

The Meatpacking District may have gotten its name from the 250 slaughterhouses that filled the area in 1900, but today it’s all about Google. (There are still a few meatpacking businesses left there.)

The tech giant purchased the 3-million-square-foot building at 111 Eighth Avenue between West 15th and West 16th Streets for $1.9 billion in 2010 and essentially has put its stamp on the area as it expanded numerous times since.

Most recently, in 2017 the company grew by 60,000 square-feet to 240,000 square feet at 85 10th Avenue between West 15th and West 16th Streets, as CO previously reported. And at Pier 57, Google plans to tack on 70,000 square feet for offices and 50,000 square feet for public engagement space to the 250,000 square feet it has already leased.

And instead of increasing its 400,000-square-foot offices at Chelsea Market, the tech giant has purchased the entire 1.2-million-square-foot building from Jamestown for $2.4 billion, as CO reported yesterday. (Google did not return a request for comment on its Meatpacking takeover plans, and a spokeswoman for Jamestown declined to comment about the sale.)

Google’s hardly the only household name to plant—or to soon plant—its flag in Meatpacking: Concert promoter Live Nation took an 100,000-square-foot sublease for the entire eight-story building at 430 West 15th Street between Ninth and 10th Avenues last year. And insurance company Argo sealed a deal for 48,000 square feet at 413 West 14th Street, as CO reported in March 2017. (Just a block outside of Meatpacking, coworking giant WeWork recently signed a lease for 122,000 square feet at 154 West 14th Street.)

Also, Insurance giant Aetna inked a 145,000-square-foot deal at Vornado and Aurora Capital’s 61 Ninth Avenue to relocate its headquarters from Hartford, Conn., as CO reported last June. It had plans to take all of the office space at the 165,000-square-foot Rafael Viñoly-designed building, which has a retail base.

A spokesman for Aetna declined to talk about the lease in depth but said that “CVS Health [which announced plans to acquire Aetna in December of 2017 for $69 billion] has no plans to relocate Aetna’s operations from Hartford after the transaction closes.”

With a signed lease, though, Aetna is on the hook and will have to find subtenants.

“We’ve been told that they might make a profit,” Epstein said. “In any other neighborhood that lease would be a big obligation.”

In keeping with the trend going on citywide, and even nationwide, Meatpacking retail tenants are trying to make their spaces more experiential.

aurora 40tenth 02 aerial 111616 Move Over, Plaza District: Meatpacking Is the Citys New Office Jewel
40 10th Avenue. Rendering: Aurora Capital Associates

A case in point, Starbucks plans to open a 20,000-square-foot store for a café and roastery on the ground floor of 61 Ninth Avenue, the second in the country (a third was recently announced for Chicago). Restoration Hardware took a lease for the entire 70,000-square-foot building at 9-19 Ninth Avenue between Little West 12th and West 13th Streets so it could build a gallery with a rooftop restaurant. It also plans to open a boutique hotel at 55 Gansevoort Street between Washington Street and Ninth Avenue.

Tesla Motors recently opened a 7,800-square-foot showroom at 860 Washington Street between West 13th and West 14th Streets and Genesis Motors (the luxury brand of South Korean car maker Hyundai Motor Company) will open a 40,000-square-foot location at 40 10th Avenue between West 13th and West 14th Streets.

Intersect by Lexus, a lounge, gallery and event space by the automaker, is at 412 West 14th Street. And Samsung is leasing the entire Morris Adjmi-designed 837 Washington Street, a 55,000-square-foot building between Little West 12th and West 13th Streets, where it doesn’t actually sell anything. Customers can test devices, experience virtual reality, see art installations, watch videos on a three-story screen and attend events.

“These are all best-in-class companies and they are all choosing that’s where they want to do their experiential concepts in New York City,” Hodges Ward Elliott’s Silverman said. “Meatpacking is emerging as where all the best companies in the world are doing business.”

With additional reporting provided by Max Gross.

Source: commercial

Google Closes $2.4B Acquisition of Chelsea Market

Google, which already occupies a significant portion of the 1.2-million-square-foot Chelsea Market building, has sealed a deal to buy the mixed-use property from Jamestown for $2.4 billion. The transaction was finalized today, according to a press release from Jamestown.

Jamestown will continue to manage the retail and food hall at Chelsea Market, a former Nabisco factory at 75 Ninth Avenue that occupies the full block between Ninth and 10th Avenues and West 15th and West 16th Streets, the release indicates. And according to The Wall Street Journal, Jamestown will retain the branding rights and intellectual property connected to the Chelsea Market name outside of Manhattan.

“For Jamestown, this is the highest-profile example to date of our unique approach to creating value, but it’s consistent with transformative projects we’ve successfully undertaken across the country,” Michael Phillips, the president of Jamestown, said in a statement. “It’s a combination of identifying underutilized locations, creative and visionary repositioning, value-creating management, rigorous financial analysis and patience.”

Jamestown purchased a 75 percent stake in Chelsea Market in 2003 for $280 million, according to property records. Then it bought out its partners in 2011, spending a total of $795 million, records indicate. Office tenants in 75 Ninth Avenue include Google in 400,000 square feet, as well as Major League Baseball and the Food Network.

Google has been growing its footprint in Chelsea. In 2010, the tech giant bought 111 Eighth Avenue from Jamestown, Taconic Investment Partners and the New York State Common Retirement Fund for $1.77 billion. That property, which houses Google’s headquarters, is across from Chelsea Market. Last year Google expanded by 60,000 square feet to 240,000 square feet at 85 10th Avenue between West 15th and West 16th Streets, as CO previously reported. And at Pier 57, Google plans to tack on 70,000 square feet for offices and 50,000 square feet for public engagement space to the 250,000 square feet it has already leased.

Google, a unit of Alphabet Inc., said in an official statement: “This purchase further solidifies our commitment to New York, and we believe the Manhattan Chelsea Market will continue to be a great home for us and a vital part of the neighborhood and community.”

Cushman & Wakefield‘s Douglas Harmon, Adam Spies, and Kevin Donner represented Jamestown in the deal. Harmon declined to comment. Darcy Stacom of CBRE represented Google. Stacom’s assistant said the broker is on vacation.

Source: commercial

Flexible Office Provider NYC Office Suites Inks Two Deals in Midtown

NYC Office Suites, which provides flexible office space, has signed a lease for 40,000 square feet in Rockefeller Center and a sublease for 30,000 square feet in the Citigroup Center, Commercial Observer has learned.

The larger of the two deals is in Tishman Speyer’s 1270 Avenue of the Americas between West 50th and West 51st Streets, with the company taking the entire seventh and eighth floors.

Avital Shimshowitz, the senior vice president of sales and marketing for NYC Office Suites, told CO that the company liked the building for a number of reasons: its location, it neighbors the entrance to Radio City Music Hall, Tishman’s Zo amenity package, the fact that the Rainbow Room is tenants-only for breakfast and lunch, it’s on top of a transportation hub and is along what she called “corporation row.”

On the eighth floor, NYC Office Suites will be converting a corner conference room into a business lounge and it will have a door to an outdoor furnished terrace for clients.

The lease is for 15 years and the asking rent was in the low $70s per square foot, Shimshowitz said.

Sean Black, the founder of BLACKre, represented NYC Office Suites in the deal. He wasn’t immediately reachable. It wasn’t clear who represented Tishman as a spokesman didn’t respond to a request for comment. 

601 lexington avenue photo costar group Flexible Office Provider NYC Office Suites Inks Two Deals in Midtown
601 Lexington Avenue. Photo: CoStar Group

NYC Office Suites clients will start moving into 1270 Avenue of the Americas on April 2, Shimshowitz said. Other tenants at the 31-story 528,900-square-foot office tower include Premiere Networks, Venable and FTSE Americas.

Crain’s New York Business was the first to report on this deal.

In the smaller deal, NYC Office Suites—which caters to mid-career professionals and “falls between Regus and WeWork,” Shimshowitz said—has taken 30,000 square feet in the Citigroup Center at 601 Lexington Avenue at East 53rd Street via a sublease with Citibank. The space is on the 20th floor.

“Our clients base—the core of it is financial services, legal and executive search firms,” Shimshowitz said, so the Citigroup Center was a logical choice for an outpost. In addition the Citigroup Center is in a good location for commuting and offers great views, she added.

Shimshowitz declined to cite the asking rent in the sublease, but CoStar Group indicates building asking rents range from $50 to $100 per square foot. The sublease is for less than 10 years.

Louis Buffalino of Cushman & Wakefield represented NYC Office Suites in the Citigroup Center deal. A spokesman for C&W didn’t immediately respond to a request for comment. It wasn’t clear who represented Citibank in the deal. Boston Properties owns the 59-story, 1.4-million-square-foot building where tenants include Kirkland & Ellis, the Blackstone Group and Citadel Investment Group.

While that NYC Office Suites space isn’t ready in Citigroup Center, “people wanted to move in,” Shimshowitz said, so the first client will set up shop next Thursday.

Thirty-year-old NYC Office Suites has four operating New York City locations—one each at Greybar Building at 420 Lexington Avenue, the Commerce Building at 708 Third Avenue, 733 Third Avenue and 1350 Avenue of Americas, with the last one being the company’s largest outfit at 75,000 square feet.

Source: commercial

Carver Federal Savings Bank Plans to Move Its Headquarters Down the Block

After selling its West 125th Street headquarters last month, Carver Federal Savings Bank is moving its offices a couple blocks east to the Lee Building at 1825 Park Avenue.

The country’s largest African-American-run bank inked a deal for 20,000 square feet on the entire 12th floor and part of the seventh floor at the 12-story, Savanna-owned office building, according to brokers involved in the deal. Asking rent in the 10-year transaction was $47 a square foot, said Eric Yarbro of Colliers and Madison Square Realty, who represented Carver in the sale and the lease.

Carver will pack up its current 25,000-square-foot headquarters at 75 West 125th Street and move into its new home at the corner of East 125th Street in six months. The bank sold 75 West 125th Street to Gatsby Enterprises for $19.45 million in February, as Commercial Observer reported two weeks ago. The local Harlem institution will, however, keep its retail bank branch on the ground floor of 75 West 125th, which is between Malcolm X Boulevard and Fifth Avenue.

Mitch Arkin of Cushman & Wakefield and Ellen Israel of JRT Realty handled the lease for Savanna.

Carver sold its building after reporting a net loss of $2.2 million last year, according to Crain’s New York Business, which first reported on the lease. The bank has struggled since the financial downturn in 2011, when it received a $55 million bailout from a group of investment firms and the federal government.

The previous owner of 1825 Park was Eugene Ginscombe, who owned the property for nearly 40 years before selling it to Savanna for $48 million in December 2015. Ginscombe, known as the “Mayor of 125th Street” and one of the city’s few prominent black developers, died in July 2016, seven months after the sale was finalized.  

Yarbro told CO that Carver chose the turn-of-the-century building because of Ginscombe’s legacy. “The Lee building was owned by one of the few African-American landlords in all of New York City. There was some historical significance to that.”

He added that, “Savanna gave them comfort that it would continue to be run well. The Harlem market has more family owners than institutional owners, so they’re one of the few institutional owners operating an office building in Harlem.”

Arkin touted the building’s location and nearby transportation options, which includes the 4 and 5 trains on Lexington Avenue and the adjacent Long Island Railroad stop on Park Avenue.

“I think the building has a lot of benefits for any kind of tenant that wants good transit access,” he said. “It’s great for Westchester, Bronx or Manhattan residents. And it has amazing southern and westerly views.”

Source: commercial

MIPIM: US Experts Tell World America Is Loaded With Opportunities, So Act Fast

Those that attended Commercial Observer’s panel on United States real estate investing today—the second day of the annual MIPIM (or Marché International des Professionnels d’Immobilier) property conference in Cannes, France—were told there are ample deals to be made in America.

At the event “Developing & Investing in the United States: Where, What & How?” some of the most prolific developers and lenders in the U.S. told real estate professionals not to worry about reports of rising interest rates, to expand their horizons beyond premium “gateway” markets (like New York City or San Francisco) and to act quickly or risk losing the deal.

Brookfield Property Partners Senior Managing Partner and Chairman Ric Clark opened the event by talking about the three trends his company sees affecting the U.S. real estate market: booming population growth of urban areas; the rise of millennials and increases in innovation; and technology for properties.  

Expanding on the first point, Clark said that cities around the U.S. are projected to have 350 million residents in the year 2050, up from 125 million in 1960. In 2014, he said, that figure was 258 million people. 

“Growing urban populations clearly present major challenges, but also major opportunities for those in the real estate business,” Clark told the audience. “The new city dwellers are going to need places to live and work, new schools and hospitals and a massive investment infrastructure will also be required.”

Bruce Mosler, the chairman of global brokerage at Cushman & Wakefield, moderated the first panel about developers’ thoughts on the market, which included Hines CEO of Capital Markets and the East Region Christopher Hughes; SL Green Realty Corp. co-Chief Investment Officer Isaac Zion; and Eran Polack, CEO and co-founder of HAP Investments.

Mosler informed the crowd of the reduced investment activity in New York City and other U.S. gateway markets, which resulted in a 23 percent drop to $96 billion last year from $125 billion in 2016. Comparatively, total investment in non-gateway U.S. markets dropped to $300 billion in 2017 from $339 billion in the previous year—just a 3 percent dip.

Hughes mentioned that investors need not focus only on gateway cities, because there are great opportunities elsewhere in the country.

“It’s a default to look at the gateway cities,” Hughes said. “As you start to look at the U.S. markets you should pay attention to the broader U.S. markets. You’ll make a mistake if you come to the U.S. and think there are only three cities to invest in. Follow the education [centers]; follow the underlying demand drivers.”

Zion pointed out that foreign investors need to understand that deals in the U.S. happen fast, so they need to be decisive.

“The quick ‘yes’ is always the best answer,” he said. “The quick ‘no’ is almost as good. It’s the long, long ‘maybe’ which unfortunately happens way too often. And if you are in that position you are not going to be able to act on potential opportunities.”

The second panel, moderated by Jonathan Mechanic, the chairman of the law firm real estate department at Fried Frank Harris Shriver & Jacobson, focused on lenders’ views of the U.S. market, and featured panelists Michael Shields, a managing director of ING Real Estate Finance; Christoph Donner, CEO of Allianz Real Estate of America; and Alexander Joerg, a managing director and head of real estate finance at Landesbank Baden-Württemberg.

Since capitalization rates—the expected rate of return on a project—are higher in the U.S. than in major European markets, investors can see a lot of upside, Shields said.

“You are breaking 3 [percent] caps in Paris and Berlin, so our risk guys when they see a 5 [percent cap rate], even though the base rate is higher, they like the U.S.,” Shields said. “And it’s such a big market. There are so many deals compared to [Europe]. London and Paris are the only two markers that have deal flow that compares to the U.S. So we could be a lot more selective and cherry pick a bit and figure out where we can actually compete.”

And since interest rates are climbing, now is the time to act, said Donner, who suspects that the movement in rates will boost deals.

“I think we are going to see more volume just because rising interest rates [means] it’s time now for clients to lock in rates for the long term,” he said, “because on a really long-term perspective these are ultra-low rates.”

Source: commercial

Former SL Green Exec, Massey Mayoral Adviser David Amsterdam Lands at Colliers

Colliers International Group has found a new president for eastern-region investment and leasing in David Amsterdam, a veteran commercial real estate executive, formerly of SL Green Realty Corp., Colliers announced today.

The new role will put Amsterdam in charge of the company’s team in New York, Boston and Washington, D.C., leading the firm’s advisory business for clients including investors, corporate tenants and landlords.

“I am very excited to join Colliers and assume a leadership role in driving the company’s future growth … in New York City, the world’s most important real estate market,” Amsterdam said in a statement. “Colliers has demonstrated a commitment to hiring a world-class leadership team and I look forward to capitalizing on the many opportunities we see that will bring value to our clients and our professionals.”

Amsterdam, a graduate of Syracuse University, joined SL Green in 2011 from Cushman & Wakefield, but left the real estate investment trust in August 2016 to head the mayoral campaign of Paul Massey, the C&W executive who challenged Bill de Blasio in his 2017 reelection bid. After struggling to gain support, Massey dropped out of the race five months before election day, citing the high costs of campaigning against an established incumbent with a nascent national profile.

“[Amsterdam] is one of my favorite people in the industry, and has been for a long time,” Massey said. “He’s a tireless worker, and I think Colliers is lucky to have landed him.”

Dylan Taylor, Colliers’ COO, emphasized that Amsterdam’s hiring is part of a long play for preeminence in the northeast.

“We have known David for several years and are thrilled to have him spearheading our firm in these extremely competitive, important markets,” Taylor said in prepared remarks. “This strategic hire greatly strengthens our U.S. leadership team and further positions our platform as a leading global real estate services provider.”

Amsterdam—who worked as a Beverly Hills talent agent before beginning a career in the real estate industry—was not immediately available to comment further on his new position.

Source: commercial

Why All the Interest in Interest Rates?

For the past few weeks, one of the major topics of conversation has been interest rates and the impact they could have on the capital markets if they rise. Ironically, good economic news delivered weeks ago about gross domestic product growth, job creation and corporate earnings sent the equities markets on a rollercoaster ride, mainly based on the expectation that all of this healthy economic news would cause interest rates to rise faster, and to a greater extent, than expected.

For more than two years now, the Fed has been telegraphing that rates would be increasing with two to three one-quarter point increases per year. The positive economic news has left market participants feeling as if rate increases might outpace the Fed’s projected slow, steady climb.

The general feeling among commercial real estate players is that interest rate hikes are bad for the market. While it is true that low interest rates are rocket fuel for real estate capital markets, increases in rates are not necessarily bad.

If you are a frequent reader of Concrete Thoughts, you know that I always say that it is not “if” rates increase but “why” they increase. If rates increase because of stagnation in the economy, a decrease in the amount of available credit, an increase in the demand for credit or because we are having trouble selling bonds, those increases are negative for commercial real estate. However, if rates increase because the economy has tangible positive traction, rate increases can ultimately be positive. 

Yes, it is true that interest rates and capitalization rates are highly correlated over the long term, so if interest rates rise, cap rates will also rise. Rising cap rates exert downward pressure on property values and this is why the general perception of interest rate increases is viewed negatively by real estate market participants. However, if the rate increases were precipitated by positive economic news, net operating incomes will rise and even with rising cap rates, values can climb.

The short-term problem for the market is that if rates increase today, by this afternoon, the mortgage rate quote from your lender is likely to be higher. The increases in net operating income don’t kick in until leases roll, which is short term for residential apartments but longer term for offices and retail spaces. 

We have been in an extraordinarily low interest rate environment for about nine years now. Long periods of low interest rates, while great for real estate capital markets, are indicative of monetary and fiscal policies that are not working. Rates have been so low for so long because the recovery since the Great Recession has been mediocre at best. Now that the economy is picking up, rates will rise and that is not necessarily a bad thing. 

The increases in property values in New York City have also been below what would have been expected with rates being so low for so long. Since the low point (either 2009 or 2010 depending on borough), values have approximately doubled. But take into consideration that values dropped, on average, 38 percent from peak to trough in the last cycle, values today, while near all-time highs, are only about 20 percent above 2007 peaks. This reality flies in the face of the thesis that long periods of low interest rates create asset bubbles (it is important to note that many market observers blame former Federal Reserve Chairman Alan Greenspan’s keeping rates too low for too long as the catalyst for the housing market crash which led to the Great Recession). 

The investment sales market correction, now in its 30th month, appears to be winding down with sales volumes expected to rise this year while property values bottom out in an apparent replay of 1993 and 2010. Both of those years had similar dynamics at the end of market corrections. So the question today is if the interest rate increases will thwart the positive momentum we are seeing in sales volume and how property values might be impacted. 

Source: commercial

It’s MIPIM Time: Why You Should Be Excited for the Cannes Conference

Once again, it’s that time of the year for real estate professionals across the globe to head to Cannes, France.

Just two months ahead of the invitation-only Cannes Film Festival, where movie stars will take to the sandy city on the French Riviera and no doubt trade Harvey Weinstein horror stories, tens of thousands of men and women in business suits carrying briefcases and card holders will storm the streets of Cannes hunting deals during the annual MIPIM (or Marché International des Professionnels d’Immobilier) conference on March 13 through March 16.

The bulk of the events, which is organized by Reed Exhibitions subsidiary Reed MIDEM, will be held at the Palais des Festivals et des Congrès, a massive conference center on the Cannes waterfront.

MIPIM’s theme for the 29th annual conference is “Mapping World Urbanity,” and the event’s programming will try to address issues like, How will we live in cities in 2030 and 2050? And, what are the best strategies for building future cities in a globalized world?

There are plenty of reasons to be excited for MIPIM, but to approach a conference as big as this (with more than 24,000 people), a roadmap might prove useful. We talked with a few MIPIM-goers from the U.S. to get an idea of what the sophisticated attendant should look out for this year.

Networking (duh)

With approximately 24,200 expected participants from over 100 countries, it’s more than possible to find the right person to talk to at MIPIM, whatever your needs may be.

Of the attendees, there will be 5,000 investors and financial institutions, 4,500 developers, and 3,800 CEOs and chairpeople scrambling around the waterfront and in the Palais des Festivals. And there will be more than 3,100 exhibiting companies.  

And in case the conference center isn’t your scene to swap business cards, networking parties will take over the swanky hotels, luxury yachts and the beach.

pim17 0550 Its MIPIM Time: Why You Should Be Excited for the Cannes Conference
With an array of events and booths, there’s ample opportunities for networking at MIPIM. Photo: MIPIM

“The most important thing for me is the networking,” said Susan Greenfield of Brown Harris Stevens, who has been to the event for 28 consecutive years and has already booked her flight for No. 29. “I go every year because it’s the one place in the entire year where I see almost everyone I know from around the global at the same time.”

She added, “The thing that is so important about this event is you get so many decision-makers. One day I was walking down the street [in Cannes] and who could be facing me walking the other direction? Harry Macklowe. I said, ‘What are you doing here?’ He said, ‘I’m here to look for money, what are you doing here?’ ”

City and country exhibitions

If you’re thinking global and want to know what investment opportunities there are in cities abroad, this is the event for you.

The European cities put on a show at MIPIM, bringing large-scale panoramas of entire cities and models of megaprojects to dedicated pavilions. Last year, London and Istanbul had massive jaw-dropping displays.

“Some of the models and booths are off the charts,” said Jay Olshonsky, the president of NAI Global, who has gone to MIPIM for seven consecutive years and is returning this year. “Some people told me some of the models there are million-dollar [displays]. I always leave two or three hours for myself to walk around because you always see something you’ve never seen before.”  

“Le Grand Paris,” the name for the pavilion dedicated to the City of Lights, will feature 19 exhibitions and events each day. Belgium’s pavilion will feature experts and models of Flanders, Brussels and Wallonia, while Holland’s space will be dedicated to Amsterdam, Rotterdam, Utrecht and The Hague.

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Model displays of cities and large developments are popular in MIPIM, such as this one of London last year. Photo: MIPIM

On top of these, there will be booths dedicated to countries from Asia, Africa and North America. Not that the models and displays of cities are there just to be pretty or promote specific projects and the companies that are developing them; more than 370 political leaders and 500 representatives from cities will be in attendance to talk about development in their cities, attract developers and get investments in their locales. (We’ve already heard from the Moscow delegation!)

“If you go to ICSC in Vegas, which is by far a bigger show [with 37,000 attendees], it’s more about the displays about the companies [not cities],” Olshonsky said. “New York City doesn’t come and display at ICSC like Paris does in MIPIM.”

Panel events and keynote speeches

It’s not all deal-making and networking—MIPIM is also a place to learn about development trends across the globe. The event will feature more than 360 keynote speeches and well over 120 panels, sessions, workshops and networking socials covering a wide variety of topics—from Asia and Europe to sustainability and logistics.

And those events will also serve to gather experts across the globe and offer opportunities to get someone’s ear.

“[After networking,] the second thing that I find very valuable is attending these program and panels because I learn so much,” Greenfield said. “You never stop learning and real estate is always changing. If you don’t stay ahead, if you don’t stay involved, if you don’t stay knowledgeable, then you are going to miss out.”

Some panels to look out for include “Self-Driving Cars: Bringing a New Face to our Cities,” “Smart Housing: What Millennials Expect,” “Belt and Road Initiative: Capturing Opportunities Through Hong Kong” and “Urban Logistics: the Next Challenge for Cities.”

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The comprehensive panels with world-class experts are plentiful at MIPIM. Photo: MIPIM

And even Commercial Observer is getting in on the action, co-organizing the U.S.-focused two-panel event entitled “Developing and Investing in the United States: Where, What & How?” on the morning of March 14 at The Ruby Room in Palais des Festivals.

Ric Clark, Brookfield Property Group’s senior managing director and chairman, will deliver the keynote address and Jonathan Mechanic, the chairman of Fried Frank Harris Shriver & Jacobson’s real estate department, will moderate the panels. Cushman & Wakefield’s Bruce Mosler, SL Green Realty Corp.’s Isaac Zion, Hines’ Christopher Hughes, Hap Investments’ Eran Polack and Allianz’ Christoph Donner are just some of the panelists. (You can find us there!)


Come for the drinks and deals, but stay for the tech!

For the past couple of years, the presence of property technology companies has grown at MIPIM. As the sector is becoming a force in the industry—making more investors curious about what’s next to come—MIPIM has stepped up to provide some answers.

There will be a PropTech Lab event at MIPIM for the first time on March 15, where  invite-only real estate executives and tech leaders will meet and talk about the increased impact of technology on real estate.  

“MIPIM events and conferences will be great opportunities for members of the REBNYTech team to meet with industry leaders of tomorrow,” Ryan Baxter, a Real Estate Board of New York vice president for management services and government affairs, who is heading to MIPIM this year again and is a member of the advisory board of MIPIM PropTech, said in a statement. “We’re looking forward to learning more about smart cities and human-centric innovation efforts from around the world.”  

MIPIM also serves as the final leg of the third-annual MIPIM Startup Competition, an international tech competition in partnership with MetaProp NYC, a real estate tech accelerator. Nine finalists at the nexus of tech and real estate were selected from three previous events, MIPIM U.K., MIPIM Asia and MIPIM PropTech (in Manhattan), and those companies will face off in Cannes to determine the best of the lot on March 14.

The competitors from New York City’s MIPIM PropTech that are heading to Cannes are Real Atom, the first online marketplace for commercial real estate debt financing; PlanRadar, a digital software that facilitates project management for construction companies; and Acasa, an app that helps individuals manage household bills.

The winner will receive three passes to both MIPIM U.K. and MIPIM Asia 2018, four passes to MIPIM 2019 (again in Cannes), an automatic selection as a finalist for MetaProp NYC’s 2018 accelerator program as well as brand exposure and coaching at this year’s MIPIM.

And take in Cannes, for goodness sake!

“If you think about it, if you have got to go somewhere 6,000 miles away—for you and I, it’s not too shabby to go to the south of France,” Olshonsky said.  

Cannes is packed with bars, restaurants, hotels and historic buildings all within walking distance of the beach. For those looking to notch Michelin stars on their belts, there are plenty of options. La Palme d’Or, Villa Archange, Paloma and L’Oasis all hold multiple stars.

There are luxury hotels all around the beach area of Cannes. Some leading contenders are Hotel Barrière Le Majestic Cannes, InterContinental Carlton Cannes Hotel and Grand Hyatt Cannes Hôtel Martinez thanks to their astounding architecture and rich history.

And speaking of history, while you’re in town for a real estate expo, why not do a little sightseeing? Cannes is home to Eglise Notre Dame d’Espérance, a 17th century gothic church set atop a hill that overlooks the port area and it provides some amazing views. And there is also the Musée de la Castre, a museum that is set in a castle built by 11th-century monks.

Also just like the Hollywood Walk of Fame, Cannes is known for Allée des Étoiles du Cinéma, where stars leave their handprints. Finally, don’t forget to talk a stroll along the Promenade de la Croisette if you didn’t already do so on your way to and from the convention center.

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