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Category ArchiveRockefeller Center

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

Aspen’s St. Regis Will Become US’s First Public Single-Asset REIT

Stephane De Baets’ Elevated Returns, a New York-based asset management outfit, may be riding an express chairlift into the history books.

The firm, which acquired the St. Regis resort in Aspen, Colo., in 2010, won approval from the Securities and Exchange Commission late last month to spin off the property under the ownership of a newly formed real estate investment trust (REIT) called Aspen REIT. When it does—and after its New York Stock Exchange initial public offering later this month that aims to hawk 1.675 million shares at $20 each—the trust will become what De Baets said will be the first single-asset REIT to trade on an American exchange.

Elevated Returns plans to retain 51 percent of the shares, bringing equity investment in the property to $68.4 million. Those stakes combine in the capital stack with a $119.4 million mortgage to bring the St. Regis’ total valuation to $187.8 million.

The structure pioneers a novel configuration of real estate ownership, allowing anyone with a brokerage account to buy a piece of an individual commercial asset for no more than the price of a dinner entrée.

“It’s a democratization of the investment model,” De Baets said. “We’re enabling the man on the street to, point to point, invest into a particular asset and to enjoy 100 percent of the economic interest.”

The concept is not unheard of. In the mid-1980s, in an arcane, convoluted transaction that allowed the Rockefeller clan to skirt a tax liability for liquefying its real estate holdings, the family created a single-asset REIT assigned to collect interest on mortgages on Rockefeller Center in Midtown Manhattan.

And in 2013, an upstart called ETRE Financial was poised to zip several different commercial properties, in Boston, Washington, D.C., and Philadelphia, into discrete single-asset trusts available to shareholders to trade on the Nasdaq exchange.

Both of those endeavors careened toward the gutter. By the end of 1995, Rockefeller Center Properties was deeply distressed, suffocating under the layers of debt it had taken on to protect shareholders and buying back bonds that were set to convert into equity in the future.

And ETRE Financial fizzled before launch, postponing a series of IPOs in the wake of what analysts speculated was lackluster investor interest.

Michael Rotchford, who co-leads the capital markets group at Savills Studley, mused that concern in particular would be an obstacle for any single-asset trust to confront.

“Single-asset REITs for certain assets are a great idea, but I think that liquidity is going to be of great concern to individual investors,” Rotchford said.

When asked about concerns over the vibrancy of the proposed REIT’s secondary market, De Baets was upbeat, explaining that Aspen will employ a market-maker, Citadel Securities, to promote liquid trading in the stock.

“The market-maker is very incentivized to keep the market liquid,” he said. “If the first [single-asset REIT] is successful, there’ll be 20 of these.”

The hotel, at 315 East Dean Street in the ritzy Rocky Mountains town, is nothing to shake a stick at. Two blocks from the lift lines for the Aspen Mountain ski resort (also known by its former moniker, Ajax), the St. Regis boasts five restaurants—including one that serves dishes from chefs Eric Ripert and Mario Batali—a full-service spa and even butlers available to meet guests on the tarmac at Aspen-Pitkin County Airport to carry their luggage.

De Baets may also have an ace up his sleeve in the form of deep relationships with Asian investors. In addition to his role at Elevated Returns, the Belgium native also serves as a managing director for OptAsia, a specialty investment bank with offices in Bangkok. In that capacity, De Baets lived in Thailand for 20 years and said he believes that an emerging investor class in China and throughout the eastern part of the continent is hungry for recognizable American properties in which to park their cash.

When considering mainstream U.S. REIT opportunities, “most of my investors in Asia say, ‘I don’t know, this REIT has 500 different assets,’ “ De Baets said, “ ‘It’s complicated for me to understand if it’s a good deal.’ “

With Aspen REIT, “you only have one set of numbers,” he added. “The underlying value of the asset is easy to understand.”

The pitch to foreign retail investors will be bolstered by the tax advantages that real estate investment trusts enjoy abroad.

“For foreign pension plans that are now recognized [by the U.S. government], they would be exempt from taxes on the dividends,” explained Kenneth Weissenberg, a partner at New York accounting firm EisnerAmper. “And a nonexempt holder can sell his stock in the REIT and not be subject to” the Foreign Investment in Real Property Tax Act, a law that charges income tax to foreigners who make money in American real estate.

Incentives for foreign REIT investors were further strengthened by 2015’s PATH Act, which lowered the rate of dividend withholding for foreign REIT investors to 21 percent from 30 percent.

But how well Aspen REIT will serve owners as an investment vehicle remains unknown. Trophy resort hotels have always been difficult to find investment comparisons for, analysts say, because their fortunes are so closely tied to local conditions. But single-asset REITs lack any precedent at all, leaving De Baets to play a guessing game for what the financing market will bear.

“We don’t know that the general public will be happy with the yield,” the asset manager said. “We’ve priced this offering with an entry yield that is so attractive that we know the asset will be in demand. Where will it settle once it’s trading? No one knows.”

Still, Elevated Returns thinks that the ski town’s prestige and the strength of the St. Regis brand will boost the REIT’s market with investors content to dampen their expectations for return.

“I would say that the difference between the sexy asset and the non-sexy asset would be the yield compression,” De Baets said.

The paperwork that Aspen REIT has filed with the SEC in advance of its initial offering of shares grants an intriguing glimpse into the finances of a luxury hotel adjacent to a destination ski area.

Occupancy is sharply seasonal. During the ski season—roughly from late December through the first few weeks of April—demand soars, and guests rent 80 to 95 percent of the St. Regis’ 179 rooms. The picture is similar over the summer, from June through August, when travelers mob the town for hiking and rafting, as well as a yearly two-month classical music festival.

Revenue follows a similarly lumpy pattern. In December 2016—the most recent ski season for which data are available—the average price for a night at the St. Regis peaked at $1,665. But in the October offseason two months earlier, rooms could be had for less than a quarter of that price.

Still, the St. Regis was able to charge consistently higher rates than its competitors throughout Colorado, its SEC filings show. In 2016, the hotel raked in just shy of $29 million in room revenues, or about 45 percent of the REIT’s planned IPO valuation.
On the whole, revenue from the hotel has grown 14 percent since 2015, supporting the REIT’s pledge to pay out a 5.8 percent annual dividend.

Given REITs’ surging popularity—May 2017 data from the National Association of Real Estate Investment Trusts showed that daily trading in the sector was up roughly 150 percent over the preceding decade—analysts say the time is ripe for new innovations in the vehicles.

“You have growing popularity of the real estate space as the primary alternative investment,” said David Blatt, the chief executive of New York-based CapStack partners. “Additionally, people are looking to diversity away from public equities and bonds to have noncorrelated assets. That, in turn, has really brought a lot of people off the sidelines.

“I think [the single-asset REIT concept] is sector agnostic, but I do think that you’re going to acclimate people far better utilizing something that has a brand,” Blatt said. “Coming to market saying you’ve got a fantastically well-located warehouse complex—I’m sorry, but I fell asleep after you said ‘warehouse.’ ”

On the other hand, with a market cap, at $68.4 million, only about a 10th as large as its self-identified competitors, Aspen REIT might appear to have an uphill battle winning investor attention amidst the clamor.

On that front, the hotel’s branding could be crucial to its success.

In exchange for using the St. Regis moniker and outsourcing its day-to-day operations to the brand, Elevated Returns pays Marriott, which owns St. Regis, an annual fee based on a percentage of the Aspen hotel’s operating revenue—$500,000 at a minimum.

The Bethesda, Md.-based lodging company did not respond to a request for comment.

“[St. Regis’] sales network is very strong and sophisticated,” De Baets said, citing the company’s “no-blackout, highly rewarding loyalty program. That’s something that has been very powerful for properties like ours.”

Source: commercial

Paramount Promotes Leasing Exec to Ted Koltis’ Role, Seals 100,000-SF Office Deal

Paramount Group has promoted leasing executive Peter Brindley from senior vice president to executive vice president of leasing, a role formerly held by Ted Koltis. The news comes a day after the company announced it hammered out an agreement to bring open-source software database company MongoDB to its 48-story office tower at 1633 Broadway.

Brindley joined Paramount in 2010 and has quickly risen through the ranks of the office management company’s leasing division. In his new role, he will continue to manage the leasing of the company’s entire portfolio of commercial properties across New York City, Washington, D.C., and San Francisco. He replaces Koltis, who is leaving the company after six years “to pursue other opportunities,” according to a release from Paramount. A spokesman for Paramount didn’t respond to inquiries to talk to Brindley and Koltis, and neither broker responded to a request for comment.

Before arriving at Paramount, Brindley was a senior director at Tishman Speyer, where he handled the leasing of Rockefeller Center, the MetLife Building and 666 Fifth Avenue. (Tishman Realty and Construction developed 666 Fifth in 1957 and, as the company dissolved in 1976, it sold the 41-story building to Japanese developer Sunitomo for $80 million. The re-formed Tishman Speyer Properties then acquired the trophy office property for $518 million in 2000. In 2007, it sold the property to Kushner Companies for a then-record-breaking $1.8 billion.) Before heading to Tishman in 2004, he worked in the brokerage services group at CBRE.

“Peter is an extremely skilled leader and has formed significant and valuable relationships in his more than 15 years of experience in real estate,” said Paramount CEO and President Albert Behler in prepared remarks.

He added that Brindley “has done a remarkable job leasing Paramount’s 9 million square foot Class A portfolio in New York. We look forward to Peter leading our leasing team as we continue to execute our strategy to unlock value for our shareholders.”

1633 broadway Paramount Promotes Leasing Exec to Ted Koltis’ Role, Seals 100,000 SF Office Deal
1633 Broadway. Photo: CoStar Group

Meanwhile, Paramount finalized a 106,230-square-foot lease with MongoDB at 1633 Broadway, its 48-story skyscraper between West 50th and West 51st Streets. The landlord announced the 12-year deal in a press release this morning. The software company will take the 37th and 38th floors of the 48-story tower, as The Real Deal first reported last month.

MongoDB will relocate from the former New York Times Building at 229 West 43rd Street, where it has grown out of the 60,000 square feet it has occupied since 2013.

A CBRE team of Paul Amrich, Howard Fiddle, Stephen Siegel, Patrice Hayden Meagher, Emily Jones and Robert Hill handle leasing at the building, which was constructed in 1967 and designed by Emery Roth & Sons. Cushman & Wakefield’s Dirk Hrobsky, Chris Helgesen, Peter Trivelas and Gary Ceder represented MondoDB. Neither brokerage immediately responded to requests for comment via spokespeople.

Source: commercial

Midtown Vacancy Is Higher Than Midtown South and Downtown

At 9.6 percent, Midtown vacancy has maintained a higher rate than both Midtown South’s 7 percent and Downtown’s 8.5 percent every month in 2017 through October. The strong demand in recent years from the tech and creative firms in Midtown South and the migration to Downtown for value-minded tenants has leveled the playing field for all three markets. Although Midtown vacancy is up only 10 basis points from one year ago, let’s examine how the vacancies range within the nine Midtown submarkets by grouping them with vacancies above 10 percent, from 8 to 9.9 percent and below 8 percent.

Above 10 Percent

Surprisingly, some of the most historically coveted Manhattan submarkets have the highest vacancies in Midtown, and these submarkets also account for 72.3 percent of the $100-plus work allowances offered this year.

Madison/Fifth – The most expensive submarket also has the highest Midtown vacancy rate at 12.6 percent, and is up year-over-year by 60 basis points despite dropping as low as 11.1 percent in December of 2016.

Grand Central – The largest submarket has the second-highest vacancy rate, and at 10.6 percent it has increased 40 basis points since one year ago.

Park Avenue – This submarket recovered from earlier this year when vacancy reached a recent high of 13.1 percent in April and is 40 basis points lower than one year ago at 10.6 percent.

Times Square South – After reaching a low of 7.6 percent in April, vacancy steadily increased the last six months to 10.2 percent and is 60 basis points higher than in October 2016.

8 to 9.9 Percent

Only two submarkets fell within this midrange for vacancy rates, and both are susceptible to significant move-outs over the next three years.

Sixth Avenue/Rock Center – At 9.9 percent, vacancy is at an 11-month low but still remains 130 basis points higher than one year ago.

West Side – Vacancy in this submarket is down 130 basis points to 8.1 percent year-over-year and remained in the 7.9 percent to 8.1 percent range in nine of the 10 months in 2017.

Below 8 Percent

The three Midtown submarkets with the lowest vacancy rates all have different catalysts for the limited supply.

East Side/U.N. – Vacancy was as low as 5.5 percent at the end of 2016, due to lower than average market rents, but jumped up to 7.6 percent this year and is 170 basis points higher than one year ago.

Penn Station – The flight to new construction and redeveloped properties on the Far West Side certainly assisted this submarket’s vacancy rate this year. Penn Station posted the largest year-over-year decrease, down 290 basis points to 7.1 percent.

Murray Hill – The smallest Midtown submarket also has the lowest vacancy rate and overall asking rents. At 6.9 percent, vacancy is 120 basis points lower than it was in October 2016, which is attributed to its proximity to Midtown South.

Source: commercial

Under Construction: DNA Development’s ‘Jewel Box’ on West 48th Street

When DNA Development acquired a seven-story Midtown parking garage from Gary Barnett’s Extell Development Company for more than $37 million last June, it knew that, despite the site’s relatively limited, roughly 32,000-square-foot footprint, it had a prime piece of Manhattan real estate on its hands.

“Some may have looked at [the property] and said it’s too small,” according to Alexander Sachs, one of the firm’s principals and co-founders. “We looked at it as an opportunity to build what we’re building.”

What DNA is currently building at the site at 12 West 48th Street between Fifth Avenue and Avenue of the Americas—just one block from Rockefeller Center and at the southern edge of the vaunted upper Fifth Avenue retail corridor—is a four-story “jewel box” retail project featuring an unorthodox, concave glass facade by Ennead Architects. The angular design of the facade is meant to attract foot traffic from the nearby avenues and—with 75 feet of street frontage—provide retailers with the kind of branding opportunities worthy of a flagship location.

“The facade is designed as a double facade—a layer [of glass] can be [installed] immediately behind it,” said Peter Schubert, a partner at Ennead. “It could be a real asset to whoever takes the building; you can put lights behind it, or blinds if you want to develop a level of exclusivity. It’s something that can be constantly rebranded over the life cycle of the building.”

With nearly 31,000 square feet of space being built from the basement level up to the fourth floor (plus a private roof terrace), the “jewel box” is designed to be as flexible as possible with the ability to serve one or multiple users as either retail or office space (though the ground floor, with its 19-foot-high ceilings, beckons for a retail user). While DNA would ideally be able to attract a single tenant to the location, that layout means that the landlord has ample options for tenanting the property.

“We made the building very flexible so we can do retail on the ground floor and offices on the three floors above,” Sachs said, describing the space as potentially suiting “a company that might want to have their offices above their retail brand.” Schubert noted that the private rooftop terrace presents a “real opportunity for a boutique office” user, should they opt to take the top floors of the building.

While both Sachs and Kenji Ota, who is handling leasing at 12 West 48th Street alongside Cushman & Wakefield colleague Neil Seth, declined to provide asking rents at the property, both said they hope the location appeals to tenants looking for an upper Fifth Avenue presence at a more affordable price point.

“It’s a real value play,” Ota said. “It’s a significant decrease from where Fifth Avenue or Rockefeller Center rents would be.” Ota added that the location’s 30,000-square-foot retail footprint is “hard to come by in Rockefeller Center,” adding to its appeal for tenants seeking to establish a significant presence in the area.

Work on the “jewel box” is well underway with the foundation around two-thirds finished and structural steelwork set to begin before the end of November, Sachs said. The project is slated for completion next spring, with Sachs betting that the property proves a draw even in a struggling brick-and-mortar retail market.

“I think it’s an opportunity, not a hindrance,” he said. “Retail is resetting, [but] every brand has a different goal with their retail spaces. We provide an opportunity that’s more accessible and value-oriented than being directly on Fifth Avenue.”

Source: commercial

Grand Central Sleeper No More

Source: commercial

Stat of the Week: 40.3 Percent

As retail real estate professionals gather at this year’s ICSC (International Conference of Shopping Centers) RECon in Las Vegas, there is bound to be discussion about the question on everyone’s mind:

Is retail dying?

The answer is simple: Absolutely not—it’s just evolving.

Regardless if one’s shopping is done in store, online or both, there will always be a retail store presence. As a father who purchases video games for my two sons, I have found myself in five stores over the past two months purchasing the latest releases, as well as ordering an older, hard-to-find game online. 

The decline in asking rents and increase in availabilities for New York City storefronts over the past year appear more drastic than they really are. Although asking rents are down year-over-year in nine of the 11 statistical submarkets tracked by Cushman & Wakefield, asking rents are up significantly from five years ago. Combined, asking rents for these submarkets are down 5.1 percent from one year ago but remain 40.3 percent higher than in 2012. The five-year growth rate for Manhattan office asking rents has not been as extreme, because it’s only gone up 23.2 percent. 

Despite the decline in retail rents around Manhattan, tourism throughout the city continues to grow, surpassing 60 million visitors for the first time on record. With 60.7 million tourists flocking to New York City in 2016, visitors have increased by 15.2 percent since 2012. One area that seems to benefit from the increase in tourism is Fifth Avenue, as tourists covet shopping along the corridor from 42nd to 60th Streets, seeking retail destinations like the Apple store, Rockefeller Center, St. Patrick’s Cathedral and Trump Tower’s Tiffany & Co. It has become a mecca for midlevel soft goods shopping for athleisure wear—like Nike and Under Armour—compared to the luxury stores that once lined Fifth Avenue, which now consider Madison Avenue as an alternative.

The increased foot traffic along Fifth Avenue has helped the Upper Fifth Avenue corridor (49th to 60th streets), as direct average asking rents for ground floor space are up 9.7 percent year-over-year through the first quarter to $3,188 per square foot. This retail corridor is also one of only three submarkets that had a drop in vacancy since the third quarter of 2016, with direct vacancy down from a recent high of 13 percent to 10.2 percent during the first quarter of 2017.

Source: commercial