Sutton declined to comment. A spokesperson for Geox and a lawyer for S & A did not immediately respond to requests for comment. Representatives for S & A could not be reached.

Geox first signed a 15-year lease for the Chelsea storefront in 2007 that carried an annual base rent of $2.6 million in 2020, court records show.

However, S & A hit Wharton with a lawsuit in July 2020 to get out of the deal claiming the coronavirus pandemic “frustrated” the lease because it forced the store to temporarily shutter and tanked foot traffic in Chelsea, court records show.

Wharton hit back, denying the pandemic impacted the deal at all; eventually, the duo agreed on the $8.8 million payment that canceled Geox’s lease in the property, according to the TASE documents.

Geox wasn’t the only Manhattan retailer to try unsuccessfully to skirt paying rent because of the pandemic.

Gap attempted to get out of its rent for its Times Square outpost at 1530 Broadway, but a judge ruled in August it needed to pay $24 million to its landlord.

And high-end gym chain Equinox — which is facing a multitude of lawsuits for missing rent in its locations throughout Manhattan — was ordered earlier this month to pony up $450,000 owed on its 670 Broadway location.

Nicholas Rizzi can be reached at nrizzi@commercialobserver.com. Chava Gourarie can be reached at cgourarie@commercialobserver.com.

The Midtown property is currently home to a 16,000-square-foot retail building, previously leased to clothing retailer Superdry. Wharton filed a permit in April to convert the property to a hotel with a ground-floor retail space and rooftop amenity floor, as CO previously reported. Under the deal, Wharton would still control the retail portion of the project, the source said.

Sutton declined to comment and Sonder did not respond to a request for comment.

Retail businesses were hit hard by the pandemic, with well-known brands like Century 21, Lord & Taylor and JCPenney filing for Chapter 11, but the hospitality asset class didn’t fare much better. Normal occupancy rates for New York City’s hotels aren’t supposed to return to pre-pandemic levels until 2025 and many shuttered during the pandemic — with the state passing a bill to allow converting some underused hotels into residential housing. 

Even during this time, Sonder managed to go public via a special purpose acquisition company (SPAC) merger that valued the company at $2.2 billion in April, CO reported. The company offers short-term stays with a focus on a younger clientele comfortable with navigating their visit via a phone app, which allows Sonder to keep costs down. Sonder lists its rentals on its own website, Airbnb and Expedia Group’s Vrbo and has expanded into the hotel market as well. 

Sonder reopened the Flatiron Hotel in April after leasing it from Premier Equities, which bought the 64-unit 9 West 26th Street building out of bankruptcy in 2019. It also snagged its first Brooklyn outpost in Gowanus in June after inking a lease for the entire 29,000-square-foot, 76-room Gowanus Inn & Yard, located at 645-651 Union Street.

Sutton’s company hasn’t fared so badly either. While Wharton Properties did sell off property last year, none of Sutton’s 120 properties around the city were threatened by repossession or foreclosures.

Celia Young can be reached at cyoung@commercialobserver.com.

Clarification: This article was updated with a headline that reflects that Sonder is paying Wharton Properties. 

Hackman Capital Partners and Square Mile Capital Management have swallowed up CBS Studio Center for $1.85 billion. If it closes on time, it is likely the biggest real estate deal in L.A. in 2021.

Not to be outdone, Blackstone plunked down what for everyone else in the world would be a pretty hefty chunk of change ($2.8 billion) for 124 logistics properties spanning the U.S. and Europe in a purchase from Cabot Properties.

But even at a slightly lower level the appetite for real estate has reached tapeworm dimensions.

Miami millions

Maybe it was Art Basel in the air, but it cannot be denied that Miami had a hell of an active week.

Hospitality giant Major Food Group is apparently getting into the development business. They’re teaming up with JDS Development to build a new 259-unit condominium at 888 Brickell Avenue.

Jay Shidler acquired The Sealofts at Boynton Village, a Boynton Beach rental located at 600 Sea Lofts Drive, for $153 million.

And Key International and Wexford Real Estate Investors slammed down $54 million to purchase the Fort Lauderdale Marriott Pompano Beach Resort & Spa, a 219-room, 4.2-acre oceanfront hotel at 1400 North Ocean Boulevard.

There were serious financings and refinancings too. Lennar Multifamily Communities scored $130 million in financing for Vesada Apartments in Doral. Gables Residential, the Atlanta-based company, got $115 million from Wells Fargo for the development of its planned 295-unit oceanfront property at 333 North New River Drive East in Fort Lauderdale. And Bank OZK provided a $121.5 million construction loan to Two Roads Development and Alpha Blue Ventures for their 24-story luxury condo Forté at 1309 South Flagler Drive, in West Palm Beach.

And one shouldn’t forget about leases! Echelon Fitness announced a new 10,035-square-foot studio at The Boulevard, the Goldman Sachs-backed luxury rental at 5700 Biscayne Boulevard (Hey, owners! That’s a way to reduce that appetite!) Eight leases were signed at Centrepark, Colonnade Properties’ West Palm Beach office complex, totaling 57,072 square feet. And the coup de grace (at least as far as square footage is concerned): King Ocean Services announced a 157,528-square-foot relocation and expansion to Prologis Beacon Lakes industrial park at 13155 NW 19th Lane in the Airport West submarket.

Ooh la LA!

Beyond the billion-dollar CBS deal, there were big things happening in L.A. too.

Onni Group picked up Marina Shores, a 6.17-acre shopping center in Long Beach, for $67.9 million, which they’re planning on knocking down and turning into multifamily.

Pacshore Partners plunked down $90.5 million for the 152,834-square-foot, 97-percent leased 2600 West Olive Avenue from Granite Properties.

And in the world of leasing, Signal Brands, the fashion house behind GUESS and Nine West, signed a 22,000-square-foot deal with CIM Group at 5600 West Adams.

What about NYC?

In a hospitality industry that is still reeling, we were pleased to see that Jeff Sutton’s Wharton Properties nailed a 15-year, roughly $300 million lease with Sonder for his planned 363-room hotel at 25 West 34th Street.

Gotham also had its share of leases: Kohn Pedersen Fox expanding by 38,000 feet at Tishman Speyer’s 11 West 42nd Street; Shen Milsom & Wilke, the consulting firm, taking a full 12,526-square-foot floor at 275 Madison Avenue; private equity firm Incline Equity Partners relocating from 100 Park Avenue to 505 Fifth Avenue; and a whole mess of leases at Fisher Bros.’ 1345 Avenue of the Americas.

But the thing that excites us most would have to be something just outside the city borders: a new Toys “R” Us landing at the American Dream Mall! (Thank goodness we won’t have to rely on Amazon this Christmas. Well, not fully rely on them, anyway.)

It’s Sunday!

No, we’re not going to workout, thank you very much.

We’re going to stay in and have a nice, long read. About, say, the lawsuits on Billionaires’ Row, and how sales are going for luxury Manhattan condos in general.

Or one can get the inside look at what’s happening at Brookfield’s 660 Fifth Avenue.

Finally, one can ponder why some tenants are buying rather than renting their real estate.

See you next week!

The 617,000-square-foot building is not completely devoid of retail; there is a Ruth’s Chris Steakhouse at the address, but this is the first time Sutton has gone after a property primarily for its office offerings over its retail. UBS Financial Services is the main tenant, with another 14 years on its lease.

The property is part of a 60-acre waterfront project called Lincoln Harbor that was developed by Hartz starting in the 1980s and sits just at the mouth of the Lincoln Tunnel.

It wasn’t clear if there were brokers involved in the deal. Sutton, Hartz and KTB could not be reached by press time. The news was first reported by PincusCo.

Sutton, A&H Acquisitions, Bobby Cayre’s Aurora Capital Associates and Joseph Sitt’s Thor Equities bought the six-story SoHo retail development in December 2012 for $146.9 million from the Goldstein family, as Commercial Observer previously reported. When the joint venture purchased the property, Deutsche Bank provided $100 million in acquisition financing, which was later refinanced by the UBS and Morgan Stanley loan.

The 52,500-square-foot building is anchored by a Nike store — reportedly paying $16 million a year in rent, at least before the pandemic. Nike has more than 10 years left on its lease at the building, according to the source. The four owners did not immediately respond to requests for comment on the deal.

Eastdil Secured is marketing the loan. The firm declined to comment on the sale. Morgan Stanley, UBS and Rothesay Life did not immediately respond to requests for comment on the loan.

With additional reporting provided by Cathy Cunningham.

Celia Young can be reached at cyoung@commercialobserver.com.

Settle in for more work from home, people!

But at least as WFH is fully normalized we won’t have to deal with the one thing that we most hated about working in an office: the boss leaning over your desk to make sure you’re actually busy!

Or, will we?

Some companies have already floated the idea of “periodic unplanned visits from a supervisor during scheduled work shifts” to make sure that you’re actually working. (Mattel, which put this specific wording in a job description, quickly backed down once this was publicized.) And your company computer is perfectly able to be surveilled.

“It would be naive to think that your data is not being gathered and collected,” said Mauren Ehrenberg of Blue Skyre. “It’s important that employees know that they have a responsibility to their employer, that they have to be trustworthy. It’s not just a one-way street.”

Sigh. This is why we can’t have nice things.

Multifamily mania

We were thinking a lot about our homes this week. Throughout the pandemic multifamily has been remarkably resilient. Companies like Blackstone and Ivanhoé Cambridge have done huge multibillion-dollar deals and positive growth in the sector is expected in 2022. Just last week Marcus & Millichap acquired the multifamily advisory firm Eisendrath Finance Group, and CIM Group ponied up $52 million to buy a 117-unit apartment building in Inglewood, Calif., from Meldia Group.

It’s almost as if … it’s doing too well!

Could multifamily, the golden boy of real estate, be floating into bubble territory?

It’s certainly possible. More and more borderline deals with little room for error are crossing the finish line.

“Multifamily is definitely the most liquid, most accepted product type, which in some ways helps keep pricing more stable,” David Perlman, managing director of capital markets and head of the New York office at Thorofare Capital, told Commercial Observer this month. “At the same time, how much can rates go down and how much can pricing go up before you have a retreat in that space?”

Although at the CRE Finance Council’s annual Miami conference last week nobody seemed to worry about multifamily. CO was on the ground fanboying out over Derek Jeter’s keynote, but when it came to multifamily the conversation was mostly about rising interest rates, which didn’t seem to concern panelists too much, either. (You can read the rest of our coverage here, here and here.)

Leasing, selling and financing!

Multifamily aside, there were plenty of interesting deals that happened last week.

To start off, Roku signed a monster lease at RXR Realty’s 5 Times Square, taking 240,000 square feet. Corporate law firm Carter, Ledyard & Milburn took 36,124 square feet at Fosun International’s 28 Liberty Street; golf club fitter and retailer Club Champion took 5,399 square feet at the old Daily News building at 220 East 42nd Street and The Bromley Companies leased an 8,000-square-foot space to the clothing and shoe retailer Allbirds at 120 Fifth Avenue in a space that The Gap had occupied for some 30 years. (Leasing was not just good in New York; in Miami, SoftBank Group is in negotiations for office space at L&L’s Wynwood Plaza.)

As for sales, Columbia University snapped up the old Harlem location of Fairway for $84 million. (No surprise there; the university has been building all around it.)

In Miami, Aby Rosen is making moves; the real estate maven’s RFR just picked up 100 Biscayne after its previous owners, East End Capital and Australian investors Errol Dorfan and Kim Davis, wound up suing each other over the management and redevelopment of the property. (No word on how much RFR paid for the property.)

Starwood is also liking South Florida. Despite the fact that it sold off a big mall in Hialeah a week ago it plunked down $130 million for a Whole Foods-anchored mall in West Palm Beach.

Thor Equities sold off The Lab, a 72-acre life science complex in North Carolina’s Research Triangle Park that itpurchased only a year ago, for $20 million to Alexandria Real Estate Equities for $80 million, four times what Thor paid for it!

Thor has had a busy 2022. Jeff Sutton, its partner along with A&H Acquisitions and Aurora Capital on 529 Broadway (home to the Nike Store), is putting up for sale the $195.3 million loan on the property.

Speaking of financing, the 30-story One Wilshire in Downtown L.A. landed a massive $389.3 million refinancing from Goldman Sachs.

All in good taste

Remember that New Year’s resolution to lose weight?

If you’re a Miami resident, Major Food Group seems determined to make you break it.

The company behind such wildly popular spots as Carbone, Parm and Dirty French is planning yet another Sadelle’s at 69 NE 41st Street across the street from the Institute of Contemporary Art in the Design District in tandem with the streetwear brand Kith.

And over in D.C., the famed restaurant Philippe Chow signed up for a 7,373-square-foot outpost at The Wharf.

There’s always 2023 to start your diet.

For a relaxing Sunday

It was kind of a packed week in terms of news. Convicted murderer (as well as a son of one of the great real estate families) Robert Durst died at 78. And tragedy struck the Bronx with a fire that killed 17, including eight children, where the building in question (owned by Belveron Partners and Camber Property Group) had dozens of complaints filed against it by residents.

But for a much less fraught Sunday morning reading experience we at CO have noticed that New York’s biggest commercial landlord, SL Green Realty Corp., has been shedding space and equity.

How come?

We took a deep dive into the reasoning behind the real estate investment trust’s strategy. 

See you next week!

The rent is a significant decrease from Givenchy’s close to $5 million bill, per the documents.  

In fact, Givenchy parent LVMH had paid $24.5 million to leave its lease early, Commercial Observer reported in October 2021. Wharton and Givenchy had reached an agreement that allowed either side to terminate the lease as early as March 2022 with 60 days’ notice, instead of ending the lease in 2029, as originally agreed. In keeping with that agreement, Wharton asked Givenchy to leave by March 8, 2022. 

The space, located at the corner of East 65th Street, includes 2,800 square feet on the ground floor, a 1,000-square-foot mezzanine and a 1,500-square-foot basement. 

Both Givenchy and Alexander McQueen, located at the same address, have been the target of heists in recent months, ABC7 reported. 

Versace already has a flagship on Manhattan’s other high street, occupying a boutique at Crown Acquisitions‘ 647 Fifth Avenue, between West 51st and West 52nd streets.  

The deal requires the approval of the building’s co-op board. Richard Hodos and Michael Remer of CBRE represented Versace in the deal.

Wharton Properties, LVMH and Versace could not immediately be reached for comment.

Update: This story has been updated to reflect that it was Wharton, not Givenchy, who initiated the lease termination.

Chava Gourarie can be reached at cgourarie@commercialobserver.com.

The square footage of the lease was not fully clear, but a source said McDonald’s is taking roughly 2,500 square feet out of the 6,000 square feet of available ground-floor space, and roughly the same on the second floor. The rest of the footprint, which until recently housed a Duane Reade, is currently on the market.

The transaction represents a remarkable investment for the fast-food purveyor in Times Square. For 17 years McDonald’s operated one of the most eye-catching of its franchises a block away in a four-story, 17,500-square-foot space amid several theaters that was lit up by some 7,000 lights. It closed in 2020 thanks to the pandemic, as The New York Post reported.

But this strip of Eighth Avenue has seen a lot of F&B retailers who recognize the value of the tourism crowd; Chick fil-A has an outpost at 675 Eighth Avenue, and Shake Shack has a spot at 687 Eighth Avenue.

McDonald’s has taken possession of the space, sources told CO, and expects to open for business by the end of the year.

Both Sutton and McDonald’s could not be reached by press time.

Max Gross can be reached at mgross@commercialobserver.com.

Details on the deal — such as the asking rent, the length of the lease and the names of tenant brokers — are sparse, but Hermès vacated the building for a new flagship across the street at 706 Madison Avenue at the end of 2022.

Dolce & Gabbana, Tahl Propp Equities and Matthew Seigel of Lantern Real Estate — who represented the landlord in the deal — did not immediately respond to requests for comment.

The fashion designer currently has a 18,400-square-foot flagship at 717 Fifth Avenue which it leased from Jeff Sutton and SL Green Realty in a 15-year deal signed in 2011, Commercial Observer reported at the time. 

It’s not clear whether the existing flagship or any of the brand’s other locations will close as this new four-story location opens. Floor plates in the new space range from 4,200 to 5,000 square feet.

Mark Hallum can be reached at mhallum@commercialobserver.com.

Update: this story has been updated to reflect that the building is owned by the Propp family instead of specifically Tahl Propp Equities.

“SL Green has one of the highest-quality portfolios of any office REIT that we rate,” said Michael Souers, director at S&P Global Ratings. “I’d put One Vanderbilt against any building in Manhattan.”   

Perhaps this is why, beyond the glitz of One Vanderbilt and SL Green’s 33 million-square-foot portfolio of 60 buildings, recent developments with the eminent landlord seem so surprising. 

On Oct. 9, the company revealed that Andrew Mathias, SL Green’s president since 2007, would step down at the end of the year, after more than two decades at the company. As president, Mathias stood second only to CEO Marc Holliday in terms of power and influence at SL Green. He had previously served as vice president, director of investments and chief investment officer since joining the firm in 1999. 

Mathias didn’t leave to take another gig; rather, he will remain a board member and receive $100,000 per year to advise Holliday.  

“His contract’s coming to an end, and we, meaning me and my board, decided at this point in time not to renew Andrew’s contract,” Holliday told CO during an Oct. 23 interview. “I did that in conjunction with discussions with Andrew where it led me and my board to believe this was kind of the right time for a move. 

“It’s the right thing for the company, and I think it’s the right thing for Andrew,” he added. 

The news of Mathias’s departure has reverberated across all channels of commercial real estate. 

“​​I was very surprised,” said John Kim, a managing director of U.S. real estate at BMO Capital Markets. “Andrew was a very well-respected president of the company, and most people thought he’d be the eventual CEO of SL Green. It was a big surprise, and not a positive one.” 

Alexander Goldfarb, managing director at investment bank Piper Sandler, noted that Mathias’s hefty salary may have contributed to the firm’s decision. The 49-year-old Mathias earned nearly $12 million in compensation in 2022, largely through stock shares, according to a letter to investors. 

“Honestly, it’s cost cutting. SL Green has been on a focused tear to prune noncore assets and trim corporate costs,” explained Goldfarb. “Andrew, God bless him, is a big number from a compensation standpoint, and the company is skimming down.” 

That skimming seems to involve several of the REIT’s core staff. Mathias is the third major departure from SL Green senior leadership in as many years: former co-CIO Isaac Zion left in July 2020, while former CIO David Schonbraun stepped down in May 2021. Zion joined Acram Group, an acquisition and development firm, as managing principal, while Schonbraun is managing partner at GreenBarn Investment Group, a CRE investment firm.  

“Yes, it’s a surprise, and, yes, it makes sense with what the company is trying to achieve,” Goldfarb added. “But it’s all part of a plan to make the company as efficient as they can be and also own the best assets that they can.”  

Like every landlord in Gotham, SL Green has not been impervious to the rocky waters of the office market.

The firm’s stock currently trades at $31 per share, 69 percent less than its pre-pandemic era high of $100 per share in February 2020. The firm’s stock hit a post-pandemic low of $20.50 in March during the regional banking crisis, and had traded as high as $160 per share in 2007. 

On Oct. 18, the firm announced third-quarter earnings data that reported a net loss of $24 million as compared to net income of $7.4 million in the same quarter in 2022. Perhaps more troubling, the company reported a net loss attributable to common shareholders — essentially a decline of shareholder value — for the first nine months of the year of $423.9 million, compared to a net loss of $28.7 million for that same period in 2022. 

Funds from operations (FFO) — which REITs typically use as a proxy measurement of cash flow — came out at $87.7 million for the quarter, compared to an FFO of $114.2 million in third quarter 2022.

And while occupancy is at a number many office landlords would kill for (89.9 percent) it still fell short of the 92 percent level the firm forecast at the start of 2023. 

During the Oct.19 earnings call with investors, Holliday said the firm currently has 1.1 million square feet of pipeline leasing activity. 

“This is an important moment that signifies the stabilizing of the operating portfolio assets,” he said. “The trend is in our favor as companies continue calling people back to work.”  

During his interview with CO, Holliday touched on reasons for Mathias’s departure, noting that the move will allow younger SL Green executives “to step up and take positions of heightened responsibility and ownership” over an improved market the firm forecasts for 2024. 

However, another industry source, who requested anonymity, speculated: “I don’t think it’s the last head to roll. I think it’s the first.” 

Clouds forming

Mathias joined SL Green shortly after graduating from the Wharton School, the prestigious business school at the University of Pennsylvania. Holliday had met the younger Mathias at Capital Trust Group, an investment bank, where he mentored Mathias as they worked together on a deal advising Stephen Green, the founder and former chairman of SL Green, during the firm’s initial public offering in 1997. Within a year, both men were working for the venerable real estate icon. 

As he climbed the corporate ladder, Mathias helped guide SL Green through the Global Financial Crisis, when the firm’s stock cratered to $12 per share in February 2009 and questions about solvency turned into bothersome whispers. 

Mathias, who specialized in acquisitions, led the firm’s charge back from the brink of death through coordinated purchases of 11 Madison Avenue for $2.2 billion in 2015, and 50 percent stakes in One Worldwide Plaza and 650 Fifth Avenue to be shared with RXR Realty and Jeff Sutton, respectively. He also spearheaded the $3 billion development of One Vanderbilt beginning in the early 2010s. That development forced him to solve a zoning jigsaw (some might say nightmare) that encompassed the Metropolitan Transportation Authority’s plans to build East Side Access, and required not just the purchase of multiple land tracts but also the cooperation of local authorities surrounding neighboring Grand Central Terminal. 

“Andrew is a really smart guy and he’s done very well at Green,” said Gavin Evans, founder and co-head of investments at Skylight Real Estate Partners, and formerly of Columbia Property Trust, another REIT. “I think that One Vanderbilt is one of the best buildings around, maybe the best in the city, and they got 1 Madison Avenue, 11 Madison Avenue. Some of this super high-end, new or like-new space, really does resonate with people.” 

But things took a turn over the last year once it became clear that New York City’s office market was stubbornly not returning to normal following the end of the pandemic. 

First, there were the issues surrounding Holliday’s compensation. In April, Holliday had elected to take half of his 2022 performance bonus in shares of company stock, rather than cash, to appease a wary board. In June, Crain’s New York Business reported that Institutional Investor Services, a proxy advisory firm, recommended to the SL Green board that they reject Holliday’s $15.4 million annual package, citing “unmitigated pay-for-performance misalignment.” 

“I would imagine a lot of their investors have given them a hard time about executive compensation,” said BMO’s Kim. “Given the size of the company today, the market cap has shrunk considerably. It’s no longer an S&P 500 company, so there was probably a lot of investor pressure to reduce overhead costs.”  

Looking beyond compensation, several weeks spanning mid-August and early September this year likely played an even bigger role in the company’s shakeup. 

Troubled waters

In September 2022, Mathias helped lead the charge for SL Green’s acquisition of 245 Park Avenue, a 56-year-old, 1.8 million-square-foot office tower that rises 44 stories in the center of Manhattan. The firm previously had a preferred equity position and handled the building’s day-to-day operations and maintenance prior to acquisition. 

Less than a year later, in a bid to raise capital, SL Green sold a 49.9 percent stake in 245 Park to Mori Trust, a Japanese firm, in a deal that placed a $2 billion valuation on the property. 

245 Park emerged as a potentially troubled asset on Aug. 11, shortly after the sale, when its $1.7 billion loan entered the CRED iQ special servicing watchlist due to its low debt service coverage ratio (or DSCR, a measurement of cash flow for debt obligations) and a recent bout in special servicing from November 2021 to November 2022 when SL Green was in the process of taking it over. 

The building’s DSCR stands at 0.96, below break even, with occupancy at 80 percent, while the loan was underwritten for a DSCR of 1.42 and occupancy of 91 percent, according to an internal report supplied by CREDiQ.    

“At this point, it doesn’t have enough proceeds to pay its debt service,” said one credit analyst, who did not want to be identified. “The loan is current, but it has all the variables of a defaulted loan.” 

Holliday rejected concerns surrounding 245 Park’s low DSCR by noting that SL Green plans a multimillion-dollar renovation of the property that will provide “significant coverage” both on a debt service and a loan-to-value basis. 

“DSCR is not a relevant metric in my eyes for buildings that are going through, in this case, what might be a $300 million-plus redevelopment program of improvement,” he said. “What’s most important is not the current state of the project in its underdeveloped and unleased state, but in its stabilized, fully redeveloped, fully re-leased state.” 

Things are worrisome for SL Green a bit further down Park Avenue. 

In September, a $1.1 billion loan secured by 280 Park Avenue, a 60-year-old, 1.25 million-square-foot, Class A office property operated jointly by SL Green and Vornado Realty Trust, did not pay off on its original maturity date of Sept. 9, 2023. It is not clear whether the loan was sent to special servicing. 

Manus Clancy, Trepp’s senior managing director, categorized the loan as “in purgatory.” 

“It’s past its maturity date, but we don’t know what’s happening next,” Clancy said. “It’s not in heaven, and it’s not in hell. It’s not being foreclosed upon, and it’s not being extended. It’s waiting for a resolution.”

Clancy noted that the borrower has previously exercised four extension options on the loan, has one remaining option, and has not yet identified plans for the upcoming year-end maturity. 

“To have five extensions is humongous,” said one credit analyst, who asked not to be identified, but reviewed the data. “Those are ones you just cannot hide, unfortunately.”

Holliday dismissed any anxiety around the multiple loan extensions, describing the structure of floating-rate loans on large commercial assets as customarily having short initial terms with a series of multiyear extensions. 

“The more extensions you get on a loan like that, it’s a sign of attractive underlying property and collateral, because lenders, for less than AAA properties in AAA locations, might not give loan extension options, or will only give one or two,” he said. “The mere exercising of those options is more customary in the ordinary course as opposed to anything notable.”   

Holliday would not comment on whether SL Green would extend or refinance its debt on 280 Park, but he did emphasize that the building currently has 94 percent occupancy. 

“At this point I’d say the loan is very secure, our lenders feel good about the asset,” he said. “The property is well leased, and we are in dialogue with new tenants and existing tenants with maintaining that level of occupancy.”  

Then there’s One Worldwide Plaza — a 2 million-square-foot office tower at 825 Eighth Avenue with a $1.2 billion mortgage. SL Green and RXR acquired a 49.9 percent ownership stake in the property in 2017, when they valued the 33-year-old, postmodern brick tower at $1.7 billion. 

The debt’s largest piece, a $616 million single-borrower loan, was added to the CRED iQ special servicing watchlist on Sept. 5, 2023. 

The building’s largest tenant, law firm Cravath, Swaine & Moore, occupies 30 percent of the building and is moving to Hudson Yards next year, while another anchor tenant, Nomura Holdings, is reportedly looking to leave as well. 

CREDiQ special servicing data states that the “loan has entered the watchlist due to an upcoming tenant lease expiration which has subsequently caused a cash management period to occur. Cash management accounts are in process of being set up.” 

During cash management, any excess cash flow to the borrower is cut off and the special servicer keeps the proceeds because asset performance has deteriorated from original underwriting standards. 

Holliday said that SL Green and RXR are working on redevelopment plans for One Worldwide Plaza, and added that as Cravath, Swaine & Moore rolls out, the two owners plan to make the 500,000 square feet of office space at the top of the building “as attractive as can be to the market.” 

“It was kind of a state-of-the-art building when it was constructed back in the 1980s,” explained Holliday, “And I think, with a little attention paid to modernizing and creating some amenities in the building, it will be competitive.” 

One more headache

Even more pressing on SL Green’s bottom line have been the ratings declines issued by S&P Global and Fitch Ratings over the last 10 months. 

S&P Global dropped SL Green’s credit rating from BBB- to BB+ in December 2022. The ratings agency said that SL Green’s ability to lower leverage metrics through asset sales “remains uncertain” over the next two years, and added that “deteriorating credit metrics” could combine with a recession and work-from-home patterns to “heighten risks for SL Green.” 

“It’s a high-quality portfolio that came into this now secular downturn highly leveraged,” explained James Fielding, senior director at S&P Global Ratings. “So they’re probably not as positioned as their peers to weather [the storm] at a high level.”  

REITs like SL Green are often challenged by the difference between their intrinsic leverage — what they borrow to buy each asset — and the extrinsic leverage — what the market says their leverage ratio is, which is based on the market valuation of their equity. 

The firm’s leverage played a considerable role in Fitch’s decision to downgrade the REIT to BB+ with a negative outlook, outlined in a Sept. 18 report. SL Green’s debt was roughly 10 times its EBITDA (earnings before interest, taxes, depreciation and amortization), according to Fitch, who said a healthier level would be below seven times EBITDA for the higher BBB- level.  

“In all likelihood we will be downgrading this again, barring a meaningful turnaround in their story,” said Christopher Wimmer, senior director at Fitch Ratings, who added that any future ratings decision is contingent on SL Green improving its unencumbered asset coverage of unsecured debt (UA/UD) while maintaining a lower leverage level and showing an ability to execute on dispositions. 

“We certainly see the direction SL Green wants to go in,” Wimmer added. “Our problem right now is, at this point in the cycle, among other things, they had high leverage and we didn’t see any near-term resolution to that problem.” 

SL Green currently has more secured debt — classic mortgages on single assets — than unsecured debt — loans not backed by specific property-level collateral. But the firm has been selling off unencumbered assets that it deems will no longer contribute to net operating income — a decision that conversely impacts future liquidity inflows. 

“So they are paying off debt, but it’s limiting flexibility going forward to the extent they won’t have as many unencumbered assets to provide contingent financing,” said Peter Siciliano, a director at Fitch Ratings. “It limits their overall access to a fuller array of capital markets options.” 

More than anything on their balance sheet, SL Green’s current headaches have to do with the persistence of work-from-home trends. These are causing what some say will be a permanent drop in demand for office space. 

“Now the economics of office buildings don’t make sense,” said Tomasz Piskorski, a professor of real estate finance at Columbia Business School. “Basic mathematics would tell us the value of office buildings is down 50 to 60 percent.” 

SL Green is still SL Green

Even with these headwinds, Fitch’s Siciliano noted that SL Green’s reported occupancy is essentially 90 percent, and they’ve kept their offices well amenitized at a time when flight to quality is a true saving grace for the asset class. 

Moreover, SL Green’s prime assets are among the most desirable office properties in the entire city, according to BMO’s Kim, who noted that 1 Madison is a premier new development and 245 Park is going through a massive renovation.  

“They have lots of leasing activity they want to accomplish,” he said. “And I’d say New York office is probably the strongest office market today in terms of tenant demand, and return to work, and the number of leading companies that are mandating employees come back to work.” 

That’s not even taking into account their gamble to secure Manhattan’s first casino at 1515 Broadway, a 54-story Times Square office tower that hosts the famous Lion King show at the Minskoff Theater. SL Green is aligned with Caesar’s and hip-hop mogul Jay-Z on the bid, which has sparked fierce competition for three licenses across the five boroughs, two of which are likely to be granted to existing racinos.  

“Strategically, it would be strong, if not excellent, for them [to win the bid],” said Kim. “It would probably be hugely successful for them given their joint-venture partners.” 

The other feather in SL Green’s cap is the critical element to any successful real estate venture: location. Several of the firm’s most valuable properties — One Vanderbilt, 245 Park, 280 Park, and 220 West 42nd Street — sit directly in the Grand Central Terminal neighborhood, which now has direct access to Long Island rail commuters to add to its Metro North train lines that run through the northern New York suburbs and Connecticut. 

“The stock price in our view will work as people come to realize that the most attractive office in New York, and arguably the country, is right around Grand Central, and they are starting to see pricing power on Park Avenue,” said Piper Sandler’s Goldfarb. “It will expand to other addresses.”  

Others like Jesse M. Keenan, professor of sustainable real estate and urban planning at Tulane University, also expressed a lack of concern regarding the turnover up top at SL Green, mainly due to who remains at the helm. 

“Marc Holliday is still running the show and that is what matters,” said Keenan. “His life is invested in the success of this firm, and the decisions that they made years ago to focus on quality assets means that they are in a much better position than most despite the geographic concentration risks.” 

Ultimately, as the market finds its footing following COVID and office experiences its drawn-out reorientation, SL Green will remain a titanic ship sluicing through uncertain waters, steered by Holliday now that Mathias has left the captain’s quarters. 

“The jury is out on where it will all shake out for New York City office,” said Skylight Real Estate’s Evans. “All landlords, even big REITs, will have to fight for tenants and fight for liquidity, and it won’t be a great experience for landlords who have not reset their cost basis.” 

Brian Pascus can be reached at bpascus@commercialobserver.com. 

The 18-story property got new windows, and its limestone facade was refreshed. Then, in early 2022, came a gut renovation, with a new heating and cooling system, an extension on 43rd Street to allow for a larger lobby, two new elevator cores, an amenity floor, and full-floor prebuilt suites. 

The old Fifth Avenue lobby was small and cramped, according to David Kubik, an architect and principal at BKSK who oversaw the renovation. While the space has not grown any larger, he and his colleagues worked to make it feel a little airier by removing a false ceiling and the mechanical equipment that was above it, and replacing the existing walls with Portuguese limestone and Venetian plaster panels, along with a little LED cove lighting along the wall and ceiling to brighten the space. The addition on 43rd Street is a glass-clad single-story extension that brings more light into the building than the lobby’s original design, and it offers a little more convenience for people walking from Grand Central Terminal. 

Other updates include the amenity center, which occupies the entire 15th floor and houses a glassed-in gym, a small open lounge and a juice bar. Roughly half the building will be prebuilt suites, which include industrial touches such as cone-shaped metal light fixtures, polished concrete floors and open ceilings with acoustical panels for sound dampening. White marble countertops and gray-green cabinets with built-in appliances round out the pantry and kitchen areas. Construction is set to wrap in the next month or so. 

Asking rents for the offices range from $72 to $85 per square foot, and JLL is handling the leasing. No leases have been signed yet, but JLL’s Brett Harvey said he and his team are speaking to a number of tenants, and hoping to attract small financial services and creative firms. 

“The board believes that the Property’s location offers high strategic value being characterized by increasing scarcity and long-term potential,” Prada said in a statement. “Furthermore, the area in the immediate vicinity of the property has recently seen an influx of significant investments that have further improved the residential, hospitality and retail appeal.”

Will Silverman and Gary Phillips of Eastdil Secured represented Wharton in the deal, according to a source, but declined to comment.

The new deal lets Prada avoid leasing the store from Sutton as the two have had a tense relationship that rivals some of Miranda Priestly’s melodrama over cerulean blue sweaters. In 2019, Prada sued Sutton after it claimed it was supposed to get $5 million and a $25 million letter of credit since its 17,501-square-foot flagship will be displaced when Sutton renovated the property, The Real Deal reported.

Prada then claimed that after getting a 2020 deadline to move its spot, Sutton allegedly reneged on the deal and kept up scaffolding on the neighborhood 720 Fifth Avenue Prada claimed damaged its business. 

An appeals court decision from last year ruled that Sutton only had to pay Prada’s legal fees and avoided the other costs.

Sutton owned the 12-story office and retail building with SL Green Realty since 2012 and in 2018 paid $85.5 million for SL Green’s 50 percent stake. In January, Wharton was able to get a $260 million loan from German lender Aareal Capital Corporation with a term of two years, TRD reported, but now Prada is saying “Arrividerci!” to the landlord

Sutton did not immediately respond to a request for comment.

Mark Hallum can be reached at mhallum@commercialobserver.com.

The total price for 720 Fifth Avenue, plus an annex next door on East 56th Street, brought the total for the building to $410 million, according to a source with knowledge of the deal.

The sale of both buildings were wrapped into a single deal, according to a source with knowledge of the deal. The total for both buildings was $835 million, and it’s unclear what Prada plans to do with 720 Fifth.

Will Silverman and Gary Phillips of Eastdil Secured represented Wharton in the deal to offload both properties, but declined to comment. Sutton also declined to comment while Prada did not respond to a request for comment.

Wharton previously owned the 15-story 720 Fifth and the neighboring 12-story office and retail 724 Fifth with SL Green Realty. The pair bought 720 Fifth for $153 million in 2006 then dropped $223 million for 724 Fifth in 2012, as Commercial Observer previously reported.

In 2018, Sutton became the sole owner in a deal that paid $85.5 million for SL Green’s 50 percent stake in the venture.

Prada has been at 724 Fifth Avenue since 1997 when it leased 22,000 square feet for its four-story flagship location. 

Sutton and Prada have been in and out of court in recent years over concerns that renovations to the building could be hurting the retailer’s business. Ultimately, Sutton’s firm only had to pay Prada’s legal fees.

Part of the reason Prada bought the building was to make a bet on the neighborhood since “the area in the immediate vicinity of the property has recently seen an influx of significant investments that have further improved the residential, hospitality and retail appeal,” Prada said in a statement about the 724 Fifth sale.

Mark Hallum can be reached at mhallum@commercialobserver.com.

The French company bought the 115,000-square-foot retail portion of 715-717 Fifth Avenue from Jeff Sutton’s Wharton Properties and SL Green Realty.

Italian luxury fashion houses Giorgio Armani and Dolce & Gabbana currently occupy the ground-floor units at the bottom of a 26-story office tower on the corner of East 56th Street and Fifth Avenue. 

A source with knowledge of the deal said Kering likely will use the property as a new home for Gucci, which has a flagship across the street in Trump Tower at 725 Fifth Avenue.

Sutton and a spokesperson for Kering declined to comment.

“The transaction is yet another example of how well-located assets continue to generate demand for global investors across cycles,” SL Green’s Chief Investment Officer Harrison Sitomer said in a statement.

Eastdil Secured’s Will Silverman and Gary Phillips brokered the deal. Silverman and Phillips declined to comment.

Sutton owns about 120 retail properties in New York City and two of them fetched eye-popping prices across the street last month. Prada purchased 724 Fifth Avenue and 720 Fifth Avenue from Sutton and SL Green in a single transaction at the end of last year. But the $963 million deal takes the cake.

The high cost of capital over the past two years has made the New York market more friendly to owner-occupiers. Korean automaker Hyundai Motor Company cracked the top 10 investment sales in the city last year when it bought 15 Laight Street for $274 million in an all-cash deal.

Sutton bought 715-717 Fifth Avenue in 2004 and SL Green acquired a minority interest in it in 2006, according to The Real Deal and SL Green. SL Green sold half of its stake in 2012, retaining 10.9 percent, which valued the building at $618 million. Wharton has been fending off foreclosure on the property since 2022, Crain’s New York Business reported.

Chinese company Anbang Insurance Group has owned the office portion of the building since 2014, spending $415 million for it, as Commercial Observer previously reported.

Abigail Nehring can be reached at anehring@commercialobserver.com.

SL Green reported $49.7 million in funds from operations (FFO) — a figure used by real estate investment trusts to designate cash flow — in Q4 2023. That is down from the $100.7 million FFO the firm reported in the fourth quarter of 2022. Moreover, the company reported an annual FFO of $341.3 million for the entire year of 2023, which is far less than the $458.8 million reported in annual FFO at the end of 2022. 

“Look, nothing is easy in this market for sure,” SL Green CEO Marc Holliday said on the earnings call. “But between what we showed you last year and we continue to show this quarter, there’s going to be differentiation in this market between sponsors that partners and lenders will want to work with, and sponsors where lenders and partners may not want to.”

Amid a depressed office market, SL Green signed 160 office leases in 2023 totaling 1.7 million square feet. This is compared to 141 office leases totalling 2.1 million square feet the firm signed in 2022. The firm’s office occupancy generally held the line in 2023, staying at roughly 90 percent on the year. 

“[This] happens every time you get a market dislocation like this. There’s a weeding out process and then the market recovers and then it happens again,” explained Holliday. “I feel happy and fortunate that as a company we have the reputation, the platform, and the resources to work productively with our counterparties to come up with solutions that are the best available solutions for all.”

Some of the solutions to SL Green’s intrinsic market pressures have been a recapitalization of some of its older assets, or the outright sale of others during the final quarter of the year. 

Together with Jeff Sutton’s Wharton Properties, SL Green closed the sale of the 115,000-square-foot retail portion of 717 Fifth Avenue for $963 million on Dec. 4. Holliday described the deal as “seismic news,” and said the distribution to SL Green and Wharton Properties equated to $8,000 per square foot of the sales price. The firm’s retail space at 21 East 66th Street sold for more than $40 million to the Swiss firm Akris in the fourth quarter as well. 

“Obviously, 717 Fifth Avenue wasn’t an anomaly,” said Holliday. “I have confidence in Fifth Avenue and [that] high street retail is once again on the rise.”

There was also SL Green’s sale of 625 Madison Avenue, a 17-story office building, to Related for $633 million. As part of the deal, SL Green and its joint venture partners agreed to provide a $235 million preferred equity investment in the building. That deal closed on Dec. 4 as well. 

SL Green also acquired 95 percent of the leasehold interest in 2 Herald Square for virtually no consideration — the joint venture the firm was previously involved with satisfied an existing $182 million leasehold mortgage for a $7 million payment from SL Green. 

“There’s more work to be done for sure, but we are on our way to stabilizing this asset,” said Holliday.

When questioned by Evercore’s ISI’s Steve Sakwa on the earnings call as to why the bank holding the $182 million mortgage on 2 Herald Square allowed SL Green to pay off the debt for close to zero, Holliday noted that it’s just another indicator that both lenders and sponsors are seeking compromise amid an ocean of dislocation.  

“Everybody in this market is trying to come together to make sure that these assets have a safe landing,” said Holliday. “This is a great asset, I love the location … but it’s also an asset where we’ll really have to start thinking about what’s the best use.”

Holliday hinted that 2 Herald Square, which was originally built in 1910 and whose mixed-use tenants include Mercy College, Capital One Bank and Ultra Beauty, could be ripe for conversion into residential. 

“It has the ability to flex as residential — both dormitory and potentially for some conversion to other residential use,” said Holliday. “That’s what we like, deals that give us optionality. But we’ve got to roll up our sleeves; and righting the capital stack is just part one, and executing the business plan over time is part two.” 

Finally, the REIT also announced its intention to launch a $1 billion debt fund devoted to investment opportunities in distressed New York City real estate, namely office. SL Green senior leadership members will travel to Asia this week to meet with investors to capitalize that plan through fundraising, according to Holliday.  

“There’s billions of dollars of announced capital forming from credit and equity, targeting not exclusively, but certainly a significant amount is targeted to the office sector, including our own efforts,” said Holliday. “This is a playbook you’ve seen a couple times before — it’s not everyone’s first rodeo. It’s been four years since the pandemic and the business fundamentals of this city are very strong.”

SL Green said it was not ready to announce how much equity it would invest in its planned $1B credit fund. 

“We’ll have real skin in this game,” said Holliday. “But it has to fit within our overall liquidity program for the year. When we feel very good with the levels we’re going out with, then we’ll show our confidence and belief in this program.” 

Brian Pascus can be reached at bpascus@commercialobserver.com 

“We’re deeply invested in the residential mixed-use space in Florida and the Southeast,” Karsenti said — specifically, multifamily, SFRs and condos. “Within those three buckets, we are seeing a lot of different scale opportunities — some of them are entry-level workforce, some of them are higher-end luxury product projects. But, overall, they’re addressing a unanimous trend, which is the high demand from the population that wants more product in Florida that’s high quality and good value.”

Of course, some in South Florida are seeing opportunities in other asset classes, too. In Downtown Miami, Elysee Investment Company and Pan Am Equities purchased the 225,054-square-foot Time Century Jewelry Center, at 1 NE First Street for $27.5 million from Yair Levy (a few steps ahead of a foreclosure auction).

And, Bondi Sushi, the chichi Japanese eatery, just signed a lease for its first Broward County location at Oaklyn in Fort Lauderdale. All in all, it makes us want to head south.

Strap on your belt

We don’t just mean Florida, per se. We can go to, say, Kentucky.

You’ve heard of the Rust Belt, and the Sun Belt. … Well, the newest belt that the real estate profession is promoting is the (ahem) “Battery Belt.”

By battery, they mean the centers where electric cars are being built.

Twin 4 million-square-foot battery manufacturing campuses are being built for Ford Motor Company and South Korean firm SK On in Glendale, Ky., which promise to be among the biggest in the world and are proving a boon to the local real estate.

“We’re already seeing the growth,” Margy Poorman, president and CEO at the Hardin County Chamber of Commerce, told CO. “We are seeing that farmland gets purchased with the anticipation of building single-family homes. They’re building apartments and luxury apartments in that area. Commercial and industrial property has also been snapped up very quickly in our area.”

The shuffle continues

There was another smattering of people moves in Gotham last week.

Sayo Kamara, one of CO’s top young professionals from 2019, left his perch at Cushman & Wakefield, where he was a senior associate, to go to the Durst Organization to be associate director on the commercial leasing team. And we, at CO, feel we brought the match about (albeit unintentionally) because apparently Kamara first met Durst’s David Neil at a CO event. (Cue “Matchmaker, matchmaker!” from “Fiddler on the Roof.”)

We also learned that Steven Rotter and Howard Hersch have left JLL and gone over to Newmark. Rotter and Hersch were superstars at JLL; their team had done more than 12 million square feet of leasing since 2018 and had some serious blue-chip clients like KKR and Rolls-Royce. (What the heck is Barry Gosin doing to lure brokers in? Whatever it is, it’s working. Speaking of Gosin, he was one of several esteemed names we interviewed on the red carpet for REBNY’s gala earlier this month — you can check out the video here.)

And there was even some CEO news. M&T Realty Capital Corporation (the off-balance-sheet lending practice of M&T) named Michael Edelman to take over as CEO from Michael Berman. Edelman has been president of M&T RCC for two years, and has done stints at Capital One and Freddie Mac.

The NYC leasing continues

The burst of Midtown office leasing at the beginning of the year hasn’t seemed to have abated in the least.

Evercore, the financial firm, took an impressive 95,000 square feet at Fisher Brothers’ 55 East 52nd Street. RXR’s 530 Fifth Avenue scored two leases with the recruiting firm Major, Lindsey & Africa taking 12,293 square feet and the software firm Operative taking 9,751 square feet. SL Green Realty racked up three leases at 1185 Avenue of the Americas with ICBC Standard Resources (an arm of ICBC) taking 14,728 square feet, Slatebook taking 14,428 square feet (we don’t know what Slatebook exactly does, either) and Ryan Specialty taking 12,803 square feet. And Greater New York Mutual Insurance took 52,2116 square feet at the Empire State Building. Oh, and Silverstein got the YMCA Retirement Fund into space at 1177 Avenue of the Americas.

Of course, it wasn’t all Midtown. In the Flatiron District, EmblemHealth renewed its lease at 21 East 22nd Street, but we can’t say that Midtown hasn’t been on a roll.

Speaking of which….

Super owner Jeff Sutton has been on something of a roll in Midtown himself.

Sutton’s Wharton Properties and SL Green sold a 115,000-square-foot retail condo to Gucci’s parent company Kering at 715-717 Fifth Avenue for an eye-popping $963 million!

This was Sutton’s third major deal since December. Prada purchased not one but two Fifth Avenue properties from Wharton, at 724 and 720 Fifth Avenue, for a combined $825 million!

Let’s get back to multifamily

Of course, office and retail have had their struggles, and that’s one of the big question marks lingering over the NYC market, but residential and multifamily is its own story.

And it looks like there is at least one Midtown property that the city considers ripe for conversion: 850 Third Avenue.

Along with Downtown’s 175 Water Street, the New York City Industrial Development Agency is planning to give the two properties a combined $100 million in tax breaks as a part of Eric Adams’s M-CORE (Manhattan Commercial Revitalization) program, with the idea being that they would be converted into residential.

We saw another big housing push with the City Planning Commission deciding to certify a rezoning plan to build some 7,000 new units of housing along 46 blocks in the Bronx near future transit hubs.

We wouldn’t be surprised if this Bronx plan isn’t the first such housing initiative near transit. Part of the Biden administration’s $1.2 trillion infrastructure legislation from 2021 included billions for the Department of Transportation, and in October the administration said it would support using some of that money to convert vacant offices into housing.

Hopefully, the market can get some real clarity on values, which has been one of the biggest stumbling blocks to multifamily development. Financing fundamentals are starting to stabilize, according to a new report from CBRE

Props to that!

Before you take off for the rest of your Sunday, we would just like to note that last week CO published its proptech issue.

There were raises like PredictAP (which uses machine learning to automate real estate functions) generating some $8 million from RET Ventures among others; there was a Q&A with the Brooklyn-based tech accelerator Newlab’s new CEO Cameron Lawrence; but the story we thought most of you should read was about the crashes and consolidations that proptech as a whole is currently enduring.

“In a maturing industry like proptech there’s always a natural attrition,” said investment bank Baird’s Joshua Butler. “As the industry matures and becomes less fragmented, you’re going to see more consolidation of duplicate non-differentiated solutions. Those former high-value startups that aren’t really battle tested from their business models perspective, they’re going to be the ones that get acquired at a lower valuation than their historical 2021 unicorn valuations.”

Which sounds somewhat alarming.

However, Butler quickly tempered with this:

“But I think there’s still a significant amount of opportunity, optimism and growth there for those companies that have resilient and differentiated solutions. They’re absolutely going to capture that additional growth-market share and, frankly, upside valuations.”

On that happy note, have a lovely Sunday — and we’ll see you next week!

It’s too early to tell how much office or retail space will be available to potential tenants, but Rick Cotton, the executive director of the Port Authority, told reporters that the agency is looking to markets far enough in the future to dodge the distress currently seen in the office market.

“The first buildings that are gonna get built are the station and storage building and the ramps. That’s the next four, four and a half years in front of us,” Cotton said. “The exact design in terms of the retail space, beverage space, and certainly the office buildings, are 10 years away.” 

The main terminal will span 2.1 million square feet. Much of the retail space will face outward. and the permanent closure of West 41st Street between Eighth and Ninth avenues will provide more retail within an indoor atrium. A temporary terminal and new ramps are scheduled for completion in 2028 while demolition of the current building is underway.

The new main terminal will be completed in 2032, and crews could break ground before the end of 2024, according to the Port Authority.

“Time has not been kind for Port Authority [bus terminal],” Cotton said during opening remarks. “The bus terminal has become a poster child for failed legacy infrastructure that desperately needs to be replaced.”

Cotton’s speech was followed by words of approval from state Sen. Brad Hoylman-Sigal, Assembly member Tony Simone, City Councilman Erik Bottcher and the chair of Manhattan Community Board 4, Jessica Chait — essentially the majority of the people who would have the power to oppose a plan like this.

The Port Authority plans to spend $10 billion on the rebuild with $1 billion coming from a Federal Transit Administration loan, which has not been granted at this time. An unknown amount of the funding will come from payment in lieu of taxes from whomever is chosen as a partner in the development of the office towers.

A similar funding framework was lined up for the redevelopment of Pennsylvania Station but fell through when Vornado Realty Trust decided against further development of the Penn District. Vornado officials cited rising interest rates and inflation impacting the construction of new buildings, plus the softening of the office leasing market.

But Cotton believes a different market and a different neighborhood will make all the difference.

“I would point out to everybody here that there was a sale a week ago on an office building — not a new office building, a standard-issue office building at 56th Street and Fifth Avenue — that sold for three times what the current real estate market predicted,” Cotton said.

Cotton was referring to a slew of sales by Wharton Properties which included ​​the sale of the 115,000-square-foot retail portion of 715-717 Fifth Avenue to Kering, which owns brands Gucci, Balenciaga and Yves Saint Laurent, for $963 million.

Wharton’s Jeff Sutton also made a ton of cabbage selling 724 Fifth Avenue for $425 million and 720 Fifth Avenue for about $397.3 million, both sold to Prada, at the end of December.

Mark Hallum can be reached at mhallum@commercialobserver.com.

The purchases may have been the start of a trend of luxury tenants embracing the logic of owning their selling space, rather than the traditional leasing of such space. Since those deals, Kering — the French corporate parent of luxury brands such as Yves St. Laurent, Balenciaga and, in this case, Gucci — bought the 115,000-square-foot retail portion of 715-717 Fifth Avenue, paying $963 million. 

Then the Japanese manga and book publisher Kodansha paid $27 million for a six-story townhouse at 25 East 22nd Street in the Flatiron District to act as its office hub. And, just to show the trend isn’t confined to New York, LVMH, the conglomerate that owns the luxury brand Louis Vuitton, announced plans to turn its Rodeo Drive property in Beverly Hills into a massive new Louis Vuitton flagship store.

It’s not only the luxury brands obsessed with owning rather than renting. On Jan. 12, the Nashville-based global delivery service FedEx paid $248 million for Sunset Industrial Park, 18 acres near Brooklyn’s Gowanus Canal, where previous owners Dov Hertz and Bridge Industrial had planned a 1 million-square-foot-plus industrial facility. Hertz and Bridge were the sellers, where FedEx is planning a 246,000-square-foot distribution center, according to Crain’s New York Business.

“It’s not a new phenomenon,” said Doug Middleton, a CBRE vice chairman who oversees investment sales in New York for the commercial property brokerage giant. “A lot of it has been dislocation of the markets. A lot of users want to take control of their destiny, control the whole building and not be subject to a landlord. And I do think it’s something you’re going to see for the next couple of years.”

Longtime top investment sales broker Bob Knakal said he has studied the phenomenon for 39 years, looking at 969 deals below 93rd Street in Manhattan where the property’s user did the buying. He found that users on average pay about 16 percent more when they purchase a site than firms or individuals who specialize in commercial property, comparing bids received from users to the highest bid made by investors.

According to Knakal’s study, the retail industry was actually neck and neck with the education industry in owning over renting, having done 20.5 percent of the deals versus 20.4 percent, respectively. Corporate was next with 16.8 percent, nonprofits at 10.6 percent; religious institutions at 10.2 percent; and every other user (foreign governments, health care, culture, family offices, unions, private clubs and manufacturing) was in single digits.

There are other goodies that accrue to the user when they buy rather than lease the property, Knakal said. One is that tax laws are often easier on an owner, especially if the buyer/user is a nonprofit. Another is that the user/owner doesn’t have to worry about rent hikes or possibly having to relocate at the end of a lease.

“It’s a tremendous benefit,” Knakal said. “You can put a plaque saying that it’s yours on the building. You can put the building on the cover of reports.”

It helps that prices for commercial properties are down across the board, due to a confluence of higher interest rates and the work-from-home trends brought on by the pandemic. That’s a trend that has continued as COVID-19 has faded, which has caused many companies to downsize.

“It’s more of a viable option right now, because of the dislocation in the market,” Middleton said. “With office buildings, you’re not seeing as many players, with the paradigm shift in office. Not as many investors want that property sector right now. It just comes down to: Does the pricing make sense?”

Brokers speak of multiple trigger points where a user might see financial advantages to ownership that don’t exist when leasing space. The primary — though not the only — expense a tenant faces is rent. For an owner, it’s debt service on a mortgage, though mortgages are not an issue for all-cash buyers, which is often the case when a user buys a high-end retail property, Middleton said.

For Kodansha, it came down to multiple advantages the publisher saw in owning the building versus leasing it, said Simon Anderson, the Douglas Elliman broker who represented Kodansha in the deal.

“For business entrepreneurs with fewer than 250 employees, there are really strong financial considerations,” Anderson said. “Prices are lower than they have been, and you will be investing in New York City — Manhattan real estate that will inevitably appreciate.”

In addition, Anderson said that Kodansha took “a great deal of pride” in the fact that it now owns, rather than rents, the building. There are also tax benefits, such as the ability to expense the property’s depreciation, and that the company’s payments are to itself, rather than to a landlord.

An email to Prada was not returned. Neither was one to Kering, parent of Gucci. But Kering did publish a press release announcing the January deal, calling it a “prestigious New York City property, comprising multilevel luxury retail spaces.

“This investment represents a further step in Kering’s selective real estate strategy,” the company said, “aimed at securing key highly desirable locations for its houses,” mentioning other property acquisitions it has made in Paris and Tokyo.

A spokesman for FedEx said the company would not comment on its Brooklyn purchase.

Of course, there are those user purchases that seemingly backfire. The search giant Google made arguably the biggest and most impactful user purchase ever in 2010 when it acquired 111 Eighth Avenue, the sprawling warehouse building that was built as a headquarters for what was then known as the Port of New York Authority (now the Port Authority of New York and New Jersey), and was used for storage back in the days when Manhattan docks were bustling with shipped goods, a function now found largely in New Jersey. A prior owner, Taconic Capital, then positioned the building as an office megalopolis for tech and creative companies — until Google bought it and began moving all those companies out, and moving itself in.

The $1.8 billion purchase was only the start of Google’s interest in Manhattan’s Chelsea neighborhood. It now has nearly 6 million square feet sprawled across seven Manhattan sites, having just opened up a 12-story office building at 550 Washington Street, aka St. John’s Terminal. It also acquired Chelsea Market, an old factory building across the street from 111 Eighth.

It is unclear if Google will now reverse itself and put some of its Manhattan properties on the market. But Google parent Alphabet spent $1.8 billion on fees in 2023 to get out of some of its offices, and President Ruth Porat, in a January earnings call, said the company’s goal was to “optimize” its real estate, according to Crain’s New York Business.

“Things change,” said Knakal regarding the Google situation. “A company that at one point had one thought can at another time have another thought.”

CORRECTION: This article has been updated to reflect the correct timeline for the sales of 720 and 724 Fifth Avenue, and the correct sales price of 720 Fifth. 

By “massive bundle” we mean $1.8 billion on three properties — all closed within weeks of each other. This figure gets even closer to $2 billion if you factor in a fourth sale Sutton concluded in August.

In a market that spent so much of 2023 writhing and spluttering, it was the kind of 1-2-3 punch that left many insiders agog. For weeks after the the sales concluded it was all many a broker and landlord in New York could talk about. 

It sent a clear message to the industry that there is a future for mixed-use properties and that the retail components of those buildings could be an answer to distress. It was a heart-starting adrenaline shot to the retail market worthy of Quentin Tarantino.

It all began in August 2023 when Sutton and his partners, brothers David and Simon Reuben, sold the retail components of 747 Madison Avenue to the family office of vacuum mogul James Dyson for $135 million. CBRE had appraised the property low. The figure they arrived at was only what Wharton purchased the ground-floor retail spaces for back in 2011.

An appraisal so low should set off alarm bells, but instead a light apparently went off in Sutton’s head telling him that selling properties to those who would most likely be retail tenants would yield a much higher return than looking for a buyer in an office landlord. Retailers, after all, are doing relatively well and leasing more space compared to office tenants. 

Retail availability in 16 of Manhattan’s shopping corridors in the fourth quarter of 2023 decreased to 195 vacant spaces from 203, 12 percent below the fourth quarter of 2022, according to a report from CBRE. Meanwhile, the office availability rate in Manhattan rose quarterly 20 basis points in the last three months of 2023 and was up 80 basis points from the last quarter of 2022, according to a separate report from CBRE.

Dyson was a prime candidate to buy. The company had already bought 155 Mercer Street in March from Thor Equities for $60 million, double what the seller acquired it for. Sutton appears to have figured out that the vacuum commodore might be looking to suck up some more real estate. 

Sutton declined to comment for this article.

The Mercer Street building in SoHo had been previously leased by Dolce & Gabbana, while 747 Madison had been home to Versace. The $66 million appraisal value prompted the decision to sell the property in the first place, which The Real Deal reported in 2021.

But the next part of the deal might not have come off if not for one of Wharton’s other marquee tenants: Prada.

Prada has had its flagship store at Wharton’s 724 Fifth Avenue since the late 1990s. Sutton made a trip to Milan, Italy, in December to try to persuade them to buy, too. They agreed to an all-cash deal for $425 million.

An appraisal of the 12-story building placed its value between $385 million and $426 million, according to Prada.

It was less than three weeks between the handshake and the money hitting Sutton’s bank account, and negotiations wrapped in a single day, according to Eastdil Secured’s Will Silverman, who was Sutton’s broker on the deal with Gary Phillips. In the deal, Prada also bought 720 Fifth Avenue, plus an annex next door on East 56th Street, for $410 million. This annex was a property that Sutton managed to keep when he sold the Crown Building in 2019.

“The area in the immediate vicinity of the property has recently seen an influx of significant investments that have further improved the residential, hospitality and retail appeal,” Prada said in a statement at the time of the sale.

While in Milan, said Silverman, Sutton took a meeting with Kering, the company that owns Gucci, Balenciaga and Alexander McQueen. Within weeks after that initial meeting, this time in Paris, Kering and Wharton came to a deal for $963 million for another Wharton property – which could not have come at a better time. Sutton had been battling it out with New York Life Insurance Company, which had been trying to foreclose on the building, intensifying his efforts to refinance the $300 million loan.

Sutton and SL Green Realty, which owned 10 percent of 715-717 Fifth, had taken out two $150 million loans from New York Life and the Teachers Insurance and Annuity Association of America (TIAA) in 2012, according to The Real Deal. This was only a year after a deal had been struck with Dolce & Gabbana for more than 18,400 square feet in the building that was then valued at about $300 million.

Sutton was in a legal battle with New York Life, which, according to a report in TRD, had bought out TIAA’s stake in the mortgage. Sutton claimed that a $15 million late fee for the maturity default went against a provision of the loan. He also said it prevented the Reuben brothers from providing a replacement mortgage.

While SL Green was not a governing partner in the joint venture, the company was “orgasmic” when it heard about the price Sutton was able to get from the buyer, according to a source. It also closed in an unprecedented three and a half weeks.

That sale of 715-717 Fifth Avenue appeared to change the perception of New York’s commercial real estate in an era when much of it is being written off as hopelessly dated and prone to distress.

In the beginning of February, the Port Authority of New York and New Jersey unveiled its plan for the full redevelopment of the Port Authority Bus Terminal in Midtown. When asked why Port Authority would invest in retail or office under such depressed market conditions, the agency’s executive director, Rick Cotton, cited Sutton’s sales as providing a newfound confidence in the retail- and office-heavy concept.

“I would point out to everybody here that there was a sale a week ago on an office building — not a new office building, a standard-issue office building at 56th Street and Fifth Avenue — that sold for three times what the current real estate market predicted,” Cotton said during a Feb. 1 press conference.

Finally, the 717 Fifth sale even got the attention of former President Donald Trump, who congratulated Sutton for the deal that happened just next door to Trump Tower: “Great deal, Jeff!” 

Mark Hallum can be reached at mhallum@commercialobserver.com.

The Queens-based lender was in a tough spot as it faced losses tied to its rent-stabilized multifamily portfolio, increased regulatory scrutiny and a large uninsured deposit base. That led some in the commercial real estate and financial industries to posit that NYCB would likely be going the way of Signature Bank.

And, as we all tried to make sense of what the bank’s next steps would be, it got a $1 billion lifeline from a group of investors tied to former Treasury Secretary Steve Mnuchin.

That deal came with a catch. Alessandro DiNello was ousted as CEO of the bank and replaced by Joseph Otting, the former comptroller of the currency during the Trump administration. DiNello had lasted only six days (less than some other famous quick firings).

With all the turmoil at the bank, we’d be lying if we weren’t a little bit paranoid about the news changing before publishing this week’s Sunday Summary. (Full disclosure: We write these gems on Friday.)

As of Friday afternoon, NYCB’s shares had recovered a little bit to $3.59 a share and Otting said he was working on a new business plan set to debut in late April to turn around the struggling bank.

Speaking of upheaval
There’s been plenty of movement among the ranks in brokerages recently as it’s been commercial real estate’s busiest era of big-name turnover in 20 years.

While stars like Darcy Stacom and Robert Knakal have left their brokerages — CBRE and JLL, respectively — those same brokerages have also used this distressed market as a chance to bring in some fresh faces, at a nice discount.

“If you’re trying to acquire new talent, doing it when the market is doing fantastically well is much more difficult and expensive,” Woody Heller, a founding partner of Branton Realty Services, told Commercial Observer. “I think that firms looking to grow are always seeking to embolden their bench, and this is certainly a moment for them to do that.”

JLL, moreover, has been taking this time to move away from the traditional star broker model and instead has been leaning toward an investment banking approach to business. 

“In an investment bank, the client comes first, the firm someone works for comes second, and the individual comes third,” JLL New York Chairman and President Peter Riguardi said, while sipping on a Diet Coke in his office in December. “In the real estate service industry, the client comes first, but a lot of times — especially in brokerage — the individual comes second, and the company comes third. You’re not going to survive at JLL unless you feel like JLL comes second.” 

And Riguardi wasn’t kidding about not surviving. While those comments were made before Knakal left the company in February, sources told CO the investment sales broker’s participation in a New York Times article that focused solely on his vast collection of property maps did not fall in line with JLL’s new approach.

Meanwhile, Stacom released some more details on her new venture, Stacom CRE, after her decades at CBRE. She plans to launch it on April 1 out of a Midtown office space she’s currently finalizing. And she isn’t looking to target big-name brokers with big teams, instead looking to make “a 10-broker shop,” Stacom told CO.

We’ll always have Paris deals
Regardless of what company brokers have on their business cards, there have been plenty of deals getting done this week.

Michael Kors renewed its 203,000-square-foot headquarters at 11 West 42nd Street; Betterment subleased 113,422 square feet from weight-loss app Noom at Five Manhattan West; and Revel leased 26,520 square feet at 90-10 Ditmars Boulevard to build a 48-space electric vehicle charging station near LaGuardia Airport.

Plus, Ferrari continued its drive into SoHo by taking 7,000 square feet to open an office at 568 Broadway. The luxury car company only recently took 3,700 square feet nearby at 92 Prince Street to open an apparel and accessories store.

On the sales end, Ken Griffin of Citadel, along with Rudin Management and Vornado Realty Trust, went into contract to purchase the air rights above the landmarked St. Bartholomew’s Church for $78 million, which they plan to use to help build a new 51-story office building at 350 Park Avenue.

And, if you’re in the market, the industrial building at 500 10th Avenue near Hudson Yards just went up for sale for around $250 million.

Sutton impact
It’d be safe to say there are very few people who had a happier 2023 than Jeff Sutton.

His Wharton Properties netted a cool $1.8 billion on three deals — all closing within weeks of each other — and the number gets closer to $2 billion if you factor in a fourth sale in August.

Sutton kicked it off in August selling the retail components of 747 Madison Avenue to the family office of vacuum mogul James Dyson for $135 million. Then Sutton kept the streak going by selling 724 Fifth Avenue and 720 Fifth Avenue for a combined $835 million to Prada.

If that wasn’t enough, he then sold 715-717 Fifth Avenue to Kering for $963 million. Not too shabby.

But it’s not just New York owners getting some good news: Continuum Partners got put on the fast track by California Gov. Gavin Newsom for its massive $2 billion mixed-use development in Downtown Los Angeles.

Finally, us journalists always love a good headline — think “Ford to City: Drop Dead” or “Headless Body in Topless Bar” — to get people to read our work. We’ll leave you with one of our own to end the week, “A 5-Brother, $10B, Decades-Long Battle Built on Diamonds and L.A. Real Estate.”

Happy Sunday!