the death of the urban office building

[thepupil]

I don't want to make too much of one data point, but I'd say its a generally postive comp. It's a well located, but very old building that was last renovated substantially in 1998 according to what i can find. I assume there will be substantial rehab/capital to invest in addition offset by the income from MSIM's rent.

 

it looks like some of ESRT's assets or maybe PGRE's 712 Fifth (but 712 Fifth looks nicer/higher rent), unless i'm missing something where they were renovated substantially. I could be wrong and this is testing the limits of my understanding the nuances of NYC office.

 

Morgan Stanley wants to be in a more modern space.

 

without knowing the economics of the leaseback it's hard to conclude much though. 

 

http://wikimapia.org/169522/522-Fifth-Avenue

 

318-foot, 23-story office building originally completed in 1898 as the 11-story Sherry Hotel. Designed by McKim, Mead & White, it was converted to offices in 1919. It was the scene of notorious parties while the Sherry Hotel: At one held by C.K.G. Billings in 1903 to celebrate the opening of his stables, the guests sat on horseback and the waiters dressed as jockeys. James Hazen Hyde, vice president of Equitable Life Insurance, spent $200,000 of his company's money here at a party meant to recreate Versailles; public outrage forced Hyde to flee the country and prompted reform of the insurance industry.

 

The building was extensively renovated and expanded in 1960, to designs by Eggers & Higgins, with a setback ziggurat peak rising to 23 stories. The building was renovated again in 1996 to a design by Sydness Architects, when the sole tenant was still JP Morgan, and a new base by Gensler Architects was constructed in 2016, except for at the west end on 44th Street. On the Fifth Avenue side, the building is distinguished by a landmark clock and a grand colonnaded entrance foyer illuminated by tiered iron chandeliers. It was reclad in 2018.

 

The modern 2-story base is clad in a glass curtain wall with clear panes exposing pale-green paneled piers. Beige metal panels run across the tops of the 1st & 2nd floors. The main entrance is at the center of the east facade on 5th Avenue. The western bays on 44th Street are clad in light-grey granite with light rustication. There is a service entrance is the westernmost bay and a loading dock in the next bay to the left, both with brown metal louvers at the 2nd floor.

 

The upper floors are clad in limestone, with rows of single-windows in silver metal frames. The western two bays on the north facade set back above the 10th floor, with the rest of the building setting back above the 11th floor. In the western two bays, the windows are replaced by metal louvers at the 3rd & 4th floors, and also at the 3rd floor in the next bay to the east. There are additional setbacks above the 14th, 18th, and 21st floor, deeper on the east facade than the north.

 

522 Fifth Avenue had been home to J.P Morgan since 1919, and is also currently occupied by Botticelli and Orvis, however, in 2006 Morgan Stanley executed a long-term lease of the 595,430 square foot facility to house its growing wealth management business.

 

https://www.cmalert.com/search.pl?ARTICLE=189592

 

CMA

May 22, 2020 

RFR Seeks Debt to Buy Fifth Avenue Offices

RFR Holding is on the hunt for a $300 million loan to finance its purchase of an office condominium at 522 Fifth Avenue in Midtown Manhattan.

 

The New York investment shop is asking for quotes on a mortgage with a term of five years, including extensions, on the 553,000 square feet of space. That would match the lease agreement with the sole tenant, Morgan Stanley. Newmark is shopping the assignment, which has some atypical aspects that could help attract lenders in a time of economic uncertainty.

 

RFR, led by Aby Rosen and Michael Fuchs, agreed to buy the condo from Morgan Stanley via CBRE in early March, before the full fallout from the coronavirus pandemic became apparent. The purchase price would be around $350 million.

 

As previously reported by sister publication Real Estate Alert, RFR negotiated a relatively long due-diligence period, as it occasionally does, that gave it about six months to close. That was viewed as an advantage given that the commercial-property financing market had essentially frozen. It has since begun to thaw a bit, but remains spotty.

 

The proposed deal carries features apparently meant to ease lenders’ concerns about backing a large acquisition. For example, a source said Morgan Stanley has agreed to a sale-leaseback arrangement that includes a full corporate guarantee of its rent for up to five years. However, either RFR or the investment bank can cut the lease short, at 3.5 years, if they choose. RFR intends to lock in one or more tenants to take all of the space before the term is up.

 

In addition, the proposed structure includes an unusual cash sweep that, for a period of time, would direct income from the property toward reducing the balance of the loan.

 

Morgan Stanley uses the property as the headquarters for its investment-management division. It bought the 23-story building from Broadway Partners in 2007 and divided it into office and retail condos in 2014. That year, it sold the 27,000 sf of retail space on the first two floors for $165 million to a partnership including Ashkenazy Acquisition of New York and German investor Deka Immobilien. That space has remained vacant. The bank listed the office portion around the beginning of the year.

 

The property is at 44th Street, one block north of Bryant Park and two blocks west of Grand Central Terminal. It was constructed in 1896 and opened as the Sherry Hotel. It was later converted to offices, and heavily redeveloped in the 1960s.

[thepupil]

https://rew-online.com/rfr-closes-on-350m-deal-for-522-fifth-plans-custom-office/

 

more details here. the building is described as a "blank canvas" where they are looking to custom design the whole property for a single tenant for 2024 lease.

 

tough to compare this with other space.

[Guest cherzeca]

https://rew-online.com/rfr-closes-on-350m-deal-for-522-fifth-plans-custom-office/

 

more details here. the building is described as a "blank canvas" where they are looking to custom design the whole property for a single tenant for 2024 lease.

 

tough to compare this with other space.

 

German money (Rosen) is long long long term money.  I remember reading that the polo flagship store site on 72/mad was long term leased at a 6% rate...this was a long time ago when 6% was meh.  turned out to be a smart move

[LearningMachine]

I don't want to make too much of one data point

 

Agreed, pupil, we shouldn't read too much into this one data point, and that too from mid-March 2020.  Good to know though that was the price for "blank canvas" at that moment.

[fareastwarriors]

 

 

Got space? Manhattan office availability hits 7-year high

Leasing down 21% in August as sublet space dilutes market

 

https://therealdeal.com/2020/09/02/got-space-manhattan-office-availability-hits-7-year-high/?utm_source=internal&utm_medium=widget&utm_campaign=feature_posts

[BG2008]

https://www.cnbc.com/2020/09/02/google-mountain-view-tech-hub-proposal-pictures.html

 

Death of the urban office, Google is building a campus.  Granted it's not urban.  I think SF and NYC are very different and have some similarities.  I think SF is smaller and not conducive to public transportation.  NYC has great subway network that should function well once we have a vaccine.  These are nuances that I wasn't as cognizant of until speaking to a few SF techies recently.

[fareastwarriors]

Nearly One-Fourth of Manhattan’s Available Office Space Is Up For Sublease: Report

 

https://commercialobserver.com/2020/09/manhattan-office-market-sublet-space-coronavirus/

[fareastwarriors]

Google Abandons Plan to Rent Dublin Office for 2,000 Workers

 

https://www.bnnbloomberg.ca/google-abandons-plan-to-rent-dublin-office-for-2-000-workers-1.1490492

 

Alphabet Inc’s Google unit walked away from a plan to rent space in Dublin for as many 2,000 workers, shelving one of the city’s biggest real-estate deals in recent years.

 

Google had been in talks to rent about 202,000 sq ft (18,766 square meters) of space at the Sorting Office, close to the Irish capital’s south quays, adding to its array of sites in the city.

[thepupil]

All you really need to know lol

 

Congratulations to JPMorgan Chase for ordering everyone BACK TO OFFICE on September 21st. Will always be better than working from home!

@realdonaldtrump

 

When DJT is opining on your thesis, you know it’s become way too much of a battleground stock/s

[Nomad]

All you really need to know lol

 

Congratulations to JPMorgan Chase for ordering everyone BACK TO OFFICE on September 21st. Will always be better than working from home!

@realdonaldtrump

 

When DJT is opining on your thesis, you know it’s become way too much of a battleground stock/s

 

Well, that settles it. Get out there and die for the landlords!

[CorpRaider]

That WSJ op ed from the Related Cos exec was very Randy Duke, "Turn those machines back on!"  Scariest thing I've seen. haha.

 

Some activist should take a run at SLG or VNO with a nice spread deck on converting to industrial (ghost kitchens and fulfillment), data storage, and trailer parks in the sky.

[fareastwarriors]

https://www.cnbc.com/2020/09/11/rxr-realty-ceo-scott-rechler-to-mayor-bill-de-blasio-on-city-clean-up.html

 

Real estate CEO: NYC mayor must make streets safer, cleaner so people will want to return

[realassetsvalue]

Facebook buys the brand new 400,000 sq ft building in Bellevue that REI built as their HQ after REI decided not to occupy for $370m, ~$925 PSF: https://www.seattletimes.com/business/real-estate/facebook-will-buy-former-rei-headquarters-in-bellevue/

[fareastwarriors]

At JPMorgan, Productivity Falls for Staff Working at Home

 

‘Creative combustion’ has taken a hit, KBW analysts say

JPMorgan CEO Dimon discussed bank’s findings with KBW

 

https://www.bloomberg.com/news/articles/2020-09-14/at-jpmorgan-productivity-falls-for-younger-employees-at-home?srnd=premium

[CorpRaider]

Whelp.

[Nomad]

At JPMorgan, Productivity Falls for Staff Working at Home

 

‘Creative combustion’ has taken a hit, KBW analysts say

JPMorgan CEO Dimon discussed bank’s findings with KBW

 

https://www.bloomberg.com/news/articles/2020-09-14/at-jpmorgan-productivity-falls-for-younger-employees-at-home?srnd=premium

 

You can really smell the desperation wafting out of Manhattan - big writedowns must be looming.

 

I'll give 1:2 odds on the JPM "study" being completely non-empirical. This is my favorite part by far:

 

Work output was particularly affected on Mondays and Fridays, according to findings discussed by Chief Executive Officer Jamie Dimon in a private meeting with Keefe, Bruyette & Woods analysts

[fareastwarriors]

At JPMorgan, Productivity Falls for Staff Working at Home

 

‘Creative combustion’ has taken a hit, KBW analysts say

JPMorgan CEO Dimon discussed bank’s findings with KBW

 

https://www.bloomberg.com/news/articles/2020-09-14/at-jpmorgan-productivity-falls-for-younger-employees-at-home?srnd=premium

 

You can really smell the desperation wafting out of Manhattan - big writedowns must be looming.

 

I'll give 1:2 odds on the JPM "study" being completely non-empirical. This is my favorite part by far:

 

Work output was particularly affected on Mondays and Fridays, according to findings discussed by Chief Executive Officer Jamie Dimon in a private meeting with Keefe, Bruyette & Woods analysts

 

JPMorgan Sends Some Traders Home After Worker Contracts Covid-19

 

https://www.bloomberg.com/news/articles/2020-09-15/jpmorgan-sends-some-traders-home-after-worker-contracts-covid-19?srnd=premium

 

[Spekulatius]

 

Work output was particularly affected on Mondays and Fridays, according to findings discussed by Chief Executive Officer Jamie Dimon in a private meeting with Keefe, Bruyette & Woods analysts

 

Monday’s and Fridays less productive? I would like to know what’s the difference to being in the office then?

[Gregmal]

 

Work output was particularly affected on Mondays and Fridays, according to findings discussed by Chief Executive Officer Jamie Dimon in a private meeting with Keefe, Bruyette & Woods analysts

 

Monday’s and Fridays less productive? I would like to know what’s the difference to being in the office then?

 

Liquor supply 25 ft away vs down the block?

[Foreign Tuffett]

 

Work output was particularly affected on Mondays and Fridays, according to findings discussed by Chief Executive Officer Jamie Dimon in a private meeting with Keefe, Bruyette & Woods analysts

 

Monday’s and Fridays less productive? I would like to know what’s the difference to being in the office then?

 

Liquor supply 25 ft away vs down the block?

 

 

Hungover on Mondays and half sloshed on Friday afternoons

 

[thepupil]

JPMorgan Sends Some Traders Home After Worker Contracts Covid-19

https://www.bloomberg.com/news/articles/2020-09-15/jpmorgan-sends-some-traders-home-after-worker-contracts-covid-19?srnd=premium

 

while this does not affect the 2,3,5 year outcome of office REITs, I am surprised they didn't trade down on this.

 

It’s an awful headline / data point.

 

[fareastwarriors]

Stripe Workers Who Relocate Get $20,000 Bonus and a Pay Cut

 

https://www.bloomberg.com/news/articles/2020-09-15/stripe-employees-who-relocate-to-get-20-000-bonus-and-a-pay-cut?srnd=premium

[thepupil]

there are so few post-covid trades of big buildings going on, but here's one

 

https://therealdeal.com/2020/09/16/what-tenants-are-paying-at-shvo-and-deutsche-finances-big-red-building/

https://therealdeal.com/chicago/2020/08/12/aig-goldman-lend-on-shvos-big-red-buy-in-chicago/

https://en.wikipedia.org/wiki/CNA_Center

 

Chicago "Big Red" building (I think of it as the CNA building because Loews' CNA was there for a long time and it's a pretty unique building. If you have visited Chicago, you probably recognize it, if of course, when you visit places your idea of a good time is gazing the skyline and thinking of cap rates / rent per foot etc.

 

The building is 1.2 million square feet, and was purchased for $376 million or $313/foot.

 

It last traded for $108 million in 2016. CNA sold it to be redeveloped, so without more effort, we don't know what the 2016 buyer's basis is, but I assume they made substantial $ on this.

https://www.chicagobusiness.com/article/20151216/CRED03/151219886/cna-selling-big-red-moving-hq-to-new-office-tower

 

AIG and Goldman Sachs are providing an 8 year interest only loan. Not sure of the rate, can't find it.

 

$240 million (63% of the price)

 

The property is 90% leased at $21.60 / foot which is below market of $40 / foot.

Northern Trust is the biggest tenant for 45% of the space. Their lease goes to 2035.

chicago Housing Authority is 18% to 2037

These two pay $21 / foot and $18 / foot respectively

 

Average base rent per square foot in the building is in the low-$20 range, well below market rates for the East Loop submarket, where gross asking lease rates are more than $39 per square foot.

 

If there were no operating costs/property taxes, etc., this would be a 6.2% cap rate, but is probably actually a VERY low cap rate, BUT rents are 1/2 of market, so it's tough to really think about what the cap rate is. The rents won't reset for a very long time in some cases.

 

I think this is a bullish comp overall for basically any office REIT, but it's just one data point.

 

If a building in Chicago where the biggest tenants are locked into paying $21 / foot for a long time is worth $313 / foot, what do you think the class A portfolio in sunbelt cities* that's paying $40 / foot, that is CUZ is worth? What do you think theMart (VNO's Chicago asset / huge tech hub) is worth?

 

if one can get 63% 8 year IO financing on this, what do you think the finacning looks like for better buildings in better geographies.

 

*as in cities that aren't going bankrupt like Chicago.

 

 

[Guest cherzeca]

"Data from Brivo, a company that provides access-control systems for workplaces, shows that “unlocks” at offices—when someone uses their credentials to enter an office—in late August were down 51% from the end of February. By comparison, visits to manufacturing and warehouse locations, where fewer jobs can be done remotely, remained down by a third."

 

https://www.wsj.com/articles/americas-offices-sit-half-empty-six-months-into-the-covid-19-pandemic-11600344000?mod=hp_featst_pos4

 

[thepupil]

"Data from Brivo, a company that provides access-control systems for workplaces, shows that “unlocks” at offices—when someone uses their credentials to enter an office—in late August were down 51% from the end of February. By comparison, visits to manufacturing and warehouse locations, where fewer jobs can be done remotely, remained down by a third."

 

https://www.wsj.com/articles/americas-offices-sit-half-empty-six-months-into-the-covid-19-pandemic-11600344000?mod=hp_featst_pos4

 

thanks for sharing. these numbers are shockingly high. I am amazed that half of people are back in some places. the NYC REITs have been saying 10%-20% of people are back and I would've guessed 15-25% elsewhere (in the US). this article is very different than what my impression is from following the REITs.

 

weird.

 

trying to think if there a reason that locks/unlocks would overstate occupancy? data seems suspiciously good to me.

 

Maybe the nuance is that higher rent type of tenants (tech/finance/law etc) that are in the blue chip buildings are functioning better remotely whereas some others are more eager to get back to the office?

 

Vornado speaking yesterday at BofA

So, it's going to take some time. Today the utilization rates remain in the low double-digits, that's up from the summer, but we expect that to be 20%, 25% probably as we get further on the [year], as companies are going to remain conservative. But at the same time we're also selectively starting to hear companies that had planned to come back January 1, that are now saying, You know what, let's make that October. Maybe it's going for a third, maybe it's for half.