Tariff talk, interest rates and multi-family foreclosures are weighing down commercial real estate sales. But it’s not all doom and gloom. Strong office and retail leasing are boosting select Manhattan building values creating a unicorn market for unique properties.
In fact, Avison Young counted 84 sales transactions in Manhattan south of 96th Street valued at $5 million and up (retail sales above $1 million) in just the first quarter of the year. The total value of those was $2.7 billion and included 28 residential sales worth $440 million.
“Rent spikes around Grand Central [Terminal] helped us trade 320 Park Ave. in December,” said Andrew Scandalios of JLL about one office stake sale.
That’s when investor Munich Re bought the remaining 75% stake in that Park Avenue building from Mutual of America for $506.25 million — thus revaluing the tower at $675 million.
The Grand Central area boom is now poised for Savills to help Cooper Union cut a new lease with a new operator for the Chrysler Building.
At 590 Madison Ave., leases by LVMH and Apollo Global Management boosted efforts by Eastdil to sell the trophy tower being purchased by Scott Rechler’s RXR for a price expected to reach $1.1 billion.
“People understand what a good idea it is to own, and not just the best, but the best of the rest,” said Will Silverman of Eastdil who marketed 590 Madison. The sale of the tower by STRS Ohio also includes the adjacent land under 8 and 9 E. 56th St. which is long-term leased by the Trump Organization and currently subleased to LVMH.
And determined not to lose its retail space in Soho to a competitor, Ralph Lauren just paid $132 million to buy a 9,909-square-foot, multi-level space at 109 Prince St. that it had rented since 1999. It was represented by Newmark.
There’s even buyer interest in lower-occupancy office buildings, which are being eyed for residential conversion. Real estate investor David Werner, for instance, is buying 5 Hanover Square in the Financial District for a residential transformation. The building was marketed by Doug Middleton of CBRE for sellers CIM — but at pricing, that’s roughly half of the $104 million CIM paid.
Those office-to-residential conversions have a buoying effect on office leasing as they remove square feet from the vacancy stats while forcing tenants to fill other buildings.
Another office building at 300 E. 42nd St. at Second Avenue will eventually house 132 rental apartments. Werner picked it up $52 million out of foreclosure, keeping the retail spaces and flipping the upper floors to CSC Real Estate for the same $52 million. CSC, a Mexican company with other New York investments, will now use one of the city’s new affordable programs to skip real estate taxes while undertaking the conversion (and preserving a few office tenants).
“This market is going to have legs, and we have seen how appreciation will kick in when we get distress out of the pipeline.”
Adelaide Polsinelli of Compass
“We are slowly starting to see the foreign groups sniff around,” said investment broker Middleton, pointing to Canadians, Japanese and even Australian groups. They’re attracted to the relative safety of US real estate.
“People are very fearful of the [stock] market and real estate has a smoother, long-term view and are more stable,” said Woody Heller of Branton Real Estate.
Large existing residential towers are also trading — such as Stefan Soloviev’s Rivers Bend at 501 E. 87th St., which has 179 apartments. It sold to A&E Real Estate for $116.5 million in March.
Meanwhile, the luxury rental apartment building at 800 Fifth Ave. is in contract for roughly $800 million. It’s being sold by Eliot Spitzer and Winter Properties through Newmark to the Naftali Group.
On the western end of town at 560 W. 43rd St., the 418-unit all fair-market rental apartment building, Riverbank West is being sold through JLL for roughly $250 million. Another 225-unit apartment building at 515 W. 38th St., known as Henry Hall, is also on the market with JLL.
But building hunters who can’t find unicorns have another target: foreclosures. There’s plenty of them. RXR picked up the office building at 340 Madison Ave. in 2010 for $570 million. But it was just foreclosed on for the $161.3 million left on its $315 million mortgage with Mass Mutual — which likes to hold and operate. The building is on a ground lease that can be extended to 2186.
And at 135 E. 57th St. — Charles Cohen’s former office building —negotiations on behalf of the landowners are now underway via JLL with a local operator for a luxury residential rental.
The landmarked Scribner’s Building at 597 Fifth Ave. along with the adjacent address, 3 E. 48th St., were taken back by the lender for its lien of $140.4 million.
The two had been purchased for $108.5 million in 2011 when strong retail and offices leases were in place.
Nearby, the Friars Club building at 57 E. 55th St. is being sold by its lender through Bob Knakal’s BKRE, while its memorabilia will be auctioned separately.
“This market is going to have legs, and we have seen how appreciation will kick in when we get distress out of the pipeline,” said Adelaide Polsinelli of Compass.