Well, maybe we are exaggerating a little in the headline above, but as Douglas Durst — the head of one of the most famous real estate families in New York City (or, if you like, the world) — says the office market has recovered, we are listening.
In fact, “In 2023 alone Thirst Organization Leases signed for over 1 million square feet,” Durst wrote in a column for the Commercial Observer last week “our most successful year since 2018”.
Admittedly, Durst was talking mostly about the high end of the market, but it’s hard to ignore that the vacancy rate for prime offices around Bryant Park is just six percent and prime rents can range from $180 to $200 per square foot.
It would be equally difficult not to acknowledge some of the deals that have crossed our desks in the last week alone – such as a renovation of 37,000 square meters for Christie’s space at 20 Rockefeller Center by Tishman Speyer.
Of course, that doesn’t mean that there are no longer any problems at the lower end of the office market. But there is also good news.
Multifamily mania!
Since the pandemic began in 2020, one of the first solutions proposed to combat the office surplus was to use it to address the large deficit of urban multi-family housing.
Many developers have reconsidered this idea when they began to examine the actual details of the remodel (What about bathrooms? What about floor slabs? What about bedroom windows?)… but is reconsideration really necessary?
We’re rethinking it.
According to Dan Garodnick’s city planning department, about 69 office owners have inquired about possible conversions in New York City. To put that in context, there were only 34 conversions in Gotham between 2010 and 2020. And Garodnick’s office is trying to simplify the process by reducing time-consuming extra steps.
“The (city’s redevelopment accelerator) program has the goal of getting building permits in six months or less for projects that are permitted to be done under zoning,” Garodnick told CO. “Things like replacing windows in historic buildings require approval from the Historic Preservation Commission; changes to interior layouts and the like require approval from the Building Department; approval of new alarm systems by the Fire Department. These are examples of things the redevelopment accelerator is designed to help with in buildings that would otherwise be eligible for redevelopment.”
Just to prove that they are serious, we now see outdated products hit the wrecking ballsuch as 655 Madison Avenue, for which plans have been submitted for demolition and replacement construction. (How Williams Equities will ultimately replace the building is not yet known.)
Because regardless of what happens to offices, there is demand for housing in many urban markets.
However, that doesn’t mean that apartment buildings are foolproof. JPMorgan Chase & Co.for example, just sold the 240-unit 232 East Second Street in Los Angeles FPA multi-family house for $86.1 million, 26 percent less than what was paid for the building in 2020.
In addition, there are costs associated with this asset class that simply did not exist a few years ago. Insurance is so staggering that several affordable housing developers recently had to join forces to set up your own insurance company.
Yet there is still an insatiable appetite for multifamily housing. Last week we saw Foulger Pratt and Tryline Capital Pay out $107.8 million for a 364-unit multifamily complex in Washington, DC; Rockrose just bought a vacant lot from Madison Realty Capital in Cobble Hill for $65 million; and the Albanese Organization is planning a affordable senior living project in the Bronx.
Meanwhile, suburban markets like New Jersey are stepping up their game. Since 2022, more than 75,000 New Yorkers have left Gotham for the Garden State, and suburban New Jersey counties like Hudson, Essex, Union and Passaic have answered the call, Approvals granted for almost a quarter of a million units.
What is important is that the capital is there for this asset class. When Atlanta-based multifamily investor Cortland launched a value-add multifamily fund, its goal was $1 billion. That goal was exceeded this week and $1.5 billion raised.
No wonder that housing policy the gap between politics and commercial real estateAnd we expect the focus to be even more on Washington when Jerome Powell said on Friday will come true in September.
And now something completely different
Real estate is a step up. Of course, we mean that figuratively. (Although the words “literally” and “figuratively” now seem to mean the same thing – see “the dictionary is literally wrong.”) But one real estate personality is exploring the literal climb.
We talk about TruAmerica Multifamily’s Matt Ferrari. (Not to be confused with a distant relative, Vic Ferrari.)
Between purchases like the 194-unit Charleston Hall in Nashville, Tennessee, or a secret deal for a 284-unit property in Utah, the guy is a mountaineer worthy of Jon Krakauer. He has climbed everything fromFrom Pik Lenin in Kyrgyzstan to Cotopaxi in Ecuador and Kilimanjaro in Tanzania to Mount Everest‘s North Col.
His saga is worth a nice, cozy Sunday read. Of course, there are many other things that might arouse your interest, such as the new ASA College Campus in Herald Square or Sonder’s latest deal with Marriott or Miles Treaster, known as Cushman & Wakefield (CWK) new head of capital marketsbut you don’t want to miss Matt Ferrari’s life on the edge. (And we won’t give away how he trained for some of these challenges, that’s our favorite detail.)
Until next week!
