NorthStar RXR | Marketing Materials
MIDTOWN
MAKEOVERS
BY CATHY CUNNINGHAM | FEBRUARY 2, 2017
L
ike the cool kid at school, Hudson Yards is the
name on everyone’s lips. Shiny new towers will
shortly pierce the sky, and tenants including
Blackrock, KKR and Time Warner have already
preleased space in Related Companies and Oxford
Properties Group’s behemoth development.
As the far West lourishes, it’s crunch time for Midtown.
At an average age of 70 years, Midtown ofice properties must
now compete with the lashy new ground-up construction that
is underway. In order to attract tenants, they’ll have to look
their best and defy their age. Further, as the tidal wave of commercial mortgage-backed securities loan maturities continues
to roar through 2017, tenant-enticing renovations are especially
critical if occupancy is to be increased before owners approach
lenders to reinance.
More than $6 billion in CMBS ofice loans will come due
in New York City this year, according to Trepp data. It therefore comes as no surprise that some jarring headlines have pertained to maturing CMBS loans on Midtown ofice properties.
These loans were made during the boom, when Midtown was
Manhattan’s crown jewel in terms of desirable ofice space and
before Hudson Yards was even a sparkle in Related’s eye—but
now those properties’ occupancy levels are being watched as
loan maturities come around.
Even top-tier owners and developers are no exception to
the rule. Chetrit Group, Edward J. Minskoff Equities and The
Moinian Group had to line up a two-year extension on their
$216.7 million inancing package backed by 500-512 Seventh
Avenue due to occupancy issues in December, as Commercial
Observer previously reported. Occupancy in the 45-story,
1.2-million-square-foot ofice complex dipped to 67.5 percent
last September, sending the property to special servicer LNR
for maturity default. Luckily, the borrowers received a series
of short-term extensions until managing to push the maturity
back to November 2018, and they will use that time to increase
occupancy and make capital improvements to the property,
sources told CO at the time.
The plight of 500-512 Seventh Avenue is not singular.
Owners will have to put money in to get their older ofice
stock to compete.
“The key is that a lot of the properties are an older vintage,
so they were built in the 20th Century and not well prepared
for the needs of a 21st Century tenant,” said Scott Rechler, the
chief executive oficer and chairman at RXR Realty. “And so
what we’ve done at 237 Park Avenue, 75 Rockefeller Plaza
and 230 Park Avenue [the Helmsley Building] is take these
older buildings and upgrade them so that they can be compelling to tenants.”
The loan on 237 Park Avenue comprises 22 percent of the
Lehman Brothers-sponsored LBCMT 2007-C3 CMBS transaction and expires in June. Previously, the property had been on
and off special servicer LNR’s watchlist, most recently hitting
it in August 2015. Credit Suisse occupied 270,548 square feet
237 Park Avenue
in the property (23 percent of gross leasable area) but vacated
upon lease expiration in 2014.
With the renovation underway, RXR has leased out 100 percent of the property, according to Rechler. “When we acquired
237 Park Avenue we capitalized the transaction with a loan plus
equity, with the plan of repositioning it,” he said. “Now that the
leasing is being inalized we are in the market for a loan and
are going to be reinancing the property.”
“[237 Park Avenue] is a great example of what makes a
building so much more attractive to ofice tenants, and RXR is
a great example of a landlord who has both the willingness and
the capital to do what it takes to be competitive at really top
rents,” said Scott Singer, the president of the Singer & Bassuk
Organization.
And, the capital improvements can only help when it comes
time for reinancing. A lender who spoke to CO on the condition of anonymity said that for the most part, borrowers who
are looking to reinance their Midtown buildings recognize
the need for renovations and on average invest $20 million for
properties that are 100,000 square feet to 300,000 square feet
in size. But when it comes to actually inancing those buildings, it’s important that the loan-to-value hovers in the 50 to 55
percent range on the irst mortgage, and that the debt service
coverage ratio is 2x or more.
“I’m looking at three comparative deals right now and most
of them are walking distance from Penn Station and Grand
Central Terminal,” the lender said. “Occupancies are greater
than 85 percent on all three. You need the occupancy and you
need the revenue in order to get a reinance done.”
Additionally, a critical component of a reinance is that a
reserve account is established at the time of closing to fund
future tenant improvement costs and leasing commissions,
the lender said.
Meridian Capital Group has been actively brokering loans
on behalf of sponsors that are working on upgrading their
buildings to be more modernized and amenable to tenants
that typically wouldn’t look at a historic or adapted building.
“In terms of a lender going into a deal, they’re going to look
at what the functionality of a building is today and what the
business plan is of the sponsor to improve it if it needs to be
improved or maintain it if it needs to be maintained and attract
tenants,” said Tal Bar-Or, a managing director at Meridian. “It
starts with the functionality of the building and goes back to
the sponsorship being able to make the building appealing and
achieve its potential.”
MANHATTAN MAKEOVERS
Renovations and modernization are viable means by which
70-year old properties can compete with the hip new kids (that
haven’t even arrived yet). “The landlords who have had the
longest staying power as the desires of tenants have changed
are the ones who have been willing and able to rethink how to
75 Rockfeller Plaza
use their assets, and to spend money to reconigure their spaces
when necessary,” Singer said.
After all, new construction doesn’t appeal to everyone. And
not only does Midtown have character; it has transportation.
“I was friends with the great Harry Helmsley, and I will
never forget one thing he told me,” said Leslie Himmel, the
co-founder and co-managing partner of Himmel + Meringoff Properties. “He said, ‘You should buy buildings near
transportation hubs because those transportation hubs aren’t
getting on roller skates and leaving. Don’t be enticed by
new and trendy areas because they go in, and like women’s
fashion, they go out.’ ”
And while some technology irms are drawn to the West
Side and Downtown because of their need for state-of-the-art
facilities, plenty of folks just need regular ofice space, said
Lea Overby, the director of structured inance research at
Morningstar Credit Ratings. “That may mean that we see lat to
slightly declining rents in [Midtown], but from an occupancy
perspective, because of the transit connectivity, we expect it to
stay illed up,” she said.
Richard Bernstein, the executive vice chairman at Cushman & Wakeield, agreed: “There is a certain tenant that
wants to make a statement about its occupancy and about the
quality of its workplace and really wants to be located in the
new frontier. But I don’t think that diminishes the value of
Midtown,” he said.
“The model that has proven itself out is that if you take
these great buildings, where tenants like the character and the
architectural iconic nature of these buildings in addition to
their location, and if you can modernize them you can create
something very special,” Rechler said.
Several other Midtown owners have poured signiicant
dollars into their properties of late, making both cosmetic
improvements and technological enhancements. A $30 million
capital contribution was made to Rockefeller Group’s 1221
Avenue of the Americas and a $90 million capital contribution
was made to the Durst Organization’s 1155 Avenue of the
Americas. Upgrades to the latter include a new entrance on
West 44th Street, a landscaped plaza, new lobby interior and a
move to energy eficiency.
“I think it’s been seen throughout Midtown that if you make
the right improvements you will fare better than the competitive supply that hasn’t made those improvements,” Bernstein
said. “Landlords undertaking signiicant renovations on their
properties understand what tenants want. Light and air from
the exterior needs to ind its way to the core of the building and
you can only do that with a good window-to-curtain-wall ratio.
That’s signiicant.”
As an owner of Midtown ofice properties, Himmel said
her company, for one, is competing with new developments
by modernizing its properties. “We have two properties: 729
Seventh Avenue and 1460 Broadway, both in Midtown West. In
order to continue making Midtown properties attractive we’ve
done full renovations of the lobbies. At 1460 Broadway we
actually rebuilt the entire property, and Foot Locker is opening
a three-story lagship store there. We rebuilt the inside of the
building and leased it to WeWork. At 729 Seventh Avenue,
which we’ve owned since 1996, we’ve reinvested in it and are
building a new lobby there also.”
Or, there’s always the option to redevelop your property
altogether if cash allows, similar to what L+L Holding Company is doing with 425 Park Avenue. “The top loor is leased
to Citadel for $325 per square foot,” noted Woody Heller, the
group head of the capital transactions group at Savills Studley.
“There are a handful of deals north of $200, but $325 is really
unheard of. It’s being built in advance of the Midtown rezoning
230 Park Avenue (the Helmsley Building)
meaning that it has to keep 25 percent of its old structure, but
it’s going to be one of the most beautiful buildings in the city.”
Bernstein agreed: “Both One Vanderbilt and 425 Park
Avenue are designed to attract a small target market, and I
think they will be very successful because [New York City’s]
building stock has a great lack of new ofice stock,” he said.
“It’s new ofice space in locations that people want to be
in,” said Bar-Or. “Someone that runs a hedge fund and lives
on the Upper East side may not want to go all the way to
Hudson Yards.”
And if you don’t have the cash to upgrade a property,
Midtown landlords can still be competitive by offering
lower rents and more concessions, said Steve Jellinek, a vice
president at Morningstar, adding, “Are we in crisis mode?
Deinitely not. Are we seeing tenants leaving here and there?
Yes. Will it lead to maturity defaults and material increases in
delinquency? I doubt it.”
BLACKOUT
But while delinquencies may not be apparent at the moment,
tenants’ absence could be felt in the next couple of years as
construction at Hudson Yards progresses. In December 2016
Blackrock announced that it was taking 850,000 square feet
at 50 Hudson Yards, the 58-story property set to rise at 10th
Avenue and West 33rd Street. As a result, Fisher Brothers’ 49
East 52nd Street and 55 East 52nd Street, also known as Park
Avenue Plaza, will lose a combined 396,320 square feet when
the asset manager vacates.
Park Avenue Plaza is 100 percent occupied currently, but
“it’s one building that we are watching to see how it’s re-leased.
Not just because of the Blackrock departure but because the
other tenants’ leases expire around the same time [2023],” said
an analyst who preferred not to be named when discussing
speciic properties. Fisher Brothers declined to comment.
The case of Blackrock’s exodus isn’t quite cut and dry,
however, Heller said, and isn’t necessarily representative of
a general shift away from Midtown to the Far West Side. “A
company like Blackrock needs 1 million square feet. Who can
accommodate 1 million square feet? A lot of the big moves are
large companies that simply need larger buildings,” he said.
Heller went on to note that there are other factors at play
when companies don’t renew leases. “Generally speaking, the
world is becoming more space eficient,” he said. “We have the
highest level of job growth yet negative net absorption, which
means either they are renewing and taking less square footage,
or using less space per person.”
PARK AVENUE GROUND SHAKER
And then there’s the case of Lever House, at 390 Park Avenue,
which saw an $88 million loan foreclosure last month (see story on page 24), certainly setting off some alarm bells. However,
RFR Realty’s woes in the case of Lever House were instead
kick-started by a ground lease reset, and a spike in foreclosures
throughout Midtown is highly unlikely, sources told CO.
Plus, Manhattan owners will ight tooth and nail before they
lose their crown jewels. “The last thing in the world borrowers
want to do is turn a property over to the lender,” Overby said.
“We have seen this in Manhattan overall—it doesn’t make a
difference how much it’s underwater, they’ll look to get recapitalized from their worst enemy before they turn a property
over. It’s the beauty of the Manhattan market—it’s incredibly
resilient.”
There are always foreign investors eager to snap up New
York City real estate, Overby said, so landlords have options.
“[Foreign investors] correctly assess that Manhattan is an island
and there is limited building because of zoning, and because
much of the island is fully developed,” Overby explained. “So
there is a natural constraint on how much supply can come to
the market. So even if we may see a little bit of softness, as
long as the overall economy continues chugging along, the
Midtown ofice market really should hold up O.K.”
In the meantime, perhaps Hudson Yards has raised the
stakes for some owners. “I think the ante is always being
upped and the landlords who proactively manage their physical
space and their human relationships are the ones who thrive
over time,” Singer said. “The challenge being presented to the
more established areas by Hudson Yards is the next incarnation
of a process that has been going on in this city for hundreds
of years. Midtown was the new area when Downtown was
established. Park Avenue was a new area when the railroad was
covered. Hudson Yards is challenging the rest of the city, but in
a way that has been seen many times before. It’s always been
survival of the ittest.”
This article is provided for informational purposes regarding the commercial real estate environment only in the New York metropolitan area.
The publisher of this article is not affiliated with NorthStar/RXR New York Metro Real Estate (NorthStar/RXR), and NorthStar/RXR made no
payment or gave any consideration to the publisher in connection with the publication of this article. Mr. Scott Rechler is a member of RXR
Realty LLC’s (RXR Realty) leadership team and is not employed by the issuer, NorthStar/RXR. He may face conflicts of interest relating to his
obligation to other RXR Realty affiliated entities. Performance of RXR Realty is not indicative of performance of NorthStar/RXR and an
investment in NorthStar/RXR is not an investment in RXR Realty. NorthStar/RXR does not own the building located at 237 Park Avenue.
NorthStar/RXR’s investments may be adversely affected by economic cycles and risks inherent to the New York metropolitan area, especially
New York City and to risks inherent in geographic concentrations. Because of this concentration, any adverse situation that disproportionately
affects the New York metropolitan area, including a worsening economy, would have a magnified adverse effect on our portfolio. This is
neither an offer to sell nor a solicitation of an offer to buy securities. An offering is made only by the prospectus. This material must be read
in conjunction with the prospectus in order to fully understand all of the implications and risks of the offering of securities to which the
prospectus relates. A copy of the prospectus must be made available to you in connection with any offering. No offering is made except
by a prospectus filed with the Department of Law of the State of New York. Neither the Securities and Exchange Commission, the Attorney
General of the State of New York nor any other state securities regulator has approved or disapproved of our common stock, determined if the
prospectus is truthful or complete or passed on or endorsed the merits of this offering. Any repre-sentation to the contrary is a criminal offense.
An investment in NorthStar/RXR involves a high degree of risk, including: (1) no public market for its shares; (2) no assurance that the
investment objectives of this program will be attained; (3) the financial risks associated with fluctuations in the real estate market, including
decreas-es in some or all of the value over time; (4) there is no guarantee of distributions. Distributions have been paid and may continue to be
paid from sources other than cash flow from operations, including offering proceeds, borrowings or sales of assets and distributions may exceed
earnings, which may reduce an investor’s overall return; (5) fees paid to NorthStar/RXR’s advisor, sub-advisor and their affiliates are
substantial and were not determined on an arm’s length basis and reduce the amount the program can invest in income- producing assets, which
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RXR has not yet qualified to be taxed as a REIT, if it fails to qualify as a REIT for federal income tax purposes, its cash available for
distribution and the value of its shares could materially decrease. Securities offered by NorthStar Securities, LLC, member FINRA/SIPC.
NorthStar Securities, LLC is doing business as NorthStar BD Securities, LLC (DE) in the following states: FL, GA, TX and WA.
MAKEOVERS
BY CATHY CUNNINGHAM | FEBRUARY 2, 2017
L
ike the cool kid at school, Hudson Yards is the
name on everyone’s lips. Shiny new towers will
shortly pierce the sky, and tenants including
Blackrock, KKR and Time Warner have already
preleased space in Related Companies and Oxford
Properties Group’s behemoth development.
As the far West lourishes, it’s crunch time for Midtown.
At an average age of 70 years, Midtown ofice properties must
now compete with the lashy new ground-up construction that
is underway. In order to attract tenants, they’ll have to look
their best and defy their age. Further, as the tidal wave of commercial mortgage-backed securities loan maturities continues
to roar through 2017, tenant-enticing renovations are especially
critical if occupancy is to be increased before owners approach
lenders to reinance.
More than $6 billion in CMBS ofice loans will come due
in New York City this year, according to Trepp data. It therefore comes as no surprise that some jarring headlines have pertained to maturing CMBS loans on Midtown ofice properties.
These loans were made during the boom, when Midtown was
Manhattan’s crown jewel in terms of desirable ofice space and
before Hudson Yards was even a sparkle in Related’s eye—but
now those properties’ occupancy levels are being watched as
loan maturities come around.
Even top-tier owners and developers are no exception to
the rule. Chetrit Group, Edward J. Minskoff Equities and The
Moinian Group had to line up a two-year extension on their
$216.7 million inancing package backed by 500-512 Seventh
Avenue due to occupancy issues in December, as Commercial
Observer previously reported. Occupancy in the 45-story,
1.2-million-square-foot ofice complex dipped to 67.5 percent
last September, sending the property to special servicer LNR
for maturity default. Luckily, the borrowers received a series
of short-term extensions until managing to push the maturity
back to November 2018, and they will use that time to increase
occupancy and make capital improvements to the property,
sources told CO at the time.
The plight of 500-512 Seventh Avenue is not singular.
Owners will have to put money in to get their older ofice
stock to compete.
“The key is that a lot of the properties are an older vintage,
so they were built in the 20th Century and not well prepared
for the needs of a 21st Century tenant,” said Scott Rechler, the
chief executive oficer and chairman at RXR Realty. “And so
what we’ve done at 237 Park Avenue, 75 Rockefeller Plaza
and 230 Park Avenue [the Helmsley Building] is take these
older buildings and upgrade them so that they can be compelling to tenants.”
The loan on 237 Park Avenue comprises 22 percent of the
Lehman Brothers-sponsored LBCMT 2007-C3 CMBS transaction and expires in June. Previously, the property had been on
and off special servicer LNR’s watchlist, most recently hitting
it in August 2015. Credit Suisse occupied 270,548 square feet
237 Park Avenue
in the property (23 percent of gross leasable area) but vacated
upon lease expiration in 2014.
With the renovation underway, RXR has leased out 100 percent of the property, according to Rechler. “When we acquired
237 Park Avenue we capitalized the transaction with a loan plus
equity, with the plan of repositioning it,” he said. “Now that the
leasing is being inalized we are in the market for a loan and
are going to be reinancing the property.”
“[237 Park Avenue] is a great example of what makes a
building so much more attractive to ofice tenants, and RXR is
a great example of a landlord who has both the willingness and
the capital to do what it takes to be competitive at really top
rents,” said Scott Singer, the president of the Singer & Bassuk
Organization.
And, the capital improvements can only help when it comes
time for reinancing. A lender who spoke to CO on the condition of anonymity said that for the most part, borrowers who
are looking to reinance their Midtown buildings recognize
the need for renovations and on average invest $20 million for
properties that are 100,000 square feet to 300,000 square feet
in size. But when it comes to actually inancing those buildings, it’s important that the loan-to-value hovers in the 50 to 55
percent range on the irst mortgage, and that the debt service
coverage ratio is 2x or more.
“I’m looking at three comparative deals right now and most
of them are walking distance from Penn Station and Grand
Central Terminal,” the lender said. “Occupancies are greater
than 85 percent on all three. You need the occupancy and you
need the revenue in order to get a reinance done.”
Additionally, a critical component of a reinance is that a
reserve account is established at the time of closing to fund
future tenant improvement costs and leasing commissions,
the lender said.
Meridian Capital Group has been actively brokering loans
on behalf of sponsors that are working on upgrading their
buildings to be more modernized and amenable to tenants
that typically wouldn’t look at a historic or adapted building.
“In terms of a lender going into a deal, they’re going to look
at what the functionality of a building is today and what the
business plan is of the sponsor to improve it if it needs to be
improved or maintain it if it needs to be maintained and attract
tenants,” said Tal Bar-Or, a managing director at Meridian. “It
starts with the functionality of the building and goes back to
the sponsorship being able to make the building appealing and
achieve its potential.”
MANHATTAN MAKEOVERS
Renovations and modernization are viable means by which
70-year old properties can compete with the hip new kids (that
haven’t even arrived yet). “The landlords who have had the
longest staying power as the desires of tenants have changed
are the ones who have been willing and able to rethink how to
75 Rockfeller Plaza
use their assets, and to spend money to reconigure their spaces
when necessary,” Singer said.
After all, new construction doesn’t appeal to everyone. And
not only does Midtown have character; it has transportation.
“I was friends with the great Harry Helmsley, and I will
never forget one thing he told me,” said Leslie Himmel, the
co-founder and co-managing partner of Himmel + Meringoff Properties. “He said, ‘You should buy buildings near
transportation hubs because those transportation hubs aren’t
getting on roller skates and leaving. Don’t be enticed by
new and trendy areas because they go in, and like women’s
fashion, they go out.’ ”
And while some technology irms are drawn to the West
Side and Downtown because of their need for state-of-the-art
facilities, plenty of folks just need regular ofice space, said
Lea Overby, the director of structured inance research at
Morningstar Credit Ratings. “That may mean that we see lat to
slightly declining rents in [Midtown], but from an occupancy
perspective, because of the transit connectivity, we expect it to
stay illed up,” she said.
Richard Bernstein, the executive vice chairman at Cushman & Wakeield, agreed: “There is a certain tenant that
wants to make a statement about its occupancy and about the
quality of its workplace and really wants to be located in the
new frontier. But I don’t think that diminishes the value of
Midtown,” he said.
“The model that has proven itself out is that if you take
these great buildings, where tenants like the character and the
architectural iconic nature of these buildings in addition to
their location, and if you can modernize them you can create
something very special,” Rechler said.
Several other Midtown owners have poured signiicant
dollars into their properties of late, making both cosmetic
improvements and technological enhancements. A $30 million
capital contribution was made to Rockefeller Group’s 1221
Avenue of the Americas and a $90 million capital contribution
was made to the Durst Organization’s 1155 Avenue of the
Americas. Upgrades to the latter include a new entrance on
West 44th Street, a landscaped plaza, new lobby interior and a
move to energy eficiency.
“I think it’s been seen throughout Midtown that if you make
the right improvements you will fare better than the competitive supply that hasn’t made those improvements,” Bernstein
said. “Landlords undertaking signiicant renovations on their
properties understand what tenants want. Light and air from
the exterior needs to ind its way to the core of the building and
you can only do that with a good window-to-curtain-wall ratio.
That’s signiicant.”
As an owner of Midtown ofice properties, Himmel said
her company, for one, is competing with new developments
by modernizing its properties. “We have two properties: 729
Seventh Avenue and 1460 Broadway, both in Midtown West. In
order to continue making Midtown properties attractive we’ve
done full renovations of the lobbies. At 1460 Broadway we
actually rebuilt the entire property, and Foot Locker is opening
a three-story lagship store there. We rebuilt the inside of the
building and leased it to WeWork. At 729 Seventh Avenue,
which we’ve owned since 1996, we’ve reinvested in it and are
building a new lobby there also.”
Or, there’s always the option to redevelop your property
altogether if cash allows, similar to what L+L Holding Company is doing with 425 Park Avenue. “The top loor is leased
to Citadel for $325 per square foot,” noted Woody Heller, the
group head of the capital transactions group at Savills Studley.
“There are a handful of deals north of $200, but $325 is really
unheard of. It’s being built in advance of the Midtown rezoning
230 Park Avenue (the Helmsley Building)
meaning that it has to keep 25 percent of its old structure, but
it’s going to be one of the most beautiful buildings in the city.”
Bernstein agreed: “Both One Vanderbilt and 425 Park
Avenue are designed to attract a small target market, and I
think they will be very successful because [New York City’s]
building stock has a great lack of new ofice stock,” he said.
“It’s new ofice space in locations that people want to be
in,” said Bar-Or. “Someone that runs a hedge fund and lives
on the Upper East side may not want to go all the way to
Hudson Yards.”
And if you don’t have the cash to upgrade a property,
Midtown landlords can still be competitive by offering
lower rents and more concessions, said Steve Jellinek, a vice
president at Morningstar, adding, “Are we in crisis mode?
Deinitely not. Are we seeing tenants leaving here and there?
Yes. Will it lead to maturity defaults and material increases in
delinquency? I doubt it.”
BLACKOUT
But while delinquencies may not be apparent at the moment,
tenants’ absence could be felt in the next couple of years as
construction at Hudson Yards progresses. In December 2016
Blackrock announced that it was taking 850,000 square feet
at 50 Hudson Yards, the 58-story property set to rise at 10th
Avenue and West 33rd Street. As a result, Fisher Brothers’ 49
East 52nd Street and 55 East 52nd Street, also known as Park
Avenue Plaza, will lose a combined 396,320 square feet when
the asset manager vacates.
Park Avenue Plaza is 100 percent occupied currently, but
“it’s one building that we are watching to see how it’s re-leased.
Not just because of the Blackrock departure but because the
other tenants’ leases expire around the same time [2023],” said
an analyst who preferred not to be named when discussing
speciic properties. Fisher Brothers declined to comment.
The case of Blackrock’s exodus isn’t quite cut and dry,
however, Heller said, and isn’t necessarily representative of
a general shift away from Midtown to the Far West Side. “A
company like Blackrock needs 1 million square feet. Who can
accommodate 1 million square feet? A lot of the big moves are
large companies that simply need larger buildings,” he said.
Heller went on to note that there are other factors at play
when companies don’t renew leases. “Generally speaking, the
world is becoming more space eficient,” he said. “We have the
highest level of job growth yet negative net absorption, which
means either they are renewing and taking less square footage,
or using less space per person.”
PARK AVENUE GROUND SHAKER
And then there’s the case of Lever House, at 390 Park Avenue,
which saw an $88 million loan foreclosure last month (see story on page 24), certainly setting off some alarm bells. However,
RFR Realty’s woes in the case of Lever House were instead
kick-started by a ground lease reset, and a spike in foreclosures
throughout Midtown is highly unlikely, sources told CO.
Plus, Manhattan owners will ight tooth and nail before they
lose their crown jewels. “The last thing in the world borrowers
want to do is turn a property over to the lender,” Overby said.
“We have seen this in Manhattan overall—it doesn’t make a
difference how much it’s underwater, they’ll look to get recapitalized from their worst enemy before they turn a property
over. It’s the beauty of the Manhattan market—it’s incredibly
resilient.”
There are always foreign investors eager to snap up New
York City real estate, Overby said, so landlords have options.
“[Foreign investors] correctly assess that Manhattan is an island
and there is limited building because of zoning, and because
much of the island is fully developed,” Overby explained. “So
there is a natural constraint on how much supply can come to
the market. So even if we may see a little bit of softness, as
long as the overall economy continues chugging along, the
Midtown ofice market really should hold up O.K.”
In the meantime, perhaps Hudson Yards has raised the
stakes for some owners. “I think the ante is always being
upped and the landlords who proactively manage their physical
space and their human relationships are the ones who thrive
over time,” Singer said. “The challenge being presented to the
more established areas by Hudson Yards is the next incarnation
of a process that has been going on in this city for hundreds
of years. Midtown was the new area when Downtown was
established. Park Avenue was a new area when the railroad was
covered. Hudson Yards is challenging the rest of the city, but in
a way that has been seen many times before. It’s always been
survival of the ittest.”
This article is provided for informational purposes regarding the commercial real estate environment only in the New York metropolitan area.
The publisher of this article is not affiliated with NorthStar/RXR New York Metro Real Estate (NorthStar/RXR), and NorthStar/RXR made no
payment or gave any consideration to the publisher in connection with the publication of this article. Mr. Scott Rechler is a member of RXR
Realty LLC’s (RXR Realty) leadership team and is not employed by the issuer, NorthStar/RXR. He may face conflicts of interest relating to his
obligation to other RXR Realty affiliated entities. Performance of RXR Realty is not indicative of performance of NorthStar/RXR and an
investment in NorthStar/RXR is not an investment in RXR Realty. NorthStar/RXR does not own the building located at 237 Park Avenue.
NorthStar/RXR’s investments may be adversely affected by economic cycles and risks inherent to the New York metropolitan area, especially
New York City and to risks inherent in geographic concentrations. Because of this concentration, any adverse situation that disproportionately
affects the New York metropolitan area, including a worsening economy, would have a magnified adverse effect on our portfolio. This is
neither an offer to sell nor a solicitation of an offer to buy securities. An offering is made only by the prospectus. This material must be read
in conjunction with the prospectus in order to fully understand all of the implications and risks of the offering of securities to which the
prospectus relates. A copy of the prospectus must be made available to you in connection with any offering. No offering is made except
by a prospectus filed with the Department of Law of the State of New York. Neither the Securities and Exchange Commission, the Attorney
General of the State of New York nor any other state securities regulator has approved or disapproved of our common stock, determined if the
prospectus is truthful or complete or passed on or endorsed the merits of this offering. Any repre-sentation to the contrary is a criminal offense.
An investment in NorthStar/RXR involves a high degree of risk, including: (1) no public market for its shares; (2) no assurance that the
investment objectives of this program will be attained; (3) the financial risks associated with fluctuations in the real estate market, including
decreas-es in some or all of the value over time; (4) there is no guarantee of distributions. Distributions have been paid and may continue to be
paid from sources other than cash flow from operations, including offering proceeds, borrowings or sales of assets and distributions may exceed
earnings, which may reduce an investor’s overall return; (5) fees paid to NorthStar/RXR’s advisor, sub-advisor and their affiliates are
substantial and were not determined on an arm’s length basis and reduce the amount the program can invest in income- producing assets, which
may reduce an investor’s overall return; (6) there are no assurances that this program will ever complete a liquidity event; and (7) NorthStar/
RXR has not yet qualified to be taxed as a REIT, if it fails to qualify as a REIT for federal income tax purposes, its cash available for
distribution and the value of its shares could materially decrease. Securities offered by NorthStar Securities, LLC, member FINRA/SIPC.
NorthStar Securities, LLC is doing business as NorthStar BD Securities, LLC (DE) in the following states: FL, GA, TX and WA.