A roaring office leasing market, a bounce courtesy of Amazon choosing Long Island City as a headquarters, and an appealing tax opportunity is priming the sales market into the new year.
“The theme for 2018 was the office leasing market, as those occupancies drove the sales,” says William Shanahan of CBRE.
Already, stakes in three important trophy towers have hit the sales block.
The most exciting is a chance at owning the Chrysler Building. Since it is available for the first time in over 20 years, the possibility of owning a legendary landmark is garnering interest from worldwide investors. It is being brought to market by Darcy Stacom and Shanahan of CBRE on behalf of Tishman Speyer and the Abu Dhabi Investment Council (ADIC), which owns a 90 percent stake. The building could trade for over $800 million, including air rights and a possible Amazon store at the ground level.
Stacom and Shanahan are also selling the country’s Abu Dhabi Investment Authority-owned (ADIA) 75 percent interest in 330 Madison Ave., which is well leased at high rents and will likely trade for $1 billion.
The 840,000-square-foot tower on the western block front between East 42nd and 43rd streets is almost fully rented to financial firms including Guggenheim Partners. The other 25 percent is owned by Vornado Realty Trust, which also leases and manages the building.
The third property being marketed by investment sales brokers Douglas Harmon, Adam Spies and Kevin Donner of Cushman & Wakefield should trade closer to $2 billion. This consists of a 1.4 million-square-foot office condominium within the 30 Hudson Yards tower that will be sold and then leased back by WarnerMedia.
Harmon previously sold TimeWarner’s current offices to Related, GIC and ADIA at the same time in 2014, when the media giant revealed it would move and buy its next offices from Related and Oxford Properties.
Harmon is also wrapping up the sale of 590 Madison Ave. for the Ohio State Teachers Fund that will become another $1 billion-plus trade.
Now that Chinese companies are selling US assets, it is unlikely investors from that country will be making splashy deals. HNA Group, with US partners MHP Real Estate and Atco Properties, sold 850 Third Ave. to Michael and Jacob Chetrit on Jan. 8 at a price of $422 million after the Chinese firm was forced to sell by the US government.
But there is interest from South Korea, Germany and, increasingly, Japan to invest in the US, says Shanahan. “Families and midsize companies have been active and now the institutional money is coming,” he adds.
Harmon and Spies are representing Equity Residential, which is now in contract to sell the 266-unit rental at 800 Sixth Ave. between West 27th and 28th streets to Greystar, the largest apartment manager in the country, for $240 million.
“New York City was the world’s most sought-after real estate market in 2018,” Harmon says.
After a tepid 2017, the 2018 investment market surged 30 percent to $33 billion, Colliers International reports. With 240 closed transactions across all product types, the average price per square foot for Manhattan office buildings was $929.
“With all the same fundamental drivers in place, 2019 should be another strong year,” Harmon adds.
But trophy towers do not an entire market make.
When fully leased buildings throw off a steady cash flow, those buildings are desired by passive institutional investors. Vacant buildings that are bought and upgraded may quickly lease to new tenants, and can then be resold based on the bump in cash flow.
Greg Kraut of K Property Group is among the locals trying to source and buy smaller buildings by targeting offices and retail projects, primarily in lower Soho and Nolita.
“It’s the golden age of investing,” Kraut declares. The company targets mid-market buildings that cater to office tenants needing 3,000 to 9,000 square feet.
“When they graduate WeWork they come to our buildings,” he says. “When we buy a building, we can add real value to it.”
Designated areas dubbed Opportunity Zones are already driving deals in emerging neighborhoods. They are being promoted as a federal capital gains tax reduction program while funneling investment dollars into needy neighborhoods.
“It will be great for the Bronx,” says Shanahan. “People are looking at it. Bushwick and Sunset Park are also neighborhoods that need the extra oomph.”
Pre-selected at the state level, Opportunity Zones allow investors to roll capital gains into a real estate development project, even if the gains come from another investment category, such as the stock or art markets.
The Amazon HQ area, for instance, is within an Opportunity Zone.
“It will attract new sources of capital to the market,” explains Woody Heller of Savills Studley.
Alan P. Miller of Aldo Advisors, who is now with the Besen Group, warns, “Everyone has to be well-versed in it, but there is competition to get the deal. It’s a seller’s market but it’s tough to find product [to market or buy].”
Silverstein Properties is “very engaged” in the Opportunity Zone process and already owns several such properties.
“We are trying to figure it out and 2019 will show whether it works or not,” says Marty Burger, CEO of Silverstein Properties. “One we own, one we are closing on and there are two where we are still assembling the land.” The properties are in Manhattan, New Jersey and the outer boroughs, he says.
MHP Real Estate and Banyan Street Capital are in contract to pay in the high $70 millions for the former post office building at 558 Grand Concourse in The Bronx, which fills the entire block between 149th and 150th streets. Sitting within an Opportunity Zone and now known as Bronx Post Place, it is being redeveloped into a food hall with offices and shops by the sellers, Youngwoo & Associates and the Bristol Group.
Also in the Bronx, a two-story vacant industrial building in an opportunity zone at 1318 Oak Point Ave. was sold for $975,000 to a fund created by MyTool Rental, a Brooklyn company expanding out of its home borough. A Cushman & Wakefield brokerage team consisting of Jonathan Squires, Michael Fioravanti, Josh Neustadter and Addison Berniker led the marketing efforts on behalf of the seller.
Elsewhere, a former Blue Man Group property at 48 Clinton St. became the first Manhattan Opportunity Zone sale. Michael F. DeCheser, Patrick Dugan, Mei Ling Wong, Andrew T. Berry and Bryan Hurley of Cushman & Wakefield marketed the property. The buyer — the owner of a medical device company, who had gains from other investments — rolled them into this single-asset Qualified Opportunity Fund. The buyer called after walking by and seeing a For Sale sign on the mid-block building — a rare occurrence.
Meantime, investors with gains from other sectors are pumped up about rolling them into real estate. DeCheser and Hurley are also marketing another Lower East Side Opportunity Zone property at 347 E. Fourth St. as a candidate for a residential conversion that is now getting more investor interest, they say.
