The 5 Biggest CRE Flops In 2020
It will come as no surprise to the regular Bisnow reader that 2020 was a time of worry, woe and wishful thinking for the vast majority of businesses related to commercial real estate.
But for certain sectors of the industry, it was a particularly fraught year to launch new products and projects, and all five of our biggest flops this year fell prey to withering market conditions or a tense political climate. Check out our list of this year’s major stumbles.
A Skyscraper Faces The Guillotine
If you have any expertise in trimming stories off of buildings, you may be needed in New York. The patient: a 52-story tower at 200 Amsterdam Ave., which had its building permit ordered revoked by the New York Supreme Court, the state's trial court, in February — even though the building had already topped out. The court ruled that the project’s creative use of multiple-parcel zoning violated a height cap in the area.
Developers SJP Properties and Mitsui Fudosan America received permitting by perching their project atop a snarl of various lots, which led to widespread criticism from community groups and proponents of affordable housing in the space-starved city.
Now, investors, developers and neighborhood advocates wearily await the decision of an appeals court, which will decide if that ruling stands and if 200 Amsterdam is due for a 20-story haircut.
“This is still a city where people can still build,” New York City Council Member Ben Kallos, who represents parts of Midtown and the Upper East Side, told Bisnow at the time. “But if you're a developer who's trying to do something new, particularly using a loophole, you should work with your community to get their buy-in, or do so at your peril.”
If the ruling isn't overturned on appeal — a four-judge panel for the New York Supreme Court Appellate Division began hearing the case in late November — other buildings in the area could also be forced to demolish upper floors. The building's permit stays in place until the appellate court rules.
American Dream’s New American Nightmare
A caviar bar, $24-a-day parking and a slew of high-touch leisure attractions all located indoors in a county that doesn't allow retail sales on Sundays. What could go wrong for this storied mall finally opening in 2020? Obviously, everything.
The 3M SF American Dream Mall built in East Rutherford, New Jersey, finally opened its doors to shoppers this year after a 20-year slog to redevelop the parcel. It (and its lenders) had predicted the site, with retail storefronts, a water park, a roller coaster and a 16-story indoor ski slope, would draw in 40 million visitors a year and $150M annually in state and local taxes.
American Dream had been rescued by Canadian real estate power players Triple Five Group and rolled out the welcome mat in October 2019, giving it several months of relatively sparse foot traffic before the pandemic hit full force in March.
Now, its Nickelodeon amusement park and ice rink, fueled by taxpayer incentives and local financial perks, have been largely tabled, effectively pausing the 20,000 jobs Triple Five told the Federal Reserve it would eventually create. Triple Five is also late on payments to local creditors and is approaching a $27B debt payment due this month, so there may be another chapter to this story.
Industry City Exits The Scene
The plan was to rejuvenate Brooklyn’s Sunset Park area with a massive 35-acre retail, office and hotel juggernaut via a group effort from marquee names Jamestown Properties, Belvedere Capital and Angelo Gordon & Co. Boosters said the complex would eventually bring $100M in annual tax revenue to budgets slammed by the coronavirus, with thousands of new jobs in the pipeline.
But a tug of war between community stakeholders, elected officials and concerns about racial equity in the communities the site might serve quickly led to a bare-knuckle fight about rezoning the parcel.
Raising the twin spectres of displacement and gentrification, local advocates succeeded in riding a tidal wave of frustration still coursing after the HQ2 battle and defeated a largely pro-Industry City council when backers of the project withdrew their application in September. The project, or any new iteration of it, remains a hot potato for political players and CRE investors alike.
“Now it’s time for City Hall leaders to do their job,” Antoinette Martinez, an organizer with Protect Sunset Park and a Sunset Park resident, said in a statement. “Instead of prioritizing racist rezonings seeking to replace working-class communities we need a public waterfront plan to uplift working people throughout New York.”
The South Florida Mall That Wasn’t
Another entry in the sketchy mall files: The Shops at Sunset Place. This REIT-backed South Miami site was slated for redevelopment and received permission for the project from city planners in 2019, only to disclose in November 2020 that the entire project had fallen apart.
The plan had been to revitalize a retail center long burdened by high vacancy rates and add three 17-story towers to an AMC-anchored mall with a hotel component, providing a slew of new jobs and jump-starting a neighborhood after Federal Realty snapped up the parcel from Simon Property Group for $110M in 2015.
But the project foundered on higher construction costs, a sticky entitlements process and, of course, the pandemic, and a $60.6M nonrecourse mortgage loan on the property went into default. As a result, Federal said on a Nov. 6 call that it was walking away from the project.
“There's nothing more embarrassing to me than the Sunset Place failure. There's a lot of good reasons for the failure, but still a failure,” CEO Don Wood said on the earnings call.
Macy’s Ghosts Atlanta
Originally slated to bring more than 600 jobs with an average salary of $80K to $100K per new employee to the ATL, the company snapped up 105K SF in the West Midtown building T3. The struggling retailer said it planned to plow $14M into the IT hub in the city’s hot Atlantic Station area over the next five years, and state and municipal programs ponied up juicy incentives.
Macy’s initially said that it saw the project as a “great bright spot” in the middle of a punishing pandemic, but it almost immediately had to walk that back and nix the plan after furloughing the majority of its workforce at the end of March.
As a result, that massive lease evaporated, the jobs went with it, and the city and state were left wondering if this was the first in a string of major pullouts.