The Biggest NYC Real Estate Stories Of 2019
WeWork's IPO meltdown, sweeping new laws fundamentally shifting how landlords can operate rent-stabilized apartments and the sudden death of an Amazon headquarters dream all dominated headlines this year.
As 2019 — not to mention the decade — draws to a close, Bisnow looks back on a year of change, disruption and tumult in the city’s commercial real estate market.
Amazon Backs Out Of HQ2
In November 2018, Mayor Bill de Blasio and Gov. Andrew Cuomo joined together for a jubilant press conference to celebrate winning half of Amazon’s 14-month-long HQ2 contest.
Plans for a sprawling campus on the Long Island City waterfront and 25,000 new jobs in the city were announced. The local real estate industry was thrilled, the business community declared New York City had finally been anointed as a true tech hub, and infrastructure experts wrung their hands over the idea of an overcrowded 7 line.
But by Valentine’s Day, the romance was dead.
The tech giant killed the plan entirely, claiming that while polls suggested 70% of New Yorkers supported the campus, a number of state and local politicians had made it clear that they would not support the plan. The announcement was cheered by opponents of the campus — most of whom had panned the billions in tax breaks the company was set to score — but slammed by many in real estate, who said a campaign to drive the company out had cost the city dearly.
“I’m pissed off,” Modern Spaces CEO Eric Benaim told Bisnow after the news broke. "Twenty-five thousand people just lost a weekly paycheck ... New York City just sent a message that the political climate is too crazy and businesses aren’t welcome. That’s the message we just sent.”
Earlier this month, Amazon leased 335K SF at 410 10th Ave., SL Green's building in the Hudson Yards area of Manhattan. While opponents like Rep. Alexandria-Ocasio Cortez pointed to it as further evidence of their victory over corporate tax breaks, it's a far cry from the 8M SF Amazon planned to build in Queens.
New York State Passes Sweeping Rent Reform Legislation
Early in the year, the commercial real estate industry started to feel angst over what changes the Democrat-controlled New York Senate would impose on the city’s approximately 1 million rent-stabilized apartments.
By mid-June, it had its answer. After decades of landlord-friendly state politicians, the new guard passed the Housing Stability and Tenant Protection Act of 2019 into law, igniting praise from tenant advocates and shepherding in a new paradigm for the multifamily market.
The vacancy bonus was cut, landlords who provided a preferential rent were barred from hiking rents to full price when leases are renewed. The Major Capital Improvement and Individual Apartment Improvements programs, which had allowed landlords to renovate apartments and charge higher rents, were slashed.
Real estate players, many of whom have described the laws as devastating, punitive and irresponsible, said investors will now direct their capital out of the city and the city’s housing stock will suffer as a result of the legislation.
And in the months since, brokers, developers and landlords are still working out the ongoing impact of the legislation, and what other new regulations could lie ahead.
“For those who think the legislature has shot their gun, and is now going to go away somewhere and stop with new, destructive ideas, I think you should actually read what they are saying,” Muss Development President Jason Muss said at Bisnow’s New York State of the Market event in October. “A lot of people are saying, well, actually fair-market apartments are potentially another target when they move to the next thing."
WeWork's IPO Goes Up In Flames
Last year at this time, WeWork’s claim to fame was its triumphant storming up the ranks to becoming the city’s largest private tenant in just a decade. This year, it is best known for a plummeting valuation, a killed IPO and an ousted CEO.
The coworking giant’s August IPO prospectus garnered a wave of criticism, largely over the fact that the company was hemorrhaging money and had no clear plan to stem the bleeding. Its valuation dropped, investors panicked and by late September, the initial public offering was officially withdrawn by WeWork’s newly installed leadership.
Nicholas Braun of Succession fame has been tapped to play company founder Adam Neumann in a limited series about the startup’s fall.
Meanwhile, despite a bailout from its biggest backer, SoftBank, landlords in New York City and across the country, have remained skeptical over WeWork’s ability to right the ship. As of this week, the company is reportedly looking to back out of as many as 100 newly signed leases, which would be at least 10% of its global footprint.
Hudson Yards Opens
Seven years after its official groundbreaking, Hudson Yards — the biggest private real estate development in U.S. history — formally opened in March.
The development site runs from 10th to 12th avenues and from 30th to 34th streets. While the ribbon-cutting featured the opening of the Vessel, the Culture Said and the 1M SF Shops at Hudson Yards mall, Phase 1 won't be finished until 50 Hudson Yards, where BlackRock and Facebook will be the anchors (more on that later) delivers. Once Phase 2 wraps up, the megaproject will feature 18M SF of commercial and residential space, 4,000 apartments, 100 shops and 14 acres of public space.
The gleaming new project has received a solid helping of snark. New York Magazine labeled the entire development a “billionaire’s fantasy city” and The New York Times described it as a seven-year-old vision of the future that “already felt outdated on opening day."
However, office tenants have not been deterred; Oxford and Related said in a release in November that the office portion is now 91% leased.
"Eleven years in the making, and to be able to stand here today and have this open is just really an incredible achievement,” Related CEO Jeff Blau told Bisnow at the official opening ceremony. "It’s an incredible day for New York City."
Investment Sales Continue To Slide
Since the record-breaking peak of the market in 2015, New York City’s investment sales sector has been slumping — a trend that continued through most of this year.
Less than $6.9B worth of commercial real estate properties sold in the third quarterocc, according to Ariel Property Advisors. That figure, which covers all boroughs except Staten Island, represented a 12% drop over the same period last year. Meanwhile, there were a total of 428 transactions, a 25% drop from the year before.
Much of the pain is being felt in the multifamily market, which has been slowed for most of the year by the fallout of the rent regulation laws. Nervousness about the economic cycle and a pullback in foreign investment has also made its mark.
Chinese investors, for example, invested some $3.8B in the first half of this year into U.S. real estate per CBRE, a 95% drop from their annual spending over the previous five years. And while there have been some blockbuster trades, like L+M Development Partners and Invesco Real Estate dropping $1.2B on five former Mitchell-Lama developments in Manhattan, and Related and German Insurer Allianz SE's $2.2B trade of a 30 Hudson Yards office condominium, there have been some sales showing how fragile the market can be.
RFR Holding Co. bought the Chrysler Building back in March for $150M, an enormous loss for The Abu Dhabi Investment Council, which paid $800M for a 90% stake in the Chrysler Building from Tishman Speyer in 2008.
Facebook Signs Mammoth Lease In Hudson Yards
Facebook was said to be prowling the city for a major office lease, and in November it sealed the deal. The social networking giant settled on 1.5M SF across 30 floors at Hudson Yards.
In total, it is leasing 1.2M SF at 50 Hudson Yards, some 265K SF at 30 Hudson Yards and approximately 57K SF at 55 Hudson Yards, where it will begin moving employees next year. It is one of the biggest real estate transactions in Facebook history, and the company will keep the space it already has at 770 Broadway, 225 Park Ave. South and 335 Madison Ave.
Despite inking this deal, Facebook is still reportedly eyeing a 700K SF lease at Vornado’s Farley Building, putting it alongside Google as Silicon Valley tech giants that have become some of the biggest occupiers of office space in New York City.
The Reshaping Of Retail Is Felt Across The City
For most of 2019, the shakeout of retail has been falling into place across the home of some of the priciest shopping real estate in the world. The year was marked by several blows for the sector: the closure of Lord & Taylor on Fifth Avenue, the sliding value of the Saks building and the bankruptcy of Barney’s.
Meanwhile, falling rents have been the dominant theme of 2019. Out of the 17 major corridors tracked by the Real Estate Board of New York, 11 saw year-over-year decreases in asking rent in 2019, according to REBNY's fall Manhattan retail report. Overall, average asking rents across the borough fell by almost 6% to hit $756 per SF this summer, according to CBRE, the eighth quarter in a row of declines.
By the end of the year, the falling rent had helped deal flow and lifted some of the gloom, retail players have said — at least on one side of the negotiating table.
“If you look around this room, most of the people on the landlord side have storm clouds over their heads and it’s raining on their parade," JLL Vice Chairman Michael Hirschfeld, told Bisnow at the International Council of Shopping Centers’ annual New York expo last week. "For those dedicated to tenant rep, it’s bluebirds, sunshine and rainbows."
John Banks Retires
Amid a tumultuous year for the Real Estate Board of New York, its president stepped down in the summer. Appointed to the role in 2015, John Banks negotiated REBNY through the switch from 421a to Affordable New York, the rezoning of Midtown East and the Garment District and rent regulation reform.
Jim Whelan, formerly the executive vice president, took over in July. Banks said the decision to step down — announced just days after the new rent regulation laws passed — was in the works for some time, and motivated by his interest in charitable work and taking care of his children.
On the matter of rent reform, he said he did not think there was anything the group could have done to alter the outcome.
“The body politic is in a state of flux, not just locally here in New York City or in New York state, but nationally. And those forces played themselves out up in Albany this legislative session,” he told Bisnow in an interview in June when he announced he was retiring.
“So I do not think we left any stone unturned in our efforts to try to educate people as to why the proposals being pushed by the progressive caucus would be damaging. I hope that I am wrong, but I suspect that I will be borne out to have been accurate in our prediction. I hope I'm wrong — but if I'm not, in the city the tenants and the owners are all going to be in for a very, very bumpy ride over the next five years.”
Office Activity Hits New Highs, Thanks To Concessions
The New York City office leasing market kicked off on a high, with 2018 notching up the highest yearly lease volume since 2001.
Rents and leasing velocity continued at a fast clip throughout 2019 with some major deals, and tech giants were the flavor of the year. Google locked down a 1.3M SF lease at 550 Washington St. and Facebook took 1.5M SF in Hudson Yards last month. WeWork, in the midst of major pain, locked down an enormous lease too, taking a 360K SF spread at 437 Madison Ave.
In the third quarter of the year, average rents reached nearly $82 per SF, a 2% jump on the quarter before and a new record, according to CBRE.
Still, there are some storm clouds — with some concerned about heavy use of tenant incentives, large spaces hitting the market and the psychological impact of the WeWork drama. Tenant improvement allowance hit $106 per SF for raw new space in Q3, per CBRE, with an average of 14 months free rent.
New York's Condo Sale Record Broken
For the last two years, the headlines surrounding the city’s flooded luxury market have been bleak. One in four apartments in the city reportedly remain unsold, many of which are some of the market's most expensive pads.
There are some notable outliers, however.
In January, Citadel hedge fund founder Ken Griffin closed on a penthouse in New York City for $238M, shattering previous records for the highest price ever paid for a home in the United States.
Despite the jaw-dropping final tally, the apartment in the Vornado-developed, Robert A.M. Stern-designed 220 Central Park South was originally asking for $250M. It will be delivered as a “white box,” unfurnished and undecorated, and spans 24K SF.