office New York

The Big Apple’s Biggest Office Flip: Inside New York’s Largest Residential Conversion Project

By Columbus International,27 August 2024

In a bold move that could reshape Manhattan’s skyline and real estate market, New York’s most ambitious office-to-residential conversion project is breaking ground. The former Pfizer headquarters near Grand Central Terminal is set to transform into a residential behemoth, potentially offering a blueprint for revitalizing urban centers in the post-pandemic era.

Key Takeaways:

A joint venture between Metro Loft Management and David Werner Real Estate Investments is spearheading the project.
The development secured a $75 million senior mortgage acquisition predevelopment loan from Northwind Group.
Upon completion, the project will yield approximately 1,600 residential units, making it New York’s largest office-to-residential conversion to date.

The Big Picture:

As cities grapple with record-high office vacancy rates and soaring apartment rents, adaptive reuse of commercial spaces has become a hot topic in urban planning circles. New York, along with Chicago and Washington, D.C., is at the forefront of this trend, seeking innovative solutions to address housing shortages and revitalize business districts.

“New York City is a very supply-constrained market,” Michael Ainbinder, managing director at Northwind, told Forbes. “It continues to see rent increases due to lack of supply. This project represents a well-located asset with strong sponsorship.”

The Players:

Metro Loft, founded by Nathan Berman in 1997, has established itself as a conversion powerhouse, transforming over 5 million square feet of office space into residential use in lower Manhattan over the past two decades. Their partnership with real estate veteran David Werner brings together deep expertise in both acquisition and conversion.

The Challenges:

Despite the promising outlook, office-to-residential conversions are not without hurdles. Industry professionals cite issues such as building layout, infrastructure requirements, and high costs as potential roadblocks. Northwind’s Ainbinder revealed that they fund only 10% to 20% of the conversion project requests they receive, underscoring the complexity of these undertakings.

The Trend:

The former Pfizer project is part of a larger movement. Design firm Gensler is set to open Pearl House, a conversion of a 1970s office tower in the Financial District, while SL Green Realty, Manhattan’s largest office landlord, is converting its property at 750 Third Ave to residential use.

Looking Ahead:

With New York estimating about 135 million square feet of outdated office space ripe for conversion, the race is on to reimagine urban landscapes. As Deputy Mayor Maria Torres-Springer noted, about 70 office buildings have already signed on to be part of the city’s office-to-residential “accelerator” program.

The Bottom Line:

As the largest office-to-residential conversion in New York’s history, the Pfizer project represents more than just a real estate deal. It’s a litmus test for the future of urban development, potentially setting the stage for a new era of adaptive reuse in America’s cities. For investors, developers, and city planners alike, all eyes will be on this transformative project as it unfolds in the heart of Manhattan.

Photo: Wikipedia Commons
Source: CoStar

Nobu Hospitality and Asset World Corp. Unveil Plans for Plaza Athenee Nobu Hotel and Spa New York

By Columbus International,27 December 2023

Nobu Hospitality has entered into a strategic partnership with Asset World Corp. to inaugurate the Plaza Athenee Nobu Hotel and Spa New York, an upscale 145-room hotel development situated on the Upper East Side of Manhattan in New York City. Situated between Park and Madison Avenues on 64th Street, the hotel will feature suites with both indoor and outdoor glassed terraces. Additionally, the property will offer a townhouse rental option, providing exclusive services. The suites, equipped with indoor and outdoor glassed terraces and gazebos, will be complemented by the townhouse’s distinctive offerings.

Noteworthy amenities encompass a traditional Japanese onsen bathing facility, a spa, and a wellness center. Plaza Athenee Nobu Hotel and Spa New York will boast a Nobu restaurant, offering an omakase experience—a Japanese dining style where guests entrust their menu choices to the chef. The hotel will also house a bar and lounge, along with a rooftop area designed for private events. Expected to be finalized by 2026, Asset World Corp. will oversee the comprehensive development of the project, managing both its conceptualization and design.

The collaboration has also revealed intentions for the creation of The Plaza Athenee Nobu Hotel and Spa Bangkok in Thailand, with the estimated development cost yet to be disclosed. Nobu Hospitality CEO Trevor Horwell expressed gratitude for the close collaboration with the AWC team, led by visionary CEO Khun Wallapa Traisorat. In a statement, Horwell mentioned, “The Plaza Athenee Nobu Hotel and Spa Bangkok and the Plaza Athenee Nobu Hotel and Spa New York will redefine the standards of luxury and sophistication not only in Thailand but also in the U.S. This partnership allows us to embark upon an extraordinary journey together.” This announcement comes on the heels of an exclusive agreement signed in July between AWC and Nobu Hospitality to introduce the first Nobu restaurant in Thailand, located on the top floor of The Empire—AWC’s flagship lifestyle mixed-use office complex in Bangkok’s central business district.

Source: Hotel Management

Office Crisis: WeWork Files for Bankruptcy as the US Market Struggles with Space Reduction

By Columbus International,25 November 2023

Transforming the office landscape with an injection of flexibility is a challenge faced with courage. However, it is the burdensome rigidity of lease agreements with major property owners that has led WeWork, the American giant of shared office spaces, to file for bankruptcy under Chapter 11. Since the onset of the pandemic, the office market in the United States has failed to recover. A scenario of vacant square meters and declining rents, which WeWork’s case threatens to exacerbate. The leadership of WeWork assures that this situation is confined to the US and Canada market (the company has 777 locations in about 40 countries and does not affect Italy), but, as stated in the application filed by the company, it will result in the termination of over 40 lease contracts in New York alone.

According to the latest Jll Office Report Q3 – source: Sole 24 Ore – office leasing in the US has decreased by 35% since 2019, with rents falling by 6%. In September, compared to the same month in 2022, defaults on loans for office buildings tripled to around 6%. The net absorption of office spaces decreased by 1.7 million square meters in the third quarter, bringing the total loss of office space to over 4.7 million square meters in just one year. On a quarterly basis, the vacancy rate increased by 39 basis points to 21%, and in just one year, construction began on only 730,000 square meters of new office space, which, in perspective, will mean a lower supply of new and high-quality products compared to demand (with corresponding price pressure). “WeWork – as George Schultze, founder of Schultze Asset Management Llp, wrote in Forbes – is an extreme example, but there is now much concern in the commercial real estate market in general. Banks and insurance companies have financed loans to investors who used a minimal share of their own capital when interest rates were very low, expecting them to remain low for a long time. Now that short-term rates are above 5%, many investors are in trouble, and many lending institutions will take a hard hit when buildings are revalued under current market conditions.”

According to Moody’s, this will have a negative impact on cash flows and market office values, increasing negative sentiment and making refinancing more difficult in the next 12-18 months. According to Nareit (the American Association of Real Estate Investment Trusts), compared to 2015, the market value of offices in publicly traded real estate investment trusts has dropped from 14% to 4%. Although fund managers, as shown by Jll data, note that demand for prime offices, i.e., new high-end spaces (strategic locations, zero emissions, innovative materials and spaces, services such as green areas, restaurants, gyms), remains healthy, albeit subdued. Rents have also increased by an average of 4% since 2019. However, as emphasized by Nareit, these are indeed innovative but “traditional” offices: “Coworking will remain, but it will be a niche.” Perhaps. But opinions diverge here. “Post-pandemic hybrid work is prompting tenants to reduce spaces,” explains Jose Pellicer, Global Head of Investment Strategy at M&G Real Estate, “but the situation in the US is different from in Europe. In the United States, the return rate is 50%, in Europe, it’s 75%, driven by factors such as smaller homes and shorter commuting times.”

“The case of WeWork has raised questions about the future of flexible offices,” wrote Julie Whelan, Global Head of Occupier Thought Leadership at Cbre. However, our recent survey among companies using them indicates a growing demand for flexible lease agreements to meet increasingly relevant space planning scenarios. Therefore, we believe that WeWork’s difficulties are largely attributable to its business model, which tied it to long-term lease commitments made before the pandemic, while simultaneously facing significant costs in a context of sharply rising interest rates. In the latest Bloomberg Market Live Pulse survey, 65% of investors believe that the US office market will only begin to recover after hitting rock bottom; two out of three expect this recovery to occur in the second half of 2024.

Appartamenti quartiere Financial District | New York

Financial District Resurgence: Converting Office Spaces into Homes

By Columbus International,17 November 2023

In the ongoing discussions about repurposing New York City‘s stagnant office buildings into residential spaces, it’s the Financial District that has taken the lead in this transformative endeavor on a significant scale. This trend, as reported by The New York Times, showcases a remarkable shift in the landscape of the Financial District, challenging its traditional image as a purely business-centric area. In recent years, the Financial District has seen the conversion of prominent structures into luxury apartments. Notable examples include the transformation of a 1907 office tower at 84 William Street and an Art Deco skyscraper at 1 Wall Street, the former headquarters of the Bank of New York.

This wave of change extends beyond high-rise conversions, encompassing various modifications that began decades ago with the renovation of low-rise buildings and continues today with the construction of towering glass and steel structures. The Financial District, once criticized as a deserted expanse after the bankers’ departure, has now evolved into a thriving residential enclave at the southernmost tip of Manhattan. The demographic landscape of the area has witnessed a substantial increase, with the resident count soaring from 13,700 in 1990 to the current 66,000. The boundaries of this burgeoning community stretch from Chambers Street and the Brooklyn Bridge to the north, extending to the West Side Highway on the west. Notably, even a new Whole Foods establishment has become part of this revitalized neighborhood. The transformation of the Financial District serves as a potential roadmap and a source of optimism for other neighborhoods in Lower to Midtown Manhattan grappling with a surplus of vacant offices. As companies continue to reduce office space in the aftermath of the pandemic, real estate analysts anticipate that a significant number of buildings, particularly outdated offices with inefficient layouts, may remain unattractive to most companies, necessitating alternative uses. Both Mayor Eric Adams and Governor Kathy Hochul have endorsed residential conversions as a solution to address both the office surplus and the city’s housing shortage. However, the adoption of such conversions faces challenges, given their expense and the impracticality of transforming dark, deep interiors into light-filled residences.

The Financial District’s metamorphosis traces back to two pivotal events—the migration of banks and insurance companies from Lower Manhattan to Midtown and the impact of the September 11 attack. These setbacks led to a transformation in the district’s demographics, gradually replacing suited 9-to-5 workers with families and parents pushing strollers. The compact lots in the area facilitated the conversion process, resulting in a prevalence of slender buildings with high ceilings and large windows. Since the onset of the pandemic, the neighborhood has witnessed the addition of nearly 1,500 residences in new constructions and conversions, with thousands more expected in the coming years. Among these, the largest conversion in the country involves the creation of 1,300 apartments in an office tower vacated by JPMorgan Chase in early 2021. The article also features the perspective of a resident, Cory Levy, who highlights the Financial District’s unique charm, its historical roots, and the evolving residential character that offers a distinct advantage over other neighborhoods.

The Financial District’s makeover began in the mid-1990s, driven by tax incentives for developers converting office towers into residences. This initiative resulted in a building boom, creating nearly 13,000 units by the time the incentives expired in 2006. Despite the expiration of incentives, the conversion of offices into residences continued, albeit at a slower pace. Real estate experts, such as Joey Chilelli from Vanbarton Group, anticipate that the recent challenges in the office market will likely accelerate more conversions in the Financial District, given its status as having the highest office vacancy rate in Manhattan. Vanbarton Group is actively involved in the latest conversion project, transforming 160 Water Street into 588 apartments. The high office vacancy rate in the neighborhood, now standing at nearly 27 percent, up from 11 percent before the pandemic, underscores the potential for further transformations. The article concludes by highlighting examples of former skyscrapers, including 15 Park Row, and modern office buildings that have successfully transitioned into residential spaces. The stories of residents like Ruth Cheng, who chose to stay in the Financial District for its evolving amenities, schools, and community offerings, further emphasize the neighborhood’s growing appeal.