Sunday Summary: Turn and Face the Strange

The late, great David Bowie might not have ever seen [ch-ch-ch-ch-changes]( like the personnel ones commercial real estate saw this month. On Thursday morning, we were all sitting peacefully drinking our morning coffee when the news hit: [Marty Burger was out]( as CEO at Silverstein Properties to be replaced by Larry Silverstein’s daughter Lisa. (Cue [spit take](.) Few things could have been more surprising given how closely Burger was identified with Silverstein. However, Burger was also the company’s dealmaker. He was the guy who was bringing in the business for the next acquisitions or developments. And it’s been a hard climate out there for a dealmaker. But even if it was a different economic moment Burger leaving is a sign that Silverstein is probably going to consolidate in the coming years. (A source close to the company told Commercial Observer as much.) This came just two weeks after the news broke that another central player at another major owner (Andrew Mathias at SL Green Realty) [did not have his contract renewed]( and did not have a new gig lined up. (Are there some additional [spit takes]( out there?) Mathias’s departure, along with SL Green’s earnings call on Oct. 19, offered an occasion for Commercial Observer to take[a look under the hood](of the largest private office landlord in New York. The REIT can still boast about properties that defied the gravity of the office market in the last four years like One Vanderbilt and 11 Madison, and SL Green’s occupancy rate is at 89.9 percent — a figure most [office landlords would kill for](. However, some of their prominent properties like One Worldwide Plaza have lost marquee tenants such as Cravath, Swaine & Moore, opening up a half-million square feet of space. Moreover, properties like 245 Park Avenue have a debt service coverage ratio below break-even points. The rating agencies have thus been badly hammering the REIT over the last couple of years and its stock price has suffered as a result. But there’s a lot to examine there, so we would recommend [giving the story a read](. Oh, and did we mention that Bill Rudin [is stepping down]( as CEO of the family’s business? The legendary real estate maven is handing the CEO role to his son Michael Rudin and daughter Samantha Rudin Earls. (Bill and his cousin Eric, who was president of the company, will remain as co-chairmen.) The current CIO, Neil Gupta, will step into the role of president. And just to be clear: Not every personnel change was at the top of the ticket, nor was it all someone choosing (or having) to leave. Robert Worthington, Renat Yusufov and Brett Tomich [took new respective roles]( as head of investor relations, director of asset management and managing director of investor relations at Thorofare Capital. Whew! Midtown midterms One of the reasons SL Green might have been on our mind is because of its prominence in Midtown — and there’s a lot to think about regarding Manhattan’s biggest office market. To all the haters out there: [2023 isn’t going so badly](. (We’ve been feeling some cautiously positive vibes in a lot of places lately, including at CO’s West Coast [leadership reception]( in Los Angeles last week.) While that’s a far cry from great, the numbers actually have a positive story to tell about the newer buildings on Madison and Park avenues. “There is extraordinary segmentation in the market,” said John Maher, a vice chairman at CBRE. “The better buildings in the better locations with better owners are getting the preponderance of activity.” To wit, CBRE is predicting Manhattan will have its second-best year of all time for leases crossing the $100-per-square-foot mark this year. But that doesn’t mean there aren’t very big problems. Third Avenue — with its considerably older office stock and 22.8 percent availability rate — is dragging Midtown’s numbers down. Indeed, year-to-date there’s been a 35 percent decrease in activity from last year in Midtown. Plus, there’s a big [WeWork-sized elephant]( in the room. Every week the news is terrible about the coworking behemoth, and the talk should make WeWork’s landlords nervous. According to the data from Trepp, WeWork’s collective landlords owe roughly $2.6 billion in CMBS debt and about half the loans are reaching maturity in the next year. Worse still, 80 percent of these landlords are on a special servicing watchlist or delinquent. “The minute they file for bankruptcy, normally what that means is you can reject leases and there’s no obligation whatsoever,” Manus Clancy of Trepp told CO. “That being said, it has seemed for a while like they’ve been treating these leases as though they’re not obligations anyway. They’ve walked away from them. They’ve stopped paying as they’ve tried to conserve cash. … I think the borrowers — the property owners — are already feeling the impact.” Still, Midtown enjoyed its share of business last week. Davidson Kempner Capital Management [moved its headquarters]( to 9 West 57th Street; Cablevision Lightpath [took a lease]( at 535 Fifth Avenue; and even Third Avenue got in on the act with [Vector Media relocating]( to 845 Third Avenue. On the finance side, it was a week where we did, in fact, see some interesting deals. At 111 West 57th Street JDS Development [scored a $30 million loan]( from M&T Bank. And Apollo Global Management and Newbond Holdings [secured $78.3 million]( from Blackstone for the purchase of Renaissance New York Times Square Hotel. Flat chance Another big piece of news last week was that the landmarked and revered (rightly so!) Flatiron Building announced plans to be [redeveloped as residential](, according to its newest co-owner, the Brodsky Organization. (GFP and the Sorgente Group are also owners.) The building has been empty since 2019 when Macmillan picked up stakes for 120 Broadway, and GFP had been pushing for renovations that would have cost around $100 million. (This push was stymied by former majority-interest owner Nathan Silverstein.) This shouldn’t come as too great a surprise. From the moment the controlling share of the building was being auctioned off back in March, Jeff Gural of GFP was talking conversion: “If we were to condo the building as residential, we’d make a lot of money.” It sounds like the owners want to make a lot of money. Go… Diamondbacks? Rangers? OK, so it’s not the World Series that Northeasterners were hoping it would be. But, if you are going to be in Arlington, Tex., or Phoenix in the next couple of days you might want to check out the nearby retail. Some cities are using [sports stadiums as something akin to an anchor]( tenant for nearby mixed-use development. In Atlanta, for example, the Braves Development Company (owned by the same parent company as the ball club) has been building up Battery Atlanta around the stadium in Cobb County, a 2 million-square-foot mixed-use complex with bars, restaurants and mechanical bulls. “It’s not just that site,” said Bob Ott, a former Cobb County commissioner who helped bring the Braves from Downtown Atlanta to Cobb. “It’s the whole surrounding area. [I live] under three miles from the stadium and, if you want to do a three-mile circle around that stadium development, lots of stuff has come in there. Restaurants. We couldn’t get restaurants to survive on Powers Ferry Road, and now we have new restaurants opening. There’s been three or four in the last three months. This makes for better reading than gnashing your teeth and thinking about the protracted nightmare that was the New York Mets’s 2023 season (or the Yankees’s season, for that matter). See you next week — and Happy Halloween! [View in Browser]( | [Advertise]( | [Forward to a Friend]( [Manage your email preferences or unsubscribe]( [Share your thoughts: Help us improve with our quick feedback survey!]( [Commercial Observer]( © Copyright 2023 [Observer Media]( 1 Whitehall Street, Floor 7, New York, NY 10004 This newsletter was published 10/29/2023