As the city’s real estate market tries to recoup losses in the pandemic’s aftermath, exceedingly rare opportunities for building purchases will sprout up, says the owner of the Empire State Building.
“The crisis created by the capital dislocation, rising rates and heavy near-term market maturities will create a once-in-a-lifetime — once-in-a-generation — opportunity to buy into certain New York City assets,” Empire State Realty Trust CEO Tony Malkin said on the firm’s first quarter earnings call. “And we have begun to see cracks.”
Malkin did not get specific about what distressed properties his company might target apart from saying that multifamily purchases would likely be the most straightforward, and office purchases would be the trickiest, with retail falling in the middle.
But the firm also spent much of the call touting the success of its own office portfolio despite the overall sector’s ongoing struggles amid the persistence of remote and hybrid work. Its earnings report for the first quarter of 2024 showed that its Manhattan office properties were 92.7% leased, while its total commercial portfolio was 91.1% leased. Both figures were up year over year and quarter over quarter.
The company signed about 248,000 square feet of new leases, renewals and expansions across 23 deals. Highlights included an 11-year, roughly 57,000-square-foot lease with the trendy skin care company Sol de Janeiro at 1 Grand Central and Burlington Stores expanding to about 171,000 square feet on a 16-year lease at 1400 Broadway.
Empire State’s office portfolio appears to be holding up better than Manhattan’s overall office sector, which hit a record-high availability rate of 18.1% during the first quarter, according to data from Colliers. This has tempered the company’s interest in office-to-residential conversions, despite growing momentum behind the idea and a new incentive package for them in the recently passed state budget.
“We certainly don’t have anything in our existing portfolio for which it makes any sense because our portfolio is extraordinarily well leased,” he said. “We do believe that we can find a lot of really good opportunities without the need to do office conversions into residential, so we don’t put resi conversions from office high on our list of to-dos.”
The firm’s multifamily portfolio was 97.1% leased at the end of the quarter, a very slight drop quarter over quarter and year over year. Empire State purchased residential buildings at 561 10th Ave. and 345 E. 94th St. in 2022 and bought out its partners’ 10% interest in the properties last quarter for about $14 million and the assumption of $18 million in debt.
And net operating income at the firm’s famed Empire State Building observatory was up 13% year over year at $16.2 million, the earnings report says. This was down compared to the prior three quarters, but tourism is traditionally slower in New York at the beginning of the year.
Eddie Small , 2024-04-25 22:21:52
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