Anecdotes in the Office Middle Markets in NYC
Anecdotes in the Office Middle Markets in NYC
There’s a lot of talk around the conversion of office buildings into residential properties - locally and nationally (I even wrote about it here). It’s been pointed out that these conversions are very costly - prohibitively costly a lot of the time. Yet, when discussing office buildings, news stories invariably focus on ever-growing vacancies, or office-to-residential conversions.
But what about the average office building? How about the outer borough property owners? What does the office market look like outside of the financial district in Manhattan? Who is transacting? How are they making their profits?
Let’s look at a few office transactions that have happened in the market in the last 3 weeks that speak to the lower middle market ($1-40M) for office in NYC so that we might learn about what’s really happening outside of just the mega deals and the macro highlights.
Office to residential conversion: 650 1st Avenue (Murray Hill)
Lalezarian Properties bought the eight-story, corner office building on 37th street and 1st avenue in the last week of March.
Purchase Price: $33.5M
Buyer’s intentions: The buyer filed plans in November of last year to convert the property into 113 apartments. In doing so, the purchaser will increase the density of the property from 92K square feet currently to 139K square feet.
Additional context:
The seller, Princeton International Properties, was well poised for this moment. The seller had leased the entire property to one tenant, and it had included a termination clause in the lease. The seller also worked together with the buyer to ensure the Department of Buildings approved the conversion plans prior to close.
Development site: 340 Livingston Street (Downtown Brooklyn)
Monarch Realty Holdings bought the four-story office property on the corner of Nevins Street and Livingston Street.
Purchase Price: $11.3M
Buyer’s intentions: The buyer has not yet filed plans. The property’s existing square footage was approximately 16,570 at the time of sale. The total buildable square feet on the lot is approximately 35,290 as-of-right, or 42,377 if inclusionary housing is included and some units are restricted below certain AMI levels. On the same block a few feet away, developer Yitzchock Katz filed plans for a 186K SF building.
Office renovations: 35 West 36th street (Garment District, Manhattan)
Hidrock sold two of its office condominiums at 35 West 36th street between 5th and 6th aves.
Purchase Price: $2.7M each
Buyer’s intentions: The condos are offered in turnkey condition. It is not clear if the buyers plan to occupy the spaces for themselves or lease them out to tenants. By buying office condos, and not an entire office building, a CRE investor can diversify his or her portfolio without committing to an entire office building, deemed a risky move at this time.
Additional context: The sellers bought the property in 2008 for $28 million. As of their condo application in 2019, the sellers are expecting to earn +$83 million after all the units are sold. Approximately $37 million of sales have been recorded so far on the building, according to Property Shark, with an average price per foot of $1,264. The office building is 12 stories tall and measures 77,780 square feet. If condo sales trends persist on the building, that will price the building at a sellout value of $1,065 / SF, offering a neat margin to Hidrock, who bought the asset for just $360 / SF.
No change in use: 3219-3225 East Tremont Avenue (East Bronx)
Anibal Gomez purchased 3219 E Tremont Avenue, an office and retail building in the Throggs Neck region of the Bronx.
Purchase Price: $6.3M
Buyer’s intentions: There does not appear to be any change in use in the property. The purchaser will not be occupying the space as there are active listings to lease the empty spaces. Intriguingly, despite the vacancies, there was enough interest in the property to pay close to 80% of the asking price of $8.25M from 2017.
Additional context: Built in 1995, the property measured approximately 21,670 square feet and contained 11 commercial units. The property is located less than a mile away from a cluster of hospitals including Jacobi and Montefiore Medical Centers. The property was initially put on the market in 2017 (setup link here).
According to a WeWork report, the company had 682,000 memberships, the highest in the company’s history, in Q4 of 2022, as well as 75% occupancy (that’s high for a short-term lease operator). The WeWork picture is complicated, but the demand for small office space is an interesting trend that the transactions in this piece illustrate. The transactions in this article support the idea that there is still some appetite for office building investments, albeit for smaller offices. It will be interesting to monitor how things develop over the next few years.
Sources: YIMBY, Commercial Observer, PincusCo