The prevailing — and altogether fair — narrative is that the office market is in the toilet.
But that doesn’t mean there aren’t a few fish willing to try to swim against that mighty current.
Wells Fargo is taking an expensive plunge — about $550 million — to buy 20 Hudson Yards for a retail-to-office conversion.
Related Companies and Oxford Properties Group are selling the three-story, 400,000-square-foot space while retaining ownership of the rest of the 11-story property.
Wells Fargo plans to occupy the space, which spans floors five through seven. The deal for the space hasn’t closed yet, but is expected to be one of the year’s largest commercial property deals in Manhattan once it does.
And while it’s not a reversal of office-to-residential, a conversion to office is rare these days as companies adapt hybrid and remote work policies.
Meanwhile, in Brooklyn, Two Tree Management went all in on office with its 460,000-square-foot Domino Park megaproject, which finally opened after 10 years of redeveloping and restoring the Domino Sugar Refinery.
Back in 2012, the original proposal for the project called for condominiums. But Two Trees bought the project in 2013 for $185 million, went back through the approval process and converted it into office space. Such a move was unheard of then and unthinkable, given where the markets are, now.
“No one trades residential for office space,” said the group’s spokesperson, David Lombino. “And that was in 2013. Flash forward to 2023, it seems even crazier.”
Indeed, office space is on the rise in Brooklyn, while office leasing is declining. But Two Trees officials believe in their project.
“The presence of workers here 24 hours a day, seven days a week changes the character of the immediate neighborhood and makes it more lively. It allows us to attract different and better retail, not just dry cleaners and drug stores,” Lombino said. “That, in turn, helps the residential.”
In Chicago, Fulton Street Cos. has secured financing for its $300 million development at 919 West Fulton Street, the city’s first major new office development in more than a year.
Little Rock, Arkansas-based Bank OZK and Toronto-based Manulife are financing the project with a $200 million loan, and Manulife provided $120 million, according to sources close to the deal.
Though soaring interest rates and a troubled office market have created a tough environment for commercial lending, Najem suggested that interest rates will come down by the time the project is completed and leased up enough to refinance the property.