TRD‘s staff picks for the 10 biggest stories of 2013
New York City real estate can sometimes feel like a blood sport, with a host of rivals vying to get the upper hand. Luckily, here at The Real Deal, we have a ringside seat. And in 2013, the industry did not disappoint. Office towers traded for more than $1 billion, retail rents cracked $3,000 per square foot, and $100 million became the new $50 million in residential listings. The Midtown East rezoning came and went, as did more than one commercial brokerage CEO. And let’s not forget that little matter of the mayoral election. Read on for the editorial staff’s picks of the biggest stories of the year.
New York City elections
The New York City mayoral election was bound to be the biggest story of the year, regardless of who emerged as the victor. But when a progressive politician from Park Slope jumped to the head of the pack — buoyed by a TV spot featuring his Afro’d son — suddenly the voters’ Bloomberg fatigue found an outlet. Bill de Blasio won just about 40 percent of the primary votes (Bill Thompson eventually conceded the primary) and went on to trounce former Metropolitan Transportation Authority Chairman Joe Lhota. But de Blasio, formerly the city public advocate, sets the teeth of some developers and landlords on edge — and they did not go down without a fight. As a host of candidates volleyed to sway voters (remember Anthony Weiner?), real estate bigwigs poured millions of dollars into the race and developers rushed to tie up city approvals before a new man (or woman) arrived at City Hall. When it came to the City Council races, the Real Estate Board of New York lost no time in getting involved, funneling money for attacks ads through its political action committee, Jobs for New York, even if the would-be electeds themselves rejected REBNY’s support. Looking ahead, de Blasio wants to create 50,000 units of affordable housing in eight years; appointed Alicia Glen, head of urban investment for Goldman Sachs, as deputy mayor for housing and economic development; and signaled concerns about a plan to build a $380 million soccer stadium in the Bronx. No matter whether you support de Blasio or label him a Commie (as many TRD commenters have), there’s no question change is afoot for the industry.
Nine-figure residential listings
While brokers scoffed at the asking price, the nine-figure listing heralded a sea change for the luxury market, or at least inspired sellers to get gutsy. As inventory continued to plummet — it reached record lows at the end of 2012, and dropped still further in 2013 — homeowners pushed the boundaries at the tippy top of the market. In April, hedge funder Steven Cohen listed his penthouse at One Beacon Court for $115 million (he’s since cut the price to $98 million); Barbara Digan Zweig, the wife of the late stockbroker Martin Zweig, put the triplex penthouse at the Pierre hotel on the market for $125 million (now available for $95 million); the River House offered a planned, 62,000-square-foot conversion of its clubhouse as a $130 million private residence; and just last month, a pair of Upper East Side homeowners listed their mansion at 12 East 69th Street for $114 million. While none of these units has sold, the blockbuster asks have trickled down to the rest of the luxury market: listings at One57, 432 Park Avenue,15 Central Park West and the Sherry Netherland have all asked more than $90 million, and price tags for trophy units at new developments like Walker Tower, One Madison, Baccarat Hotel & Residences and the Carlton House — and even some older developments like the Plaza, the Time Warner Center and Trump Soho — commonly top $50 million.
Billion-dollar office tower deals
The Manhattan office market is no stranger to billion-dollar trades, but after a relatively quiet period following the economic downturn, they roared back to life in 2013. First, Sony revealed that it would sell its U.S. headquarters at 550 Madison Avenue for $1.1 billion to the Chetrit Group.
Zhang Xin, CEO of Beijing-based real estate developer Soho China, and M. Safra & Company slapped down $1.4 billion for a 40 percent stake in the GM Building at 767 Fifth Avenue, valuing the office tower at $3.4 billion — the highest in the country. As part of its acquisition of NBC, the media giant Comcast paid $1.3 billion for 51 condos at 30 Rockefeller Plaza. Crown Acquisitions and Highgate Holdings bought 650 Madison Avenue, between 59th and 60th streets, from private equity giant the Carlyle Group in a deal valued at $1.29 billion. The Related Companies agreed to pay $1.3 billion to Time Warner to acquire its headquarters in the Columbus Circle complex that Related developed. And in November, American Realty Capital acquired 48.9 percent of 1 Worldwide Plaza from a partnership of George Comfort & Sons, DRA Advisors, RCG Longview and Ramius Capital for $1.45 billion. While none of the purchases has quite topped Google’s $1.8 billion acquisition of 111 Eighth Avenue at the end of 2010, the spate of deals marks a turnaround for the market.
Empire State Building IPO
Malkin Holdings’ bid to wrap up the Empire State Building in a newly formed real estate investment trust was bound to be controversial. But rather than upsetting the millions of visitors who ascend to the historic structure’s observation deck every year, the plan lit a fire under some of the roughly 2,800 investors who control the building. A handful sued to block the initial public offering, later settling with Malkin Holdings for $55 million. Then, after the firm ginned up the necessary shareholder votes in May, several would-be investors made unsolicited offers for the tower. Joe Sitt, Rubin Schron, a partnership of Joseph Tabak and Philip Pilevsky, and even a little-known player from San Francisco, made various bids, some of which topped $2 billion. Regardless, on Oct. 2, Malkin Holdings went ahead with the IPO, debuting shares of the Empire State Realty Trust at $13 per share on the New York Stock Exchange. Not only did the IPO affect one of the city’s most recognizable structures and create a new REIT, it also provided some of the most exciting real estate drama of the year. And despite a lackluster start, the stock price rose in recent weeks, closing at $14.86 per share on Friday. Meanwhile, some shareholders continue to wage battle against the IPO, filing another suit claiming they lost hundreds of millions of dollars through the offering.
The upper echelons of commercial real estate brokerages and real estate investment trusts don’t often see the kind of shuffling of leadership that they did in 2013. Michael Fascitelli abruptly stepped down as the CEO of Vornado Realty Trust, handing over the reins to Chairman Steven Roth.
Meanwhile, Mort Zuckerman took the opposite route at Boston Properties, handing off the chief executive job to Owen Thomas, formerly of Lehman Brothers Holdings, and assuming the role of executive chairman. Likewise, Bruce Ratner moved over to chair Forest City Ratner, promoting MaryAnne Gilmartin to CEO from executive vice-president of commercial and residential development. And Glenn Rufrano vacated the corner office of Cushman & Wakefield in June, surprising many in the industry. His replacement, announced last month, is Edward Forst, formerly the global co-head of Goldman Sachs’ investment management division. Rufrano since resumed a position as chairman and CEO of Manhattan-based real estate investment firm O’Connor Capital Partners. Though their reasons for leaving varied, the changing of the guard will no doubt have reverberating effects in 2014 and beyond.
Zillow buys StreetEasy
Zillow’s acquisition of StreetEasy for $50 million in August was more than just one real estate listings provider buying a competitor: With no comprehensive multiple-listing service in New York City, StreetEasy became a go-to database for brokers and consumers alike. For the Seattle-based Zillow, the purchase represented a way to crack the tough New York City market. But some industry observers here eyed the national listings site as an interloper that would defang StreetEasy’s local usefulness. Immediately, StreetEasy replaced CEO and co-founder Michael Smith with Susan Daimler, the general manager of Zillow New York, and closed its offshoots in Miami, Washington, D.C. and Philadelphia. In the following months, executives such as Sofia Song, the vice president of research, departed, and several employees were laid off shortly after the firm’s holiday party. Whether the move proves detrimental for StreetEasy in the long run remains to be seen, but the deal will no doubt have a lasting impact on the landscape for real estate data in 2014.
Dolly Lenz leaves Elliman
It’s rare that a New York City real estate broker makes a name for herself across the country, but such as the sustained success of Dolly Lenz that when she left Douglas Elliman in June, national news outlets picked up the story.
(Of course, her appearances on CNBC don’t hurt.) The reasons for the split are still murky, as is the impact on Elliman’s bottom line. While Lenz was the brokerages’ top producer for years — she eventually bowed out of the firm’s annual awards — some speculated that her commission split was so high that she didn’t generate all that much revenue for Elliman. Nevertheless, she set up shop as Dolly Lenz Real Estate, taking some of her listings and 10 other brokers with her, including her husband, Aaron. While it remains to be seen exactly how she will fare independently, by November she had some $384 million in listings — and her performance is likely to continue to set tongues wagging in 2014.
Midtown East rezoning
Former Mayor Michael Bloomberg’s plan to rezone a 73-block swath of Midtown East — first proposed in July 2012 and approved by the City Planning Commission last September — was intended to correct aging office stock in the city’s core by allowing for taller skyscrapers. The proposal also called for more flexible air rights transfers and a fund that would go toward infrastructure improvements in the district. And yet, despite a year of concessions to critics, including allowing for 20 percent residential use in new buildings and a different spending structure for neighborhood improvements, a lack of City Council support nixed the the plan at the eleventh hour. Not only did the apparent demise of the rezoning put building owners in limbo (quashing SL Green Realty’s plans to build a 65-story office tower near Grand Central Terminal, called One Vanderbilt, for example), it also seemed to underscore Bloomberg’s waning influence. Mayor Bill de Blasio has vowed to revisit the proposal, but it will surely not exist in the same form, if it ever does pass the new crop of council members.
National retailers flock to Brooklyn
The fact that Brooklyn real estate is booming is now so widely acknowledged, it’s almost a cliché. Brooklyn rents, seemingly unaffected by a typical winter slowdown, are rising faster than those in Manhattan. And that is in no small part thanks to the national retailers that have blown into the borough, picking up speed in 2013. Perhaps the biggest indicator of change came last month, when Whole Foods opened in Gowanus, an industrial area best known for its heavily polluted canal.
The move, obsessively chronicled on real estate blogs, followed H&M and Sephora opening in Downtown Brooklyn, while Nordstrom Rack confirmed a location in the area. J. Crew and Splendid opened in Cobble Hill. And, much to the chagrin of locals, Dunkin Donuts opened in Williamsburg. The trend shows no signs of slowing down: rumors that Apple will launch in the borough have surfaced once again.
Retail rents crack the “crystal” ceiling
New York City’s retail properties have been on fire for some time now, but 2013 was the year that store rents took off. Indeed, along the tony stretch of Fifth Avenue, they cracked the so-called crystal ceiling of $3,000 per square foot. Between 49th and 59th streets, retail asking rents reached $3,170 per square foot in the fall, an 18 percent jump over the previous year, according to the most recent report from the Real Estate Board of New York. Meanwhile, Madison Avenue rents (between 57th and 72nd streets) spiked 42 percent over the previous fall, hitting $1,380 per square foot. The hot retail market in 2013 was enough to sway office building buyers — Haim Chera of Crown Acquisitions, for example, cited the lucrative retail in 650 Madison Avenue as a main reason to buy the mixed-use tower — and to persuade retailers to look farther afield of typical shopping districts, such as farther north on Madison Avenue.
Honorable mentions: Michael Shvo buys a gas station in West Chelsea to build art-focused luxury condominiums — and some worry that a bubble is back. Brothers Frank and Michael Ring finally sell their coveted but dilapidated portfolio of office buildings. Mayor Bloomberg plans a micro-unit building in Kips Bay. Housing inventory in New York falls to record lows, and then falls again. The state passes new rules for broker titles, leaving some senior vice presidents wondering how they’ll stand out. A stampede of residential skyscrapers comes to 57th Street, making over a formerly lackluster stretch of Midtown. Jared Kushner goes on a buying spree in the East Village and Dumbo. JPMorgan Chase reaches a record-setting $13 billion deal with the feds, putting to bed claims over faulty mortgages. Luis D. Ortiz is fired from Keller Williams NYC amid a reality television backlash among some of the city’s brokerages. New York Attorney General Eric Schneiderman cracks down on Airbnb’s short-term rental business; Airbnb fights back with a PR campaign.