The mantra that millennials wanted to “work where they live” drew some of New York’s biggest developers across the East River in the late 2010s to build Instagrammable offices in hot Queens and Brooklyn neighborhoods.
Today many of those offices remain empty, and now some developers are conceding that the gold rush never materialized.
Case in point: Related Companies’ fund management arm and its partner BentallGreenOak are ready to walk away from the Point LIC, a small campus of converted warehouses in Long Island City that sit mostly vacant after six years.
The developers have defaulted on their mortgage for the pair of seven-story buildings in the neighborhood’s Hunter’s Point section, sources told The Real Deal. Their lender, mortgage REIT BrightSpire Capital, is looking to sell the non-performing loans, and sources said the borrowers have agreed to hand the keys to the Point over to whoever buys the debt through a deed-in-lieu of foreclosure.
Representatives for Related Fund Management and BentallGreenOak did not respond to requests for comment. A spokesperson for BrightSpire — known until 2021 as Colony Credit Real Estate — declined to comment.
The mortgages on the two buildings total around $150 million, and BrightSpire will look to recoup as much of that as possible.
It’s the latest sign of distress in the office market, as high interest rates and a continued transition to hybrid work expose struggling investments.
Related and BenatallGreenOak paid nearly $104 million in 2016 to buy the two properties: a 130,000-square-foot former oil storage warehouse at 2100 49th Avenue, dubbed the Paragon Building, and a 220,000-square-foot building across the Long Island Expressway at 2109 Borden Avenue called the Blanchard Building.
The new owners spent $45 million overhauling the properties, building new entrances and lobbies, upgrading building systems and installing amenities like cafes and outdoor spaces that were all the rage for offices designed to attract a millennial workforce.
But today those offices sit virtually empty, according to marketing materials from Cushman & Wakefield, where a team led by Adam Spies and Josh King is marketing BrightSpire’s debt for sale. The only signs of life are retail tenants, including a pair of coffee shops and that last refuge for desperate landlords: an on-demand grocery delivery service.
The Paragon Building did come close to fulfilling its promise.
When Amazon eyed Queens for part of its second headquarters, the tech company made plans to take space at Long Island City’s One Court Square office tower — a move that would have bumped cable giant Altice from the skyscraper. Altice reportedly signed a letter of intent to lease all 130,000 square feet at the Paragon. But after Amazon backed out, Altice inked a deal to stay put at One Court Square
Related and BetallGreenOak’s investment isn’t the only one in the outer boroughs to run into trouble.
Nearby in Long Island City’s Factory District, Metropolitan Realty Associates and Nuveen Real Estate recently reverted about 106,000 square feet of office space at Hub LIC at 47-25 34th Street back to industrial use, according to a market report from CBRE.
Over in Brooklyn, RXR is talking about converting one of its office buildings to residential — most likely 47 Hall Street, which Scott Rechler’s firm bought for $161 million in 2016. And Boston Properties recently wrote off a $51 million loss on its Dock 72 office development at the Brooklyn Navy Yard after WeWork exited two floors at the project.
Rubenstein Partners in 2017 built Brooklyn’s first major Class A office building in a half-century at 25 Kent Street in Williamsburg. But as recently as October, the building was still about 65 percent available and the developers were slashing asking rents to attract tech or media tenants from Manhattan.
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