The Daily Dirt: Verizon adds to NYC’s massive sublease market

Verizon recently listed 143,000 square feet of Essex Crossing office space for sublease. The telecom giant signed its lease more than two years ago, but never had a single employee work from the office.

It’s a solid chunk of office space at the property, whose developers include Taconic Partners, L+M Development Partners, BFC Partners, the Prusik Group and Goldman Sachs’ Urban Investment Group. But it’s just a drop in the pond that is sublet space in New York, where a quarter of the available space is offered via sublet. That’s more than 20 million square feet.

That number skyrocketed in the months following March 2020, when Covid sent office workers home. Available sublet space in Manhattan has gone up by 76 percent since then, according to data from Colliers. But, in the last 12 months, it’s remained flat, ticking up just 1 percent. 

The news got me wondering: what do landlords think about sublets? For most, the short answer is that they’ll take what they can get, especially in a challenging market like this. The long answer is that it all depends on a few factors.

“The flight-to-quality narrative is absolutely playing out on the sublease market,” said Jeremy Moss, an executive VP at Silverstein Properties who oversees leasing at One World Trade Center. “As soon as sublease space hits the market, it gets absorbed.”

Essex Crossing might not be the World Trade Center, but it’s a brand new building with intriguing amenities, like the Market Line, and underground food hall.

For a landlord of an older building, a sublease can raise greater anxiety. But there are still more questions to ask.  For instance, who is the tenant, and why are they looking to sublet?

“If the reason for the sublease is that the tenant is having balance sheet issues, then the landlord loves subleasing. It means they’re more likely to get paid,” said Todd Korren, a principal at Avison Young focused on office leasing.

Verizon isn’t on the brink of bankruptcy. The company reportedly didn’t have enough workers coming into the office. The firm will continue paying rent at Essex Crossing while the space remains empty.

The problem for the landlord is the empty sublease space is now competing against its other space in the building. Verizon’s lease comprised all of the third, fourth, and fifth floors at 155 Delancey. But the building has 34,000 square feet available on the second floor, according to marketing materials for the property. Throw in nearly 170,000 square feet next door at 145 Delancey, and it’s clear that the firm has plenty of empty space it’s looking to fill up without competing with Verizon at its own properties. 

In the end, landlords don’t like empty space, period. They don’t like the questions it raises, and they don’t like the feel of a quiet building. But they’d rather have a tenant sublease its space than stop paying rent.

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What we’re thinking about: Are you an office landlord? How do you feel about subleasing in your buildings? Send a note to david.westenhaver@therealdeal.com.

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Closing Time

Residential: The priciest residential closing Friday was $18 million for a townhouse at 118 West 12th Street in Greenwich Village.

Commercial: The most expensive commercial closing of the day was $23 million for a seven-unit residential building 535 Broadway in Soho.

New to the Market 

The priciest residence to hit the market Friday was a townhouse at 244 West 11th Street in West Village asking $12 million. Compass has the listing.

Breaking Ground 

The largest new building filing of the day was for a 3,200-square-foot single-family house at 338 Hillside Avenue in Williston Park. Bungalow Design & Engineering filed the permit application. 

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A thing we’ve learned: Is it common knowledge that 15 Central Park West is sometimes referred to as “Limestone Jesus?” I learned about the nickname this week. According to The New York Post, the building got the nickname because of its “sacrosanct reputation as the city’s best-selling luxury residence.” Meanwhile, a penthouse at the property just listed for $48 million, a $2 million discount from its last sale in 2017.

Elsewhere in New York

— In 2019, a residential building in Brooklyn caught fire, forcing the tenants at all 54 units to move out for good. According to The City, the building is still empty, but condo owners are still paying their mortgages, thanks in part to a legal battle with a dozen renters who had lived there. A recent auction went by without any bids, leaving owners and renters in limbo. 

— Mayor Eric Adams revealed on Friday that Lynelle Maginley-Liddie, an eight-year veteran of the Department of Correction, will assume the role of Commissioner for New York City’s jails, Gothamist reports. The announcement comes as the city grapples with the possibility of a federal takeover of the troubled department, characterized by the dysfunctional Rikers Island.