New York CRE's Annual Q4 Rush To Close Deals Will Be A 'Battle' This Year

It has been a historically slow year for commercial real estate deal-makers, as sales volume nationwide was down 50% through the first half of 2023. But that hasn't lessened the annual push to close deals before the calendar turns.

“Since people came back from the summer and as we go into the fourth quarter, I feel a ton of pressure to close,” said CBRE Vice President Reeves McCall, an office leasing broker. “Deals that had been hanging out there for a while or decision-makers that had been vacillating like, ‘Are we going to sign an LOI and actually get space and have that be our strategy, or am I going to kick the can further?’ That has dissipated.”

This year has both perplexed and vexed many New York City commercial real estate players. Less than $10B of deals are expected to close this year, according to Avison Young figures, which would be the lowest volume since 2009.

Office leasing has been feeble, too, dropping 30% in Manhattan during the third quarter from the same period in 2022. All year, interest rates have steadily climbed as the Federal Reserve has hiked rates 11 times since 2022 and has signaled it plans to keep rates elevated.

Nationally, there were nearly $80B of commercial real estate loans in distress last year quarter, the highest volume in 10 years.

“Life was great last year. This year, life is not great,” said Joe French, a broker with Institutional Property Advisors based in White Plains. “There are other brokers that are dying and struggling out here, but I am very fortunate I have a number of deals — but will have to battle to get them closed.”

But New York real estate players Bisnow spoke to said the endless grind of this year may be starting to ease, though most are operating in vastly different markets than years previous.

“I came back from maternity leave in the middle of January with a lot of personal optimism. … It was met with what felt like a pretty cool market,” McCall said. “It was hard to drum up new business.”

Those with expectations that 2023 would represent a widespread return to offices were let down, but that wasn't the only anxiety-inducing factor in this year's gloom.

The city's housing shortage has only gotten worse, the dialogue around it more tense. Then, in March, the banking crisis took out Signature Bank, one of the city's biggest multifamily lenders.

Still, the economy remained resilient, even as job losses permeated the tech industry and rents kept climbing. Green shoots have emerged. Law firms and financial services have become more active in the office leasing market, and the retail industry has shown signs of recovery.

Plus, more return-to-office mandates have been enacted, providing hope for a continued recovery of occupancy. So, McCall said, it feels like a tide is turning. Some parts of the leasing market are “flying,” she said, including space under 10K SF that is pre-furnished.

“I'm not trying to look at it through rose-colored glasses,” she added. “I certainly have to emphasize to myself that I need to diversify my skill set, but I also don't believe in the doom and gloom.”

Recent months have brought some good news on the large leasing front. Ralph Lauren renewed for 250K SF last week at RXR’s Starrett-Lehigh Building, while investment firm Davidson Kempner expanded into 100K SF at 9 West 57th St., The Real Deal reported.

More deals are set to close in the fourth quarter and in early 2024, according to a representative for RXR. Last week, the New York City Administration for Children’s Services extended its 530K SF lease at 150 William St. until 2025. The agency locked down 640K SF for a new headquarters at 110 William St. in June, with the lease starting in 2025, Bisnow first reported.

The mood has gone south among the broker ranks, however. Earlier this year, the Real Estate Board of New York’s Real Estate Broker Confidence Index for commercial brokers fell to its lowest level since REBNY started running the survey in 2017.

Still, young professionals are continuing to enter the industry, many of whom say they are energized and excited to be working in this complex, challenging market.

“In the world we live in today, I can't imagine any job or industry where there isn't some doubt in today's world or periods of doubt,” said Liz Lash, who is also a vice president at CBRE. “I think if you put your head down and you work hard and you're committed to your clients, developing relationships, it's a fruitful business.”

But while she is generally seeing tenants engaging more in office searches, she expects most of her deals to spill into 2024, as tenants still don't feel a sense of urgency.

That is different than in the retail space, said Compass broker Robin Abrams, who predicted that landlords and tenants will push to get deals done by Dec. 31 because of how much inventory has been absorbed in the last year already.

“NYC retail leasing, like all CRE, is cyclical. Over the past year, there has been a tremendous amount of space absorption, particularly on the higher profile corridors,” she wrote in an email. “The luxury and fashion brands, many of them international, have re-engaged and leased space in multiple market areas.”

Most brokers are pushing to close whatever deals they can after one of the toughest years of their careers. French said he has 20 deals close in a typical year, but he will likely see half of that in 2023.

For the final quarter, he has four deals worth about $72M he hopes to close, he said. But he is also hunting for business, focusing on calling clients who he knows have loans coming due, seeing if he can be of service.

“The situation is that there are people who are going to have to do stuff. We are going to try and find those people. We are going to have to be advisers to them,” he said. “It’s a guessing game to figure out where interest rates are going to go. I don’t see them going down in '24. I would love to be wrong.”

There have already been some high-profile owners who are feeling the pinch from lenders.

Some $16B in loans backed by New York City commercial real estate were set to mature this year. RFR Realty had the biggest and was able to secure a multiyear extension on its $783M loan on the Seagram Building. But many high-profile owners handed their buildings back. Brookfield handed back the keys at the Brill Building in July, and the owners of 1440 Broadway appear to be taking similar steps with the WeWork-anchored building.

Fried Frank Real Estate Group partner Michael Werner said he expects more of these high-profile scenarios before the year is out and into 2024. His work, he said, has included loan extensions and modifications and advising clients on what their options are.

“A lot of times we negotiate these documents, and then we put them on a shelf and don't look at them again until there's a problem,” Werner said. “Well, now there are problems.”

The fourth quarter in New York City real estate is typically dominated by deal closings and the party circuit, but there may be more of a somber feeling this year, said Luise Barrack, the head of Rosenberg & Estis’ litigation department. World events such as the Israel-Hamas war are weighing on the industry.

“I think people are just putting one foot in front of the other,” she said. “I have clients who canceled parties and get-togethers that they were planning on having because they don't feel like it's the right time or it's appropriate.”