13 Stories That Defined NYC Commercial Real Estate In 2023
When the ball dropped last New Year's Eve in Times Square, many in commercial real estate were hoping that interest rates would follow a similar trajectory.
While that didn’t happen, the chaos wrought by the worst of the pandemic in 2020 and 2021 had subsided by the start of the year. Construction prices began normalizing, and asking rents started steadying across asset classes — albeit at dramatically different levels than before the pandemic.
Even so, this was a year many in the industry would like to forget. Firms from all corners of the industry were dragged on a wild ride through bankruptcies, foreclosures, high-profile scandals and changes for big-name buildings and big-name family firms alike.
There were wins for the sector despite the pessimism: Tourists came back in force, nearly at 2019 numbers. Times Square is busier than ever, the city's retail is in recovery mode, and after years of searching, the New York City Football Club finally found a permanent home, moving forward on a 25,000-seat stadium in Queens’ Willets Point neighborhood.
But 2023 had its fair share of low points, like the collapse of a century-old parking garage in Lower Manhattan killing an employee this spring and creating tremors for parking owners across the city. There were no casualties amid the rubble of the Bronx multifamily property that partially collapsed this month, but the wreck did reveal a flawed inspection by a city engineer.
There are still citywide issues weighing on the minds of the industry, like the more than 100,000 migrants who showed up in NYC over the course of the year, with almost 67,000 still in the city. While the steady flow of newcomers to the city didn’t generate big changes for CRE, Mayor Eric Adams instituted budget cuts in response to the multibillion-dollar price tag to their cost of care and introduced changes to the Right to Shelter law — the full consequences of which have yet to be felt in the city.
Still, none of these events defined the year for CRE in NYC quite like the moments below.
Signature Bank's Failure
In March, the failure of Silicon Valley Bank led to a run on deposits at regional banks — including Signature Bank in New York, one of the city’s leading lenders on rent-stabilized multifamily properties that also had a stack of loans for office, retail and market-rate rentals.
City real estate offices in the days following the collapse were filled with panic and anxiety, waiting to see if another shoe would drop. Flagstar Bank bought Signature's deposits, but it wasn't clear whether anyone wanted its $33B book of commercial real estate loans.
The Federal Deposit Insurance Corp. brought on Newmark's Doug Harmon and Adam Spies, who helped set up auctions for equity stakes in the debt. The FDIC has announced the winning bids over the past week: A joint venture led by Blackstone nabbed a 20% stake in the office, retail and free-market multifamily loan portfolio, another joint venture involving the Community Preservation Corp. and Related Fund Management took the 5% equity stake in a $5.8B rent-stabilized loan portfolio, and Santander Bank bought a 20% stake in the remaining $9B in rent-stabilized loans.
Distress Rises To The Surface
NYC’s office market was pummeled through the year, with dramatic results obvious by early October. Some big names in CRE had already handed back buildings earlier in the year, like Blackstone and Brookfield did with 1740 Broadway and the Brill Building, respectively.
As interest rates stayed high, distress also began to materialize at some of the city’s most high-profile recent hotel projects as lenders began pursuing foreclosure options. Maefield Development lost control of the Marriott-branded Times Square Edition hotel at 20 Times Square after allegedly failing to repay a $750M loan. Sharif El-Gamal’s Margaritaville Times Square Resort has also been the subject of a foreclosure battle after the Arden Group filed to seize El-Gamal’s equity stake after acting as the hotel’s mezzanine lender.
Most of the expected fallout from rate increases and value declines has yet to be felt, as buyers have stayed on the sidelines and sellers held on to their assets. Sales figures from the third quarter showed an undeniably slow market: There was a 65% drop on the trailing four-quarter average for office sales, totaling just $207.9M over the quarter, its lowest point in roughly a decade.
NYC's Housing Crisis Drags, With No Help From Albany
Optimism abounded at the start of the year over possible solutions to the city's painful housing shortage, with both Adams and Gov. Kathy Hochul laying out bold plans to spur more production.
Hochul's proposals to mandate development targets statewide, to extend 421-a until 2030 in exchange for introducing good cause legislation to protect tenants from evictions, and to lift the city's density cap for housing went nowhere. Legislative sessions drew to a close without reaching a housing deal, to the disappointment of developers and tenant advocates alike.
At the city level, measures included a proposal to expand housing voucher programs that Adams vetoed and the New York City Council subsequently voted to override. Adams proposed a $10M fund for rehabilitating rent-stabilized apartments, but developers bashed it as the debate raged over the continued mystery of the number of vacant units. He also initiated an incentive for office-to-residential conversions in Midtown Manhattan, although no developers have yet taken the bait.
Housing starts plummeted with no 421-a replacement. Construction spending hit $83B in October, but the New York Building Congress’ projected number of housing starts for the year fell from 30,000 to just 11,300.
Apartment rents spent consecutive months smashing records over the summer. Median rents peaked at $4,295 for a one-bedroom apartment in August, prompting concerns over the cost of living for residents in a city famous for the slogan, “The rent is too damn high.” While rents slipped a little toward the end of the year, a constrained housing supply and high demand for shelter means housing isn't getting more affordable anytime soon.
Nightingale's Fall From Grace
One of New York’s most prolific buyers of the past cycle, Nightingale Properties, used crowdfunding platform CrowdStreet to raise cash from investors. But this summer, an independent fiduciary found that most of the $63M it raised for deals in Atlanta and Miami was missing.
The scandal engulfed the company and its CEO, Elie Schwartz, and as the year progressed, he lost control of more pieces of his once-$10B property empire. He lost The Whale Building in Brooklyn and was foreclosed on at buildings in Lower Manhattan, SoHo and Midtown (not to mention multiple large buildings in Philadelphia).
Schwartz agreed to pay back CrowdStreet investors after it became public — and was first reported by Bisnow — that he had spent $12M of CrowdStreet investors' money buying stocks and stock options in First Republic Bank before it failed, as well as buying luxury watches and art. Schwartz has agreed to sell off his penthouse in Manhattan and mansion New Jersey to pay back the money in installments over the next three years, with the first payment due on Dec. 31.
Trump Organization On Trial
The year kicked off with The Trump Organization being ordered to pay a $1.7M fine after being convicted of tax evasion, but the former president's real estate business's legal entanglements only widened from there.
In April, former President Donald Trump was charged with 34 counts of falsifying business records over a 2016 presidential campaign hush money scandal. In October, Trump and his eldest children went on trial in the civil lawsuit brought by New York Attorney General Letitia James to face allegations that he had misvalued assets to score favorable loan terms and skirt paying real estate taxes.
The evidence was enough for Judge Arthur Engoron to say that the question wasn’t if Trump had committed fraud, but how much. Engoron even attempted to suspend Trump’s business licenses — a move that one legal analyst called a “corporate death penalty” for The Trump Organization — before an appeals court suspended the action.
Trump and his children testified in their defense at the trial this fall, as did a former Cushman & Wakefield appraiser, and closing arguments and Engoron's ruling are expected as early as January.
Succession
On the same sunny morning in October, two of NYC’s most storied family firms made big personnel changes. At Rudin Management, cousins Bill and Eric Rudin handed the family business to the next generation, with Samantha Rudin Earls and Michael Rudin, Bill Rudin’s children, taking over the reins as co-CEOs in January. Meanwhile, at Silverstein Properties, longtime CEO Marty Burger stepped down and was replaced by Lisa Silverstein, daughter of founder Larry Silverstein and previously the company’s vice chairperson.
The shake-ups signaled an industry gearing up for a new future, key players said.
“The world has changed so dramatically. Bringing some fresh perspective is helpful,” RXR Realty CEO Scott Rechler told Bisnow at the time. “During big moments of change like this, people tend to take a step back and think more carefully about the future.”
WeWork Files For Bankruptcy
Coworking giant and office sector disruptor WeWork filed for Chapter 11 bankruptcy in November, the culmination of years of trying to turn around a business that had been taking on water.
New York City, where WeWork was once the biggest private occupier of office space, is ground zero for the fallout of its homegrown riches-to-rags story. It is home to more than half of the U.S. leases WeWork first sought to reject. With the city’s office sector facing continued uncertainty, the loss of WeWork will continue to play out in 2024 in a courthouse across the river in New Jersey.
Corruption Probes Into Mayor Eric Adams, Commissioners
Eric Adams had a bad year, raking in the lowest approval ratings in decades for a mayor, according to an early December poll. While the commercial real estate community was filled with backers of Adams’ campaign, revelations during the fall added question marks to the mayor’s relationship with the industry.
First, Adams’ appointed commissioner for the city’s Department of Buildings was indicted on bribery charges. A few months later, the FBI confiscated Adams' electronic devices and raided the home of one of his fundraisers over allegations that he broke campaign finance laws. Then, local reporting revealed the existence of a priority list for “prominent and influential real estate developers” to skip the line for fire inspections.
The probe has focused on Adams allegedly bumping a new Turkish government-owned building's inspection up the line in 2021 before he even took office, but it has reportedly widened to include other possible violations. Adams hasn't been accused of any wrongdoing.
Low And Slow For Office Leasing
Activity in NYC’s office leasing market was timid in 2023 — down 33% through nine months compared to 2022, according to CBRE — with tenants putting off big decisions about long-term leases and how much space they needed as hybrid work became a more permanent reality.
At the same time, the larger deals that were signed fell into two camps: demand among financial services and law firms for trophy space with strong amenity suites and Class-B and C space being snatched up by government agencies and nonprofits.
The market has been split dramatically between winners and losers, as newer buildings have seen rents continue to rise and older buildings struggle to pay off their debt.
Airbnb's Loss Is NYC Hotels' Gain
Although the pandemic plunged some New York City hotels into the red, 2023 indicators showed signs of recovery for many. Tourism numbers reached near-pre-pandemic levels, with the city’s tourism arm, NYC & Co., projecting that the number of visitors to the city in 2024 will surpass the same figure for 2019. That could mean big things for existing owners, who are facing limited competition between an ongoing pause on hotel construction from a 2021 zoning amendment, government contracts for some of the city’s largest hotels to act as migrant shelters, and Local Law 18’s implementation drastically reducing the inventory of short-term rental companies like Airbnb and Vrbo.
Drama At The Flatiron Building Auction Prompts A Do-Over
In early May, GFP Real Estate CEO Jeff Gural stood outside a Lower Manhattan courtroom, paddle in hand, and ended a protracted ownership struggle over one of the most iconic buildings in the NYC skyline. But May was the auction’s second attempt to resolve ownership issues in as many months, with previously unknown investor Jacob Garlick swooping in to outbid the ownership coalition in the first auction before failing to come up with the cash in time.
The second auction’s winning $161M bid from GFP, Sorgente Group and ABS Real Estate Partners kicked attorney and former partial owner Nathan Silverstein out of the building’s business. The property, now with a new ownership group including The Brodsky Organization and excluding ABS, is slated for residential conversion.
Developers Place Bets Amid Slow-Moving Casino Process
Many of the city’s most prolific developers started 2023 eyeing the state’s plan to hand out three casino licenses, with more and more hats being thrown into the ring as the year passed.
But almost a year later, very little has happened. A judge put the letter of the law between Las Vegas Sands and the casino license it hoped to obtain in Nassau, Vornado Realty Trust dropped out of the race altogether, and local community boards booed Adams’ proposal to let casinos bypass rezoning procedures. But SL Green, Related, the Soloviev Group, Thor Equities and Mets owner Steve Cohen all have put up billion-plus-dollar proposals to build a new gaming resort in the five boroughs.
NYC Cannabis At An Impasse
Hopes were high for NYC’s rollout of its retail cannabis scene going into 2023, with Hochul voicing expectations of 20 openings a month statewide. But by the summer, licensees were lost. Many had sunk tens of thousands of their own dollars into permissions requests that the state’s Office of Cannabis Management was responding to at a glacial pace.
By August, an injunction over how the OCM had put together its licensing process brought the industry to a dead halt. After months of negotiations, the parties reached a settlement last month — although how fast the state can get retailers on their feet is yet to be determined.
