What do you do with a mostly vacant office building? 

You have some options.

Most of the time, it’s obvious: Try to lease it back up. Maybe put some money into renovations. 

Option 2: convert it into another property type, probably housing. You could try to get creative and make it a data center. 

But landlords are increasingly taking a look at a surprise third alternative: Do literally nothing. 

Between January and September, approximately 8.5M SF of office space was unlisted from the New York City market for reasons other than leasing, according to data provided by Cushman & Wakefield. During the same period in 2019, 3M SF of office space was unlisted.

The reasons for removal include offices being warehoused by their owners, lease renewals, renovations and conversions.

“These landlords are faced with a Hobson's choice,” Wharton Property Advisors President and CEO Ruth Colp-Haber said, referring to the concept of an illusion of choice.

“Either they can take on more debt so that they can give this huge work allowance so that they can give the free rent so that they can pay the brokerage commission and then lock in this lease at a rate that's half of what it would have been five years ago, or they can let the space lie empty and wait for a better day. And many landlords are choosing the latter.”

Read the full story here.

— Mark F. Bonner, Kayla Carmicheal, Catie Dixon and Jay Rickey

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On Our Radar

• The next 18 months are a strong opportunity for foreign real estate investment. The latest Oxford Economics Relative Return Index predicts Europe will get the most capital inflow, especially in industrial. The report says values have corrected, rental growth remains healthy and yield spreads have stabilized. Oxford Economics expects fewer excess return opportunities by 2026, with broader neutral return markets due to limited capital growth. The best opportunities are expected in Switzerland, the Netherlands, Sweden, Germany and Portugal. A key assumption in this report is continued interest rate cuts — higher-for-longer rates drag down real estate returns.

• The IMF raised 2024 growth forecasts for the U.S., Brazil and the UK. China, Japan and the eurozone have been downgraded. Global growth remains projected at 3.2% for 2024 and 2025, with longer-term growth expected to slow to 3.1%. The IMF says there has been success in curbing inflation, but it warned of rising risks from geopolitical conflicts, trade wars and commodity price spikes. China's economic outlook is weighed down by property sector challenges while the U.S. and India show resilience. 

• “I’m tired of hearing this is the biggest election in your lifetime.” That’s BlackRock CEO Larry Fink, who went on to tell the Securities Industry and Financial Markets Association on Monday that the outcome of the presidential election “really doesn’t matter” for markets in the long run. While acknowledging that BlackRock engages with both political candidates, Fink downplayed the significance of any single election on market outcomes.

• Is corporate America really a conservative stronghold? A new study from Columbia Law School shows there is now a more complex political landscape within C-suites, challenging long-held views that big business is a conservative bastion. Business leaders, particularly midlevel and senior managers, are increasingly leaning liberal in their political donations. However, CEOs still lean slightly to the right. This ideological realignment echoes broader national trends, where white, college-educated voters have shifted Democratic. Elon Musk might have something to say on the matter.

• Earnings calls today: Alexandria Real Estate Equities, Equity LifeStyle Properties, Equity Commonwealth and CoStar.

• The first National Tavern-Style Pizza Day is today. And it comes courtesy of Chicago's mayor and South Side pizza chain Home Run Inn. Any true Chicagoan will tell you, Kayla declares, that tavern-style is the real Chicago style. Mark would like everyone to know that technically, it is also known as “Milwaukee-style pizza.”

This Morning’s News

RETAIL — Retail Space Is Squeezing Out Local Shops (WSJ): Demand for retail space is surging, pushing smaller local businesses out as larger retailers claim prime locations. New and national tenants make it hard for small businesses to compete.

INDUSTRIAL — Rexford Industrial Names New Chiefs (WSJ): Rexford named former RPT Realty Chief Financial Officer Michael Fitzmaurice as its CFO and promoted Laura Clark, the company's current CFO, to chief operating officer. Fitzmaurice was instrumental in RPT's merger with Kimco Realty. Read more here.

DATA CENTERS — Morgan Stanley Invests In Data Center Provider (Bisnow): Morgan Stanley’s infrastructure division has acquired a partial controlling interest in Flexential, a data center provider based in Denver. The company operates 42 data centers in 19 markets and will use the infusion of cash to fund an expansion. Learn more about MSIP's investment and Flexential's next moves.

LEGAL — Tutor Perini Faces $145M In Charges (Construction Dive): LA-based contractor Tutor Perini has announced the resolution of several project disputes, leading to $145M in charges, pulling down its guidance ahead of earnings. Here's what you need to know about the disputes.

RETAIL — Is America Turning Into A Shopping Wasteland? (Business Insider): The struggles of Walgreens, 7-Eleven, and other retailers are contributing to a growing retail desert across America. Demise, decline or deserted? Learn more about the c-store nosedive.

CONSTRUCTION — Apartment Completions Surge 42% (Multifamily Dive): Multifamily apartment completions jumped 42% year-over-year, but only 825,000 units were under construction at the end of September, a 16.8% year-over-year decline. The numbers are in for September.

HOUSING — Apartment Deal Flow Rises (NMHC): The apartment market shows increased deal flow for the third straight quarter, reflecting both increased sales volume and more favorable financing conditions. Dig into the results of the survey.

FINANCE — Bank OZK Takes Write-Down On $128M Loan To Sterling Bay (Bisnow): Bank OZK wrote down $21M on its loan to a Sterling Bay subsidiary for a section of land at the Lincoln Yards megadevelopment in Chicago. That reduced the loan’s balance to $107M, or 90% of its June 2024 appraised value. Bank OZK also reassessed the loan as “substandard nonaccrual” since Sterling Bay’s progress on recapitalization has been slow. The loan had been modified 6 times before.

LEGAL — Developer Awarded $1.6B In Baha Mar Fraud Suit (Bisnow): A judge found Chinese-government backed China Construction America guilty of fraud during the development of a $3.4B resort in the Bahamas that broke ground in 2011 but went bankrupt without ever opening. Swiss developer Sarkis Izmirlian’s BML Properties was awarded $1.6B in the lawsuit. Get the details about the lawsuit.

DEVELOPMENT — Adding Amenities To Rentals To Attract Homeowners (NYT): Developers are increasingly offering homeownership-like amenities in rental properties, such as larger spaces, private yards and upscale finishes, to cater to renters who are delaying home purchases, some out of necessity, others for amenities. Gyms, playgrounds and multiple bedrooms are becoming the norm.

POLICY — Climate Change Takes Steady Toll On Buildings (Bloomberg): Buildings face long-term damage due to climate change, from rising temperatures weakening materials to increased humidity and flooding eroding structures over time. Learn about the toll severe weather is taking on the built environment.

CONSTRUCTION — Industry Launches Suicide Prevention Council (Construction Dive): Top construction leaders and the American Foundation for Suicide Prevention have formed an executive council to address the industry's high suicide rates. Here's the details.

INDUSTRIAL — Faropoint Secures $150M For Sale-Leaseback Fund (Faropoint): Faropoint has secured a $150M acquisition line for its industrial sale-leaseback fund, which it launched earlier this year. Learn Faropoint's plans for the investment.

HOUSING — 3 Swing State Cities Highlight Crunch (BNN Bloomberg): Lenders and consumer advocates say the risk of default rises when borrowers' mortgages top 36% debt-to-income ratio, but last year more than half of the mid-income households approved for mortgages had a debt-to-income ratio above 40%, the highest since 2018. Read more here.

HOUSING — Hunt Military Buys Atlantic Marine Corps Communities (Hunt): Hunt Military Communities has acquired Atlantic Marine Corps Communities from Lendlease. The acquisition includes 7,900 housing units serving 24,000 residents across eight military installations. The move expands HMC's footprint to 60K homes.

MULTIFAMILY — ECI Group Plans $3B Apartment Investment (CoStar and ECI Group): ECI Group is set to invest $3B in apartment developments after securing $350M from Almanac Realty Investors and entering into new debt partnerships. ECI has been on a tear lately: Read more about ECI’s new investment strategy, the recent equity infusion that made it possible and the $250M multifamily lending platform ECI launched earlier this month.

ENTERTAINMENT — Denver Eyes New Stadium For Women's Soccer Team (Bisnow): The National Women’s Soccer League is looking to add a 16th team, and Denver is trying to win the spot. The group lobbying for the team is poking around for where it might build a stadium and training facilities. Here's what a NWSL stadium would mean for the Mile High City.

INDUSTRIAL — Ares Secures $475M CMBS Financing (CO): Ares Management has locked in $475M in CMBS financing for a 25-building industrial portfolio across 12 states. The portfolio is being leased at 97%.

MULTIFAMILY — Tour24 Raises $5M To Streamline Multifamily (Tour24): Tour24, a tech platform aimed at optimizing multifamily property leasing, raised $5M in Series B funding to enhance its self-guided touring solutions. Tour24 can also pinpoint which rooms and amenity spaces a prospect spent time in, facilitating targeted follow-up after a tour. Read more here.

OFFICE — London Office Repurposing Starts To Pick Up Pace (Bisnow): London’s largest office market, The Square Mile, has seen its older offices become increasingly unwanted, untenable and unsustainable. In response, developers are repurposing offices to become hospitality, education and cultural offerings. Major applications for residential and hotel schemes rose from 8% in 2021 to 23% last year, and retrofits went above 50% of construction activity for the first time. Here's what the wave of adaptive reuse looks like.

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The First Draft is produced by Director of Newsletters Jay Rickey, Managing Editor Catie Dixon, Editor-in-Chief Mark F. Bonner and Deputy Newsletter Editor Kayla Carmicheal, with an assist from ChatGPT. We’d love your feedback! Email us at firstdraft@bisnow.com.