The long-awaited opening of Brookfield Properties’ Manhattan West development coincides with unexpected hurdles since the initial design of the project that will truly test the historic reliability of Midtown South’s Far West Side commercial real estate sector.
The $ 4.5 billion project was opened to the public in late September, nearly eight years after land was first cleared along Ninth Avenue on a platform above storage lanes from Penn Station. It aims to transform what was largely a barren landscape into a vibrant mixed-use neighborhood encompassing restaurants, hotels, entertainment, modern offices, luxury apartments and experimental retail.
However, Manhattan West comes at a time of uncertainty for Manhattan’s retail, office and hospitality markets as the country recovers from the worst of the COVID-19 pandemic and hurdles run short. term linked to increasing homework trends and declining tourism are accelerating a more difficult task.
But, was the timing really that bad?
It could be argued that the timing was better than for Manhattan West neighbor Hudson Yards, which opened a year before the pandemic but had to watch tenants stay away or, in the case of its point of view. retail anchor Neiman Marcus went out of business and went bankrupt.
Ben Brown, managing partner and head of the U.S. office portfolio at Brookfield’s real estate group, said Manhattan West was on time with the New York takeover.
“In a way, I kind of flip it over and say, I think it’s a phenomenal opportunity for us to be able to present what probably looks like the future of work, the future of live and the future of the game with all of the different components that encompass the 7 million square feet, ”Brown said.“ I actually think it could be perfectly in sync, and projects like Manhattan West will likely be what we see real estate development continuing to do. [aim for] go forward; things that have mixed uses, things that have a health and wellness focus and an experiential focus.
Located a short walk from Penn Station’s Moynihan Train Hall, Madison Square Garden and the High Line, Brown said Manhattan West is located in a desirable geographic area that may attract tourists visiting the theater, entertainment and neighborhoods. art nearby. A $ 50 million proposal from Governor Kathy Hochul to extend the High Line directly into Manhattan West’s 2.5-acre public plaza will also provide a significant increase in volume, along with plans to connect it to Moynihan, according to Brown.
The development consists of six buildings which include four office towers, a boutique hotel called Pendry Manhattan West, and a residential tower.
Culinary destinations in the neighborhood include Ci Siamo and Daily Provisions from Danny Meyer’s Union Square hospitality group, as well as a Chinese restaurant called Hidden Leaf located above a 160-seat Midnight Theater. The retail component of the development includes a Whole Foods which opened in July 2020 and a Peloton store is slated to debut in January. Experiential retail is also built into the project, with the opening of Peachy Skin Care in November and Peloton Studios Fitness thereafter.
At the end of last month, Brookfield went all out for one of New York’s first in-person openings since COVID hit the city, with visitors cradled by Questlove and The Roots, and fed on Meyer’s goodies.
Brown did not specify the rents being charged, but said Brookfield has seen the “highest rents in the market” compared to other new construction projects and those consistent with other more recent Manhattan assets like Hudson Yards and the One Vanderbilt office tower in Grand Central Terminal. . Rents charged by SL Green Realty to One Vanderbilt were reportedly over $ 300 per square foot in August.
Zach Steinberg, senior vice president of policy at the Real Estate Board of New York, said Manhattan West has proven to be resilient in the face of the challenges posed by the pandemic, as evidenced by high rental rates for two of the completed office towers. , 1 Manhattan West and 5 Manhattan. Where is. He noted that 2 Manhattan West is also attracting major interest from businesses to open in 2023 and that the 3 Manhattan West residential tower is 98% occupied.
“I think this project obviously happened in several phases, but I think if you look at what has happened, it’s been a pretty substantial success at every turn,” Steinberg said. “The success of this project is a good indication that New York City is a good place to get involved in the real estate industry and we will go through this pandemic and recover and that with smart investments, disciplined strategies to bring these investments in the market are always worth it here.
Sam Chandan, dean of the Schack Institute of Real Estate at New York University, said Manhattan West rental success reinforces the ‘flight to quality’ narrative, with newer assets fitted with modern amenities , like the World Trade Center and Hudson Yards, which are attracting major interest from tenants spending the older Class B buildings.
“A lot of the tenants we see taking up space in the new properties are migrating from other older assets, either to Midtown or to other parts of the city,” Chandan said. “It takes time for a new asset to be leased and I think the challenge here is to put in place older assets that aren’t as attractive. [and as a result] tenants replace in new properties.
The journey to the inauguration of Manhattan West spanned almost four decades, dating back to 1985 when the first plot was acquired by Brookfield. A zoning change in 2005 of the Hudson Yards neighborhood allowing the development of offices and housing was another big step, followed by the acquisition by Brookfield of 1 Manhattan West in 2006 and 5 Manhattan West in 2011.
Manhattan West was in the works long before the phrase “COVID 19” made sense. Wells Fargo provided a $ 530 million debt package to Brookfield in July 2018 to finance the construction of 1 Manhattan West, located at 401 Ninth Avenue, which opened in October 2019. The loan came in soon after. that London-based accounting firm EY has inked over 600,000 square feet. of space from the sixth to the 22nd floor of the 67-story, 2.1 million square foot office tower in a lease that runs until 2037.
The 94 percent leased 1 Manhattan West is also home to consulting firm Accenture, law firms Skadden Arps and McKool Smith, global investment firm Pharo, and the new National Hockey League headquarters, which moved from Avenue des Amériques. The NHL also has a team store in the building and will soon be opening an ice rink in Manhattan West Public Square.
In 2019, Brookfield secured the law firm Cravath, Swaine & Moore to anchor 2 Manhattan West with a deal for 480,000 square feet on the 25th to 37th floors of the 58-story building. The law firm is moving its headquarters to 825 Eighth Avenue. As of mid-October, 2 Manhattan West was 25% leased for its available 2 million square feet, according to Brookfield.
Brookfield’s third development office tower, 5 Manhattan West at 450 West 33rd Street, received a $ 1.5 billion loan from Landesbank Baden-Württemberg in March 2018 which replaced and consolidated a previous set of debts from $ 570 million from Wells Fargo with $ 580 million in new funding. Brookfield completed a $ 350 million redevelopment of the property, which opened in 1969 as the Westyard Distribution Center.
JPMorgan Chase and Amazon have fully leased the reconfigured 1.7 million square foot 5 Manhattan West.
As Manhattan West faces short-term headwinds from more companies allowing remote work, Brown said all office leases signed before the pandemic remained in place with a variety of companies wishing to enter into new agreements. He said with remote working being more of an option, having Class A office space will be key to luring employees out of their homes and cafes.
“It’s really a good cross-section of both tech and media, some consumer companies, some consumer goods companies, and then your traditional law firms, financial services, and professional services,” Brown said. “Where we are sitting today, the physical occupancy of most of our buildings tends to increase, but hovers around 20-30% and we expect this to continue to increase over the course of the year. fall.”
NYU’s Chandan pointed out that Manhattan West is well positioned on the office side with long-term leases and that companies are looking beyond short-term work-from-home trends. He said many companies are using the pandemic as a way to capitalize on transforming their office environment with improved equipment.
“We want to differentiate between the relatively short-term adjustments that companies make in their back-to-office schedules in response to the immediate pandemic reading, versus the relatively longer term,” Chandan said. “I see a long term lease as a long term investment and we see many companies anticipating what their longer term needs will be and taking advantage of a market where, given the dynamics, they can negotiate favorable deals. “
Brown said he believes Manhattan West and Hudson Yards can build on their mutual successes, but the former will stand out more because of its large public plaza that will create a natural pedestrian flow between West 31st and West 33rd streets, usually visible in more central areas. of Midtown. He said an expected increase in international tourism once travel restrictions are lifted would provide the necessary boost to Manhattan West’s long-term success as visitors seek a new destination close to other major attractions like the High Line and Madison Square Garden.
“You have one of the busiest transit hubs in the world as your next door neighbor, you have one of the most famous entertainment venues, and then you have one of the most unique public experiences with the High Line at your doorstep, ”said Brown. “We have 8 million people who experience the High Line every year who are going to either start this journey or finish this journey in our plans and I think that’s a huge part of what will be the vibrancy and l ‘activity.”