“This level of momentum illustrates the demand for highly distinctive space,” Craig Deitelzweig, president and CEO of Marx Realty, told Commercial Observer. “We have been very pleased with the caliber of our new tenants and expect more to follow suit very shortly.”

“Tenants love the hospitality-infused aesthetic and incredible ceiling heights,” Deitelzweig said. “They are responding to how special the space is and they are really excited to introduce the space to their employees and guests.”

October 9, 2021

Post-pandemic shake-up in New York’s buildings could change the nature of the city

Joshua Chaffin in New York

When the mayor and other dignitaries gathered a year ago to cut the ribbon on

One Vanderbilt, one of Manhattan’s newest and most advanced office towers, the

festivities were marred by a pandemic that has raised existential questions about

the future of such buildings.

Yet One Vanderbilt is now more than 90 per cent leased. Its newest tenant is

UiPath, a robotics software company that last month signed a 15-year lease to

take the entire 60th floor.

“I wish I had 20 more floors because if I did we could lease them,” Marc Holliday,

chief executive of SL Green, One Vanderbilt’s developer and New York’s largest

office landlord, crowed.

A few blocks away, another Manhattan office building was suffering a different

fate. 850 Third Avenue, a glass-and-steel edifice that opened its doors in 1960,

was almost half vacant and its owner, the Chetrit Group, was struggling to avoid

foreclosure after falling behind on its mortgage.

The diverging fortunes of those towers says much about the world’s largest office

market after 18 months of pandemic: the most sought-after buildings — whether

they are brand new, like One Vanderbilt, or newly renovated, like Google’s

$2.1bn St John’s Terminal — are still attracting tenants and fetching top rents

while the city’s large stock of dated towers is suffering.

“We now have a bifurcated market in office leasing, where the marquee buildings

are escaping the pandemic relatively unscathed for the time being, with the

lower and middle classes bearing the brunt of the losses,” said Ruth Colp-Haber,

the chief executive of Wharton Properties, which advises tenants.

That dynamic is reflected in data collected by CBRE, the commercial real estate

firm, which divides the 844 Manhattan office buildings it tracks into two

categories: “better” and “commoditised”. It found the former enjoyed higher

rents and lower vacancies and saw less space being dumped on to the sublease

market over the past two years.

“We’ve seen proof in the leasing in the last six months that if it’s brand new and

it’s well located, it’s been very successful. Many of them are at or above prepandemic

levels,” said Paul Amrich, CBRE’s vice-chair. Meanwhile, other

buildings — burdened by poor location, low ceilings, small windows or other

flaws — “could become obsolete”, Amrich warned.

Or, as Craig Deitelzweig, chief executive of Marx Realty, put it: “If you’re a

commodity building, you’re dead . . . Everybody wants a Google office.”

As the pandemic drags on and companies struggle to bring employees back to

their desks, that conviction is leading many real estate executives to anticipate a

generational shake-up in New York’s office buildings that could change the city

itself.

They believe owners will soon have to decide whether they are prepared to

invest hundreds of millions of dollars, as Marx and others have done, to

“reposition” older buildings with the features that were popularised by west

coast technology companies and which have now become de rigueur.

Some may forgo that and decide they can make do with lower rents. Others may

be forced to sell — particularly those owners who are highly levered.

“We’re going to see a lot of new buildings over the next 10 years,” Michael Cohen,

president of the New York region at Colliers, a commercial real estate firm,

predicted, noting that many landlords in Midtown have inserted “demolition

provisions” into leases to make it easier to tear down buildings, if they opt to do

so. “Capital is circling the city, looking for opportunities,” he said.

The move to update New York’s office stock was afoot well before coronavirus. It

was encouraged by the notion that office decisions once determined by

proximity to the chief executive’s residence should instead be governed by the

need to attract talented young workers, who could just as easily join an

investment bank or a tech firm.

The pandemic is accelerating that shift. The economic crisis has wiped out some

tenants in lesser buildings or prompted them to downsize. Meanwhile, others are

taking advantage of a rare opportunity to jump to towers with more cache on

favourable terms, further hollowing the weaker buildings.

Then there are the amenities. Covid-19 is making “wellness” items like purified

air and access to gardens essential — not optional. It has also brought forward

the once-distant threat of remote working. In order to lure workers back to the

office, many companies are embracing the idea that they must make their space

more appealing than a home office or a Starbucks.

“There’s an expectation today that top buildings will have conferencing facilities,

cafés, town halls, specific wellness function rooms, gyms, studios, travel showers

and bike rooms — the list goes on and on,” Holliday said. He might have also

added music studios, where employees can play their instruments to

decompress.

The $3.3bn One Vanderbilt is crammed with such offerings. The 1,400-foot

tower, which soars over Grand Central Station, offers commuters direct access to

the subway without having to leave the building. Among its dining options is a

new 11,000 square-foot restaurant by chef Daniel Boulud.

Not everyone is gearing up to compete with One Vanderbilt. Jeffrey Gural, a

second generation New York developer who has seen booms and busts, is

sceptical of the amenities arms race. “The Googles of the world are on a different

planet,” he said, adding, “not everyone can pay $100 a square foot”.

Even with Covid-19 and remote work, Gural believes there will be a market of

smaller tenants and is hopeful that his prewar buildings, erected in the 1920s

and 1930s, will be insulated by their historic character. But, he conceded: “Maybe

the older glass buildings that were built in the ’60s and ’70s will suffer.”

That generation of office towers flourished in Midtown as financial firms fled

downtown after the second world war. Many were showing their age before the

pandemic arrived.

Asking rents for offices in Midtown have fallen for five consecutive quarters,

according to Colliers. They are down 8.2 per cent since March 2020, when the

pandemic forced New York City into lockdown. In addition, landlords are having

to dole out added sweeteners, such as unusually generous tenant improvement

allowances.

Dan Shannon, a partner at MdeAS, an architecture firm that specialises in

repositionings, says his phone is ringing with inquiries about fading towers along

Third Avenue, like the Chetrit building, which lack the prestige of their more

central competitors on Park Avenue and Madison Avenue. Repositioning is faster

than new construction, he argued, and less constrained by onerous zoning laws.

Done well, it holds the promise of blending the best of old and new.

“They have to be more attractive, definitely,” Shannon said of the buildings.

“They need to get in front of it.”

While some of those Third Avenue towers will be revived, or put to other uses,

the Darwinian churn of Manhattan real estate suggests that not all will survive.

“In any cycle like this, you’re going to see pressure on the bottom 10, 15, 20 per

cent of the inventory that’s going to shake out,” Holliday said. “There are

buildings that are going to be demolished and make way for new construction.”

By Tristan Navera  –  September 10, 2021

BY KEITH LORIA SEPTEMBER 7, 2021 

CGCN Group, a Washington, D.C.-based government affairs firm, has signed an 8,000-square-foot lease at The Herald, a $41 million renovated office building in D.C. that opens on Sept. 22.

The lease is for 10 years at a rent of $72 a square foot, with the company taking space on the sixth floor.

Marx Realty owns the 114,000-square-foot building, having acquired it in April 2020, and immediately set out to create a hospitality-infused transformation of the historic property.

“We bought the building during COVID, because we believed in the physical attributes of the building and we believe in D.C.,” Craig Deitelzweig, president and CEO of Marx Realty, told Commercial Observer. “We’re seeing our vision come to fruition, and we couldn’t be happier with the interest and demand. It would have been excellent in a pre-COVID world, but it’s been unbelievable in a post-COVID world.” 

Located at 1307 New York Avenue and originally built in 1923, the building once housed the printing presses and offices of the old Washington Times-Herald, where Jacqueline Kennedy Onassis (then Jacqueline Bouvier) worked as the “Inquiring Camera Girl.”

The office building now features a doorman attending to oversized wooden entry doors, an intimate foyer that opens to an expansive lobby with design elements inspired by that original use as a newspaper office, and a glass wall inspired by traditional Linotype printing machines and portraits of D.C. notable politicians.

The building also boasts 14-foot ceiling heights, a 40-seat boardroom, a fitness center, and an 8,800-square-foot “Bouvier Lounge” on the ground floor, adjacent to a European-style cafe.

“The hospitality-like aesthetic and the details we’ve infused into every nook are a big draw for discerning firms seeking a sophisticated aesthetic and spaces where employees will enjoy coming to work,” Deitelzweig said. “We are seeing interest in every floor of the building. I believe the reason for that is that tenants really want space that is special and hospitality-inspired, and space that helps bring employees back to the office.”

CGCN is the first announced tenant and more leases are expected to be announced in the coming weeks.

Private equity firm Snow Phipps is the latest company to join 545 Madison Avenue, a newly renovated office tower in Midtown, Manhattan. Marx Realty, the property owner, worked with Studios Architecture to complete the building’s transformation, which focused on elevating the hospitality aspects of the commercial property. Snow Phipps will occupy a suite on the building’s tenth floor that spans approximately 10,000 square feet. Lease terms were negotiated for seven years at $89 per square foot. The company is the first new tenant at 545 Madison since the commencement of construction.

“We are leading a design revolution in the office sector and it’s about much more than just ‘repositioning’ a building,” said Craig Deitelzweig, president and CEO of Marx Realty. It’s about answering the demand for office spaces that are truly special and inspiring, providing space with a soul.”

Scope of work on the ground floor included the construction of a new lobby, the installation of floor-to-ceiling glass, modern signage, concrete planters, and gray metal accents. The entrance was also relocated to 55th Street to reduce congestion and improve lobby access.

The extensive renovation will also include a library, multiple lounge and seating areas, and a 7,000-square-foot indoor-outdoor respite on the eighth floor that will debut as Leonard Lounge. When complete, the lounge will include a ceiling-suspended fireplace, bar seating, a 2,000-square-foot landscaped terrace, a boardroom with co-working spaces, a café, and walnut wood and bronze finishes throughout. For extra finesse, Marx Realty’s signature scent will waft through the amenity space.

“Job creators in the finance, media​, ​and technology sectors understand the need to bring employees back to a beautiful space and our first-of-its-kind hospitality-meets-office aesthetic will continue to increase in relevance,” Deitelzweig said.​ ​”​Marx Realty’s signature hospitality​ ​style goes far beyond slapping some stone on a wall or adding some new artwork, and the team at Snow​ ​Phipps immediately recognized the value of providing a warm and welcoming space for employees.”

Cushman & Wakefield is the exclusive leasing and marketing agent for the available suites. OTJ Architects oversaw design of the office suites on the third and 14th floors. According to representatives from the company, total construction costs for the project hover around $24 million. Phase one of the building’s extensive modernization is currently underway.  

By Liz Young  July 30, 2021

Take a look at the details here:

Private-equity firm moving offices

Snow Phipps has inked a seven-year lease for a 10,000-square-foot office at 545 Madison in Midtown.

The private-equity firm will occupy space on the 10th floor at the 18-story office tower. Asking rent was $89 per square foot. Snow Phipps plans to move from 667 Madison, about six blocks away. 

Owner Marx Realty has been working on a $24 million repositioning of the property over the past year, aiming to create a hospitality vibe at the office building with hotel-like finishes, by using warm wood tones, for example.

The renovations at 545 Madison include a new lobby, library, seating areas, pre-built office suites and a 7,000-square-foot indoor and outdoor club space on the eighth floor. The entrance was moved to 55th Street. 

Since construction on the renovation started, Snow Phipps is the first new tenant to sign on. Another three leases are in negotiation, according to the landlord.

The building, between East 54th and 55th streets, is close to Central Park, Grand Central Terminal and Rockefeller Center.

Evan Margolin of Savills represented Snow Phipps in the deal. Tara Stacom, Harry Blair, Peter Trivelas and Remy Liebersohn of Cushman & Wakefield (NYSE: CWK) represented Marx Realty.

David Burns and Kristin Kaiser of Studios Architecture are working with Marx’s in-house design team on the lobby redesign and the amenity spaces. OTJ Architects worked on the pre-built suites on the third and 14th floors.

Marx Realty is a division of Merchants’ National Properties. Its portfolio includes more than 5 million square feet of commercial office, retail and residential space, as well as five mixed-use projects that are under development.

View the Full Article

by Betsy Kim

Marx Realty CEO Craig Deitelzweig

Despite the non-capitalistic overtones of its name, Marx Realty and its parent company, Merchants’ National Properties, pioneered the high-commerce trend of fusing hospitality with offices.

Now, to lure people working from the coziness of their homes for the past year back into the office, being ahead of that curve has proven advantageous.

“We want people to enjoy being there when they walk into an office building,” says CEO Craig Deitelzweig.

Sixteen months of coronavirus-induced WFH has highlighted how much offices hadn’t changed in recent years.

“Just put a lot of white marble everywhere and call it a day,” he observes. “That worked for a time. But that’s over.”

Deitelzweig says those commodity, white marble lobby buildings fail to speak to the modern tenant experience, and are now in trouble. Nearly 19% of space in Manhattan is now vacant, with 21% of Downtown offices empty, according to real estate firm Newmark.

Deitelzweig believes steering away from the generic office design differentiates Marx. Even pre-pandemic, the commercial specialist was at the forefront of designing office spaces more akin to luxury hotels or clubs. A uniformed doorman and attendant welcome people upon entering.

At 10 Grand Central in Midtown Manhattan, walnut wood, leather, velvet, brass and herringbone concrete tile flooring create an ambience linked to the building’s original 1931 construction.

Marx Realty has designed its commercial office spaces to look and feel more like luxury hotels or clubs. 10 Grand Central in Midtown Manhattan has an ambience linking it back to its 1931 construction.

Unlike most offices, Marx properties are infused with a signature scent. Soft music wafts through common areas. Engaging five senses evokes a feeling of well-being, says Deitelzweig.

Pre-pandemic, repositioning the building increased per square foot rents, from a $48 to $78 range, depending on the floor level, to $72 to $97. Deitelzweig had seen competitors visit the space — even taking pictures.

With roots dating back to 1815 and incorporated in 1928, Merchants’ National Properties acquired Marx Realty in 2006. Together, they manage, develop and lease 71 office buildings and shopping malls, across 16 states.

COVID-19 battered the real estate industry. However, in 2020, Merchants’ National Properties reported grossed-up rental and other income of $51.3 million, compared to $48.2 million for 2019.

Throughout the pandemic, 98% of Marx’s office tenants continued to pay rent, even with employees working remotely. Now, many businesses are planning to return to the office.

“It seems the entire financial sector is coming back to work by September,” says Deitelzweig. Many tenants who moved out of their offices let their leases expire.

“All of a sudden, they realized, ‘We’re going to be an outlier. We need space now.’ We’re seeing a lot of that,” he adds. Tenants in the financial industry and private equity tenants in particular are showing interest in his company’s properties. At 10 Grand Central, five proposals are out to various private equity firms interested in leasing on the 21st and 23rd floors.

A new look and feel
Another building, 545 Madison Avenue, underwent a $24 million, hotel-like re-design. Deitelzweig describes how rounded edges and curved furniture lines evoke a more sensual experience instead of the typical hard-edged, square shapes associated with offices. In March, Marx gave two leasing tours of the property. That jumped to 17 in May.

A rendering of the lobby library of 545 Madison Avenue, part of the building’s recent $24 million renovation.

“We would not have had that with the normal model,” he comments. That property has leased space to two premier private equity firms. The Herald, the Beaux-Arts building in Washington, DC, which Marx acquired in April 2020, renovated and is introducing to the market, signed three office leases.

Retail proved more challenging. April 2020 retail collections across the portfolio were at 45% and several tenants filed for bankruptcy. Marx worked with tenants, accounting for individual circumstances. But Deitelzweig clarifies it drew a hard line with national chains that should have been paying rent but weren’t.

“We said we will not accommodate you. You have to pay rent. You’ve been in our buildings for a long time. You’ve always done well and this is not the time to take advantage of us,” he says.

“For the smaller businesses, we fully understood they were really suffering and maybe didn’t have the wherewithal to make it without some help.”

Marx Realty worked with virtually all of its restaurants, most of which have now reopened. Rent collection from Marx’s retail tenants has almost recovered to pre-pandemic levels. The majority are paying full current rent, plus a portion of their deferred amounts. Marx consistently collected approximately 95% of retail rents since July 2020.

Its shopping malls performed better than other retail, benefiting from open-air and green space designs. They are anchored by supermarkets or other reliable drivers of visibility and traffic. The Cross County Center in Yonkers, New York, where a 130,000 square-foot Target broke ground in March, enjoys 98% occupancy. The mall’s rent collections dipped to 45% early in the pandemic. But they’ve been at about 97% since September 2020.

The shopping centers do not convey the same upscale narrative of Marx’s office spaces, but the solidly middle-class mall similarly focuses on the tenant experience.

Walking the walk
For its own part, Marx kept its offices open throughout the pandemic. And in June 2020, 100% of staff returned. Over the last year it even expanded, filling five new positions.

Communications were a key part of safety protocols. Doormen and desk attendants wore branded masks. The office exercised social distancing, installed bipolar ionization systems and held meetings with open windows. The firm increased sanitation measures and purchased touchless devices, such as cappuccino makers activated by phone apps.

Yet Deitelzweig did not want the office to conflict with the company’s core principles of creating pleasant and welcoming spaces. It placed PPE in attractive containers throughout the building.

“We made sure the signage was pleasant to your eyes. It wasn’t hostile in any way,” he says.

The real estate industry has obvious motivations to encourage people back to the office. Property also supports cities, providing roughly half of New York City’s tax revenue. These funds are projected to plummet by $2.5 billion next year, which The New York Times reports would be the largest decline in three decades.

Deitelzweig articulates another reason for reopening offices.

“A vibrant and thriving office environment is critical to achieving the dynamism that creates the world-class ecosystem of street activity, restaurants and city life we all love,” he says.

What does it take to get prospective office tenants to sign a lease these days?

At 10 Grand Central, a boutique Midtown office building, one tenant needed a written guarantee that a bar cart would come out at the end of every workday for happy hour.

“I think that’s what got them to sign the deal,” said Craig Deitelzweig of Marx Realty, which owns the building.

Another of his tenants requested in the lease agreement that the building’s signature scent—hints of leather with lemon and vanilla notes—also run through the ducts in its own office space.

One leather goods company even asked that Deitelzweig wrap all the building’s furniture with its leather before it’d put pen to paper, but those negotiations didn’t make it very far.

“People want a compelling reason to go back to work,” he said. “They want to be with the right people and be in a space that they think is beautiful and feels great.”

In a market where office buildings are just 15% full and rents are dropping, tenants hold the negotiating power. Landlords are finding it hard to turn them down.

To get companies interested in returning to their offices, landlords are trying to make their buildings more appealing.

Common areas that attract lots of people—which at one point had been a liability for landlords as social distancing became the norm—could now be a great asset.

“Amenities used to be a box-checker, but now it’s a requirement,” said Bill Elder, a managing director at office landlord RXR Realty. “They won’t tour an asset if it doesn’t have some sort of an amenity.”

At RXR buildings, that includes large conference rooms in common areas and in-office dining options such as a café and a speakeasy.

Tenants can use the landlord’s technology platform to access amenity space in any RXR-owned building, not just the one where they rent space.

Several tenants have shown interest in flu shots and other health care offerings.

In some buildings that now have amenity space, the firm had not planned to include any, Elder said, but it’s a different market now.

“We knew it was for the benefit of the tenant and also to compete with some of the other offerings out there,” he said.

At newly built One Vanderbilt, real estate investment trust SL Green has designed the Vandy Club—a 30,000-square-foot floor with massive meeting spaces, a lounge area, and a café and a proper restaurant from chef Daniel Bouloud. There’ also a terrace.

“Now you’re providing a service,” Nuveen Managing Director Nadir Settles said. “That’s what real estate has become: more of a service than brick and mortar.”

In its Manhattan properties, Nuveen has incorporated golf simulators and a high-end restaurant at 730 Third Ave. and yoga studios at 780 Third Ave.

Tenants at Nuveen buildings can access the amenities at other buildings that the real estate firm owns.

“We want people to use the building as more than just a functional office space,” Settles said.

Power struggle

These days, offices are still reporting occupancies below 20%. The amount of empty office space in Manhattan reached new heights last month and stands at a record 17.1%, according to Colliers International data.

That’s pushing down rents in Midtown, the Financial District and other key commercial districts. Potential tenants are driving a hard bargain. On average, asking rents fell to $79.69 per square foot. Further downtown, they dropped to $60.09 per square foot, the report said.

Prospective tenants are haggling over the type of furniture and decor in common spaces, real estate lawyer Ida Phair said.

“They’re looking more toward the future and thinking people want to come back and have a nice office space,” Phair said.

One of her clients, a financial services firm, tried to get its new landlord to agree to a mid-century modern look in a conference room and to give the tenant say over any changes made to the space.

Although the landlord didn’t agree to furnish the room the way the tenant requested, it did agree to run future changes by the firm.

“As long as the tenant is willing to pay the rent the landlord wants, the landlords are a lot more accommodating,” Phair said.

The focus on amenites is interesting, she added, given how fearful tenants and landlords were of them at the height of the Covid-19 pandemic.

At the time, common areas were considered danger zones. Most landlords had closed off such spaces to tenants and took extraordinary measures to make sure people weren’t too close to each other.

RXR offered tenants an app that could tell them which areas of their building, such as kitchens or bathrooms, were most congested.

At Park Avenue Plaza, owner Fisher Brothers removed the seating in the building’s atrium altogether. As in most other buildings, the number of people who could ride an elevator together was limited.

Since then, the real estate firm has returned the furniture to the atrium and reopened its amenity floor at 1345 Sixth Ave. It includes a lounge, a fitness center, food and beverage options and a coworking space.

The space has been a big draw for tenants, Fisher Brothers partner Ken Fisher said.

In May the company announced a $120 million plan to improve the property with a Wi-Fi-enabled public park, art installations and a contactless elevator. It’s preparing to open a second, similar common space at 605 Third Ave., Fisher said.

“Office is no longer a commodity where you just had a great location that was easy for people to get to,” Settles said. “Office has become a lifestyle.”