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Landlords have little interest in taking on the shared-office-space company as a new tenant while it is struggling to shore up its finances
By Peter Grant and Keiko Morris | Updated Sept. 29, 2019 7:44 pm ET
Turmoil at WeWork is causing the shared-office-space company to all but stop signing new leases, a fresh blow to New York City’s already softening commercial real-estate market.
Since We Co. Chief Executive Adam Neumann stepped down on Tuesday, the company has reversed its rapid growth strategy, looking to slow its expansion, shed head count and assets, and move closer to profitability.
That new approach initially included a decision to forgo signing any new leases, according to people familiar with the matter. These rental agreements usually require WeWork to spend money building out the space it will rent and then sublet.
We’s new management team decided on Thursday to resume leasing. “We expect the pace of entering new lease agreements to slow over the next several quarters as we pursue more strategic growth,” a We spokesman said Friday.
That decision may not make much of a difference. The vast majority of New York City landlords have little interest in taking on WeWork as a new tenant while the company is struggling to shore up its finances, brokers and landlords say.
“WeWork has got to rework its whole position in the marketplace,” said Scott Rechler, CEO of RXR Realty, a New York developer and investor that has WeWork as a tenant. “Because if they don’t, landlords aren’t going to be comfortable doing deals with them.”
The company recently completed one large deal in Manhattan. WeWork is taking 362,000 square feet at 437 Madison Ave., though it won’t be able to move in until January of 2021, the building’s landlord, the William Kaufman Organization, said in a Friday press release.
But some landlords have shelved potential deals with WeWork that were under negotiations, and some building owners are considering terminating agreements with WeWork in instances where spending on capital improvements hasn’t begun, brokers and building owners said.
Landlord sentiment souring on WeWork could further weigh down the New York City office market, which is the country’s largest. Office leases in Manhattan have come under pressure in recent years from an abundance of new supply, from the World Trade Center to the new Hudson Yards in Midtown, and new office designs that reduce the amount of space per worker.
Other big U.S. office markets could also suffer from the current aversion to WeWork. Building owners in cities including Chicago, Boston, Los Angeles and San Francisco have relied heavily on WeWork to fill excess space and to appeal to startup companies attracted to co-working’s layouts and ethos. Co-working tenants occupy 54.2 million square feet nationally and more than 16.5 % of office demand since the beginning of 2017 can be attributed to WeWork and other co-working firms in 54 major U.S. markets, according to data firm CoStar Group Inc.
Dallas-based developer Lincoln Property counts WeWork as a tenant in more than a dozen locations and executives say they maintain a good relationship and continue to discuss future deals. But with We’s initial public offering plans on hold as the company weighs big layoffs and other cost-cutting measures, Lincoln executives remain cautious.
“We know there are going to be repercussions,” said Eric Roseman, the firm’s vice president of innovation. “We just don’t know if the whole mountain is going to get wiped out.”
S&P Global Ratings on Thursday said it cut a We entity’s credit rating to the lower junk rating of single B-minus from single-B, reflecting “heightened uncertainty around The We Company’s ability to raise capital to support aggressive growth and the pressure this places on liquidity,” S&P said in a press release.
Manhattan, where WeWork became the biggest office lease holder last year and now occupies more than 7 million square feet, could be hit the hardest.
WeWork rivals like Industrious LLC and Convene have been growing. But they are much smaller than WeWork and haven’t been as aggressive in taking new space.
“Most of [WeWork’s] competitors emphasize their more deliberate pace of growth,” said Mary Ann Tighe, chief executive of the New York region for commercial real-estate firm CBRE Group Inc.
WeWork also became a favorite New York tenant in part because it was sometimes willing to pay above market rents to keep its growth firing. In one recent instance, WeWork made a verbal offer to lease up to 80,000 square feet in a Midtown Manhattan tower—paying a 20% premium to the market rate for space that wouldn’t be available for two years, said Craig Deitelzweig, chief executive of Marx Realty, the building’s owner.
But Mr. Deitelzweig said he turned the deal down because he was suspicious of WeWork’s business model.
“The numbers do not work,” he said.
WeWork remembers it differently. The company said it “never made an offer or provided terms” and its team “only toured the location,” a spokesman said.
Data Engineering Company Heads to 10 Grand CentralBy Rebecca Baird-Remba | September 30, 2019 2:57 PM
Data operations and delivery firm Crux Informatics has found new offices at Marx Realty’s 10 Grand Central in Midtown, the landlord announced today.
The data management startup will depart from the Seagram Building at 375 Park Avenue for a full floor in the Art Deco office tower on the corner of East 44th Street and Third Avenue. Crux inked a seven-year, 18,000-square-foot lease for the entire 18th floor of the 35-story building. Asking rent for the space was $85 per square foot, a Marx Realty spokeswoman told Commercial Observer.
“We’ve created a new asset class encompassing both a game-changing hospitality-infused office product and our track record of innovative building management,” said Craig Deitzelweig, CEO of Marx Realty. “Both are a big selling point for tenants underwhelmed with the level of services and finishes offered by other New York landlords.”
Marx recently completed a $48 million renovation of the property that included a mid-century-modern-style tenant lounge and outdoor terrace with seating.
JLL’s Howard Hersch, Sam Seiler, Brett Harvey and Cynthia Wasserbergerrepresented the landlord. It wasn’t clear who represented Crux in the deal.
Other tenants in the building include MassMutual, Agence France-Presse, Everside Capital Partners and Dwayne “The Rock” Johnson’s company, Seven Bucks Productions.
Crux Informatics Signs 18,000 SF Full-Floor Lease at Marx Realty’s 10 Grand Central Office Tower9/27/19
First-of-its-Kind Hospitality-Infused Repositioning Continues to Attract Tenants in Flight to Quality
Marx Realty (MNPP), a New York-based owner, developer and manager of office, retail and multifamily property across the United States, announced that data operations and delivery firm Crux Informatics has signed a full-floor, 18,000-square-foot, seven-year lease on the 18th floor at 10 Grand Central. The company is relocating from the Seagram Building at 375 Park Ave. Marx Realty is solidifying its reputation for creating this confluence of hotel with office as it negotiates with additional tenants from 375 Park Ave. looking to relocate to 10 Grand Central.
Marx Realty has signed 178,000 square feet of new leases since the announcement of the building’s repositioning less than a year ago. During that time, occupancy has increased from 78 percent to 92 percent.
“We’ve created a new asset class encompassing both a game-changing hospitality-infused office product and our track record of innovative building management. Both are a big selling point for tenants underwhelmed with the level of services and finishes offered by other New York landlords,” said Craig Deitelzweig, president and CEO of Marx Realty. “It’s no longer secret that best-in-class service, beautifully designed office space and thoughtful amenities attract top-tier tenants. It’s incredibly rewarding to hear the positive broker and tenant feedback and see the results of our thoughtful and deliberate strategy to transform this 1930s-era gem into a contemporary destination for today’s office tenants.
The recent completion of a redesigned four-story entry portal, marquee, lobby, lounge, Ivy terrace, and 40-seat conference space was part of the $48 million repositioning of the 35-story Ely Jacques-Kahn designed office tower. In addition, the repositioning included a new façade with a soaring marquee featuring brass fins and oversized walnut doors, which are attended by a uniformed doorman. The walnut wood, brushed brass, and polished concrete accents from the lobby evoke a high-end hotel vibe that continues with a suite of hospitality-styled amenities on the seventh floor. The indoor/outdoor café and lounge boasts a confluence of 7,500 square feet of hospitality-styled amenities including a well-appointed lounge with ample seating and a café, a conference facility seating 40 and The Ivy Terrace, an inviting outdoor space reminiscent of a 1930s era garden party.
The redesign was led by David Burns, principal of Studios Architecture. JLL’s Howard Hersch, Sam Seiler, Brett Harvey and Cynthia Wasserberger are leading a team handling the leasing for Marx Realty. Crux Infomatics The building’s asking rents range between $82 and $130 per square foot.
Crux Informatics is the Goldman Sachs-backed provider of data onboarding services that allows customers to focus on driving productivity and achieving business objectives.
High-profile tenants at 10 Grand Central include Dwayne “The Rock” Johnson’s production company, Seven Bucks Productions (as reported by the NYPost.com); insurance giant MassMutual, international news agency Agence France-Presse; UK-based sports private equity firm 23 Capital; asset management firm Everside Capital Partners; and, educational technology company Decoded. They join investment firm Benenson Capital Partners; Dennis Publishing’s The Week; and advertising association powerhouse ANA.
About Marx Realty
Marx Realty is a division of Merchants National Properties (MNPP). Founded in 1915, its current portfolio of properties includes over 5 million square feet of commercial office, retail and residential space as well as five mixed-use projects currently under development. Marx Realty is vertically integrated and involved in all phases of real estate management, development, construction and leasing. The company’s assets comprise 67 properties in 17 states.
Data Firm Relocates from 375 Park to 10 Grand CentralSeptember 30, 2019
Data operations and delivery firm Crux Informatics signed a full-floor, 18,000-square-foot, seven-year lease at Marx Realty’s 10 Grand Central. The company is relocating from the Seagram Building at 375 Park Ave.
JLL’s Howard Hersch, Sam Seiler, Brett Harvey and Cynthia Wasserberger lead a team handling the leasing for Marx Realty at the Midtown East office property. Crux Infomatics was self-representing in leasing negotiations.
Marx Realty has signed 178,000 square feet of new leases since the announcement of the building’s repositioning less than a year ago. During that time, occupancy has increased from 78% to 92%.
WeWork Is Unloading Adam Neumann’s Cronies—And His Private Jet“We’ve created a new asset class encompassing both a game-changing hospitality-infused office product and our track record of innovative building management. Both are a big selling point for tenants underwhelmed with the level of services and finishes offered by other New York landlords,” said Craig Deitelzweig, president and CEO of Marx Realty.
WeWork’s plan for a brighter financial future includes firing nearly 20 of Neumann’s family and friends and selling his $60 million private jet.
By Alison Durkee | September 27, 2019
With founder Adam Neumann now out as WeWork’s CEO, the company is taking drastic measures to preserve its future by distancing itself from the controversial former leader. The Wall Street Journal reports that new co-CEOs Artie Minson and Sebastian Gunningham are planning to slim down WeWork through extensive cuts, with an eye toward finally seeing out the company’s recently-postponed public offering likely next year. “We will closely review all aspects of our company with the intention of strengthening our core business and improving our management and operations,” the co-execs wrote in an email to employees after Neumann stepped down. “We anticipate difficult decisions ahead.” But there’s one move that doesn’t seem to be so difficult for the new leadership to take: showing Neumann’s closest allies the door.
Per the Journal, Minson and Gunningham are reportedly planning to lay off nearly 20 We employees who are friends and family members of Neumann and wife Rebekah Paltrow Neumann, who will be departing the company herself. The highest-level execs to depart, multiple sources are reporting, are Vice Chairman Michael Gross and We Co. Chief Product Officer Chris Hill, Neumann’s close friend and brother-in-law, respectively. Gross was one of several We leaders who frequently “partied with Neumann in work settings and beyond,” WeWork employees told Bloomberg Wednesday, and WeWork reportedly paid Gross’s parents as the broker for a real estate deal in Miami. (Bloomberg reported Wednesday that two other of Neumann’s party buddies, Special Projects Zvika Shachar and Director of Development Roni Bahar, are now undergoing scrutiny as well.) A group of 10-plus staffers referred to internally as the “oval office” will also be exiting the company, according to the Journal, including several friends who worked on Neumann’s personal deals. Beyond personnel, Minson and Gunningham will reportedly be relieving We of the businesses it’s acquired outside of its core leasing business, like event startup Meetup.com and office management platform Managed by Q.
One of the biggest hallmarks of Neumann’s WeWork legacy set to leave the company in his wake, though, is the former CEO’s $60 million private jet, which the post-Neumann WeWork is now planning to sell. The Gulfstream G650, which sources told Business Insider was a “corporate governance red-flag” to investors in the run-up to WeWork’s failed IPO, had recently reportedly been a sore spot for employees, as Neumann lavished money on the plane and parties while employees were denied bonuses and salary raises over a lack of resources. “The company was spending $60 million on an airplane, and I can’t get a decent raise? It felt like it was ‘We over me,’ unless me was Adam. And We was Adam,” a mid-level employee told Business Insider. Neumann spent even more money by renovating the jet, adding two bedrooms and Apple TVs—complete with shows and movies that staff members spent “three days straight” downloading—to the private jet, which the then-CEO frequently used as a meeting space. “I know of instances where people got on the plane, flew across the country, and flew commercial home,” one executive told Business Insider. (The Journal notes it’s unclear what will happen to other Neumann-era luxuries, like the driver for Neumann’s Maybach luxury car—which is itself worth more than $100,000—and the “spa and ice bath” attached to his office.)
“Adam’s Fantasyland Became A Reality”: Inside The Crash of WeWork’s Magic Millennial Real Estate KingdomNeumann’s ouster was prompted by the intense scrutiny focused on the big-spending exec in the wake of WeWork’s IPO crashing and burning, which included tales of Neumann getting kicked off a private plane for having too much marijuana, throwing an in-house concert with a member of Run DMC directly after laying off 7% of his staff, and telling employees WeWork could “solve the problem of children without parents” and end world hunger. So it’s no surprise that the company would immediately seek to distance itself from its controversial former leader in order to move forward. But now, the question is: Will it work? The company hemorrhaged nearly $2 billion last year and was desperately in need of the cash infusion that an IPO would have provided. “I think this company may go down to zero unless they take drastic moves right away. They’ve gone from heroes to targets in 30 days,” Scott Galloway, a marketing professor at NYU’s Stern School of Business, told my colleague Gabriel Sherman before Neumann stepped down. It looks like Minson and Gunningham are now taking the dramatic measures needed—but as Marx Realty CEO Craig Deitelzweig told Sherman, even those steps may not be enough to overcome the company’s flawed business model, which is based on long-term leases and short-term tenants. When the next recession hits and tenants decide to walk away from WeWork’s luxury spaces, Deitelzweig said, WeWork’s operations won’t be sustainable—even without Neumann blowing through money at We’s helm. “I do not think it’s a viable business, period,” Deitelzweig told Sherman.
With staff rushing for the exits, and the IPO on life support, Adam Neumann’s goal of being the world’s first trillionaire may be out of reach—but WeWork still has major real estate markets hostage. “It’s an all-around s–tshow,” said a WeWork executive.
BY GABRIEL SHERMAN | SEPTEMBER 23, 2019
Not long after Adam Neumann started WeWork in 2010 with a single coworking outpost on Grand Street in SoHo, the then-31-year-old Israeli entrepreneur showed up at a real estate industry conference on Park Avenue wearing his now-familiar uniform, T-shirt and jeans, with shoulder-length surfer hair that looked like it hadn’t been washed in days. Neumann, who is six foot five, was an instant object of fascination among the suit-clad executives in the room, many of whom were twice his age. But it was his hyper-confidence that one attendee recently recalled. “I remember Adam asked me what company leases the most office space in New York. I told him JPMorgan. They have about 3.5 million square feet. And he said, ‘Well, I’m going to lease more than they do.’”
The boast came true. Last September, WeWork surpassed JPMorgan to become New York’s largest private tenant, with more than 5 million square feet of office leases spread across more than 50 locations in the city. Fueled by more than $10 billion in venture capital from Japanese conglomerate SoftBank, Neumann grew WeWork to employ more than 12,500 people and was barreling toward an IPO this month that would have valued the company at $47 billion. On paper he was worth close to $7 billion. In the media Neumann was heralded as the millennial prophet who foresaw a new kind of office culture, one in which the beer and kombucha flowed and MacBook-toting freelancers would love coming to work (at WeWork’s headquarters, Neumann threw “Thank God It’s Monday” parties).
But for WeWork, the last two weeks have been comparable to the end of tulipomania, a complete phase-shift in the company’s prospects. There were stories about Neumann’s reported erratic behavior and drug use. WeWork’s IPO prospectus revealed that Neumann held ownership stake in buildings WeWork leased from, essentially paying himself, and that his wife, Rebekah Paltrow Neumann—Gwyneth Paltrow’s first cousin—was one of the people with the power to choose his successor. Investor demand for the stock dried up, forcing the company to slash its valuation by more than half, and then delay the IPO entirely. A string of high-profile executives walked out the door, including the chief communications officer, the co-head of WeWork’s real estate fund, and the global head of WeWork’s real estate partnerships. WeWork hemorrhaged almost $2 billion last year, which means the company desperately needs the IPO to happen to raise cash, or else must find other sources of funding. “I think this company may go down to zero unless they take drastic moves right away. They’ve gone from heroes to targets in 30 days,” said Scott Galloway, a marketing professor at NYU’s Stern School of Business.
WeWork’s board is expected to hold a meeting this week to discuss potentially removing Neumann as CEO. And inside the company, morale is sinking as fast as the share price. “It’s an all-around shitshow,” a WeWork executive told me.
It’s hard to overstate the degree to which WeWork’s business is built on the egomaniacal glamour and millennial mysticism of Neumann and his wife. Neumann sold WeWork not merely as a real estate play. It wasn’t even a tech company (though he said it should be valued as such). It was a movement, complete with its own catechisms (“What is your superpower?” was one). Many major players found this special sauce irresistible. After meeting Neumann, Mort Zuckerman, the billionaire cofounder of developer Boston Properties, told one real estate executive that Neumann was creating the future of work, according to a person briefed on the conversation. Rupert Murdochalso took meetings with Neumann, a source said. The big-money investors bought it, none more so than Masayoshi Son, CEO of Japan’s SoftBank Corp., who ran the $100 billion Vision Fund backed by Saudi Arabia and Abu Dhabi. In 2017, SoftBank and its Vision Fund invested $4.4 billion in WeWork, and would ultimately invest nearly $11 billion.
Last year Rebekah, a devout follower of Kabbalah, launched a school called WeGrow; WeGrow and WeWork hired a production company to film an interview Rebekah did with Red Hot Chili Peppers frontman Anthony Kiedis at a company retreat, a source said. (In an interview with her cousin that Paltrow posted to the Goop website, Rebekah said, “WeWork is a physical structure through which we can put positive energy and consciousness into the world.”) “He has a wife who wants to leverage this to be her own major character,” said a source who’s interacted with Rebekah. “If you hang around her, she acts as if she’s this fascinating spiritual woman of the world.” But employees bristled at Rebekah’s nebulous, free-ranging role at the company. In August, SoulCycle cofounder Julie Rice, who’d been recruited to WeWork to become the company’s chief brand officer, quit because Rebekah decided she wanted Rice’s title and took it, sources said. (A source close to Rebekah said that Rebekah, as a WeWork cofounder, had always had that title.)
In conversations with people inside and outside the company, Neumann’s pronouncements became wilder. Neumann told one investor that he’d convinced Rahm Emanuel to run for president in 2020 on the “WeWork agenda.” (Emanuel did not respond to a request for comment.) Neumann told another finance executive that JPMorgan Chase CEO Jamie Dimon was his “personal banker” and that Dimon might leave JPMorgan to run the Neumanns’ family investment fund, a person briefed on the conversation said. (A source close to Neumann denied this, and a source close to Dimon told me Dimon has no plans to leave JPMorgan.) Neumann told colleagues that he was saving the women of Saudi Arabia by working with Crown Prince Mohammed bin Salman to offer women coding classes, according to a source. “Adam’s fantasyland became a reality,” a former WeWork executive said.
WeWork’s core business—leasing office space to companies on a short-term basis—has already proven it can be viable. IWG, the parent company of WeWork’s main competitor, Regus, recorded a $130 million profit last year and is valued at more than $3 billion. “WeWork could be a nice little company,” Galloway said. Neumann had the foresight in the wake of the 2008 financial crash to see that landlords needed tenants, and that legions of underemployed professionals would pay for an appealing alternative to working in a Starbucks while they got back on their feet. “What Adam figured out is that people who were working solo or in small groups really want company. They want stimulation,” said a New York real estate executive. “He was the first to infuse these offices with communal elements. What he overlaid on that is the tech vibe of the moment. He was throwing in all the ingredients that were perfect for that moment.”
The ever-rising valuation of WeWork’s stock allowed Neumann to cash out some $700 million in the private market and buy five homes. When Neumann showed an executive his $35 million Gramercy home last year, he pointed out that the staff lived on the first floor. “He said the bottom floor is the servants quarters. What he’s learned is you have to separate the help,” the executive recalled. “It’s very difficult for anyone to control themselves if you have a sugar daddy like Masa,” a former WeWork employee recalled. In meetings with nonprofits to discuss philanthropy, Neumann claimed he would be the richest person they would ever meet, a person briefed on the conversations said. The Wall Street Journal recently reported that Neumann told people his goal was to become the world’s first trillionaire.MOST POPULAR
Being seen as a visionary is part of Neumann’s business model—but in recent months, he’s increasingly been seen as a flake. Neumann skipped crucial meetings or showed up late for no reason, according to two sources. They told me he basically stopped attending WeWork board meetings because he had control of the company. Neumann’s habit of going AWOL had consequences, though. Last fall Neumann was scheduled to meet Khaldoon Khalifa Al Mubarak, the head of Abu Dhabi’s sovereign wealth fund, at the St. Regis in Manhattan. Already, Mubarak was having doubts about SoftBank’s massive bet on WeWork and wanted to meet with Neumann to discuss the business. People familiar with the meeting said Neumann showed up late wearing sunglasses and looking hungover. Last December, not long after the meeting, the Journal reported that Abu Dhabi and Saudi Arabia were hesitant to participate in SoftBank’s planned $16 billion investment in WeWork. (Mubarak did not respond to a request for comment.)
The Vision Fund’s biggest backers weren’t the only ones growing skeptical of Neumann. Around the same time, Neumann came up with an idea to partner WeWork with Apple, sources said. Neumann flew out to Apple’s Cupertino headquarters and pitched Apple CFO Luca Maestri on doing a deal with WeWork. It’s unclear why Apple would want to invest in WeWork, and not surprisingly, the company passed. “This was the Hail Mary,” a source briefed on the Apple talks told me. “There was Adam’s idea that there was some way out.” (A source close to Neumann said the potential Apple deal was a small one.)
Without a white knight to bail out WeWork, Neumann needed the IPO to go off successfully. The stock sale was supposed to raise $3 billion, as well as unlock another $6 billion in loans. A WeWork source said the company plans to go ahead with the IPO next month, but a source close to the board dismissed that as unlikely. What happens next is being debated. The source close to the board said the company has no legal power to force Neumann out, given the scale of his voting shares. This could lead to a civil war for control of the company if Neumann digs in. Scott Galloway said WeWork could survive by getting Neumann to step aside, slashing costs, and trying to raise prices on current tenants. But Craig Deitelzweig, the CEO of Marx Realty, told me even if WeWork takes those steps, the fundamental business model of taking on long-term leases and signing up short-term tenants isn’t sustainable. When the next recession comes, WeWork tenants can walk away, but WeWork is on the hook for its leases. WeWork hasn’t come close to turning a profit in a bull market. “I do not think it’s a viable business, period,” Deitelzweig said.
Neumann’s bet may be that he will be able to force landlords into renegotiating his leases to lower prices. Essentially it’s a bet that WeWork is too big to fail and the real estate industry will have to cut it a break. Neumann recently made that argument himself. “In the major cities in the world, WeWork is propping up the office market,” he told a real estate executive. “If I say ‘pencils down’ to my people, the value of buildings will plunge and I can go in and buy them on the cheap.” The executive was chilled by the conversation. “We’re not talking about a Harvard Business School analysis here. This has a predatory aspect to it.”
Landlord fetches Park Avenue rents—on Third AvenueDaniel Geiger
On Park Avenue, office tenants pay lofty rents to be in Midtown’s most exclusive office district. A move to east to Third Avenue generally brings a discount, but also a significant loss of prestige.
Marx Realty has sought to flip that script at the 36-story, 1931-vintage office building it owns at the corner of East 44th Street and Third Avenue.
Once known as 708 Third Ave., the company rebranded the property under the new moniker 10 Grand Central last year and recently finished a multi-million dollar renovation of the building.
The upgrades included the installation of hotel-like amenities such as a doorman-staffed entrance, a concierge in the building’s refurbished lobby, a lounge on the 7th floor with an outdoor terrace and even a signature scent that wafts through its common areas along with a soundtrack.
Rental rates that last year were in the $40s per square foot have now doubled and even tripled for some of the 430,000 square foot building’s best spaces.
Crux Informatics, for instance, just signed a deal to leave the Seagram Building, one of Park Avenue’s most sought-after addresses, and take 10 Grand Central’s entire 18th floor. Asking rents were $85 per square foot for the roughly 18,000 square-foot space
“This building embraces everything you love about a hotel and that’s something that is resonating with tenants,” said Craig Deitelzweig, Marx Realty’s president and CEO, who joined the firm two years ago and has been focused on re-imagining its assets in the city and around the country. “If you’re coming from Park Avenue, this building is more than equivalent, in many ways it’s better.”
Among the other attributes that Deitelzweig pointed to are the building’s abundant outdoor spaces: its numerous setbacks create 44 terraces for tenants.
Next up, Marx Realty is looking to fill 10 Grand Central’s top 5 floors, which it has branded the “penthouse collection,” that features luxurious office installations, outdoor spaces and soaring views, including a close up vista of the nearby Chrysler Building.
A duplex penthouse on the topmost floors, 35 and 36, will feature 20 foot ceilings, a hardwood staircase, library and bar. For now, the asking rent is $130 per square foot for those 2 levels, but Deitelzweig has toyed with the idea of bumping up the price because of interest it has received.
Acclaimed Repositioning of a Historic Building“We might make it $150,” he said.
By Ingrid Tunberg | September 06, 2019 at 06:00 AM
ATLANTA, GA – The Department Building in Atlanta, GA stood out among numerous, impressive historical preservation projects for GlobeSt.com’s 2019 ADAPT awards. We proudly honor the project as the winner for best repositioning of a historic building. We will be recognizing the project at our awards ceremony in Baltimore on September 16th.
Considered one of downtown Atlanta’s most iconic, historic structures, The Department Building was first occupied by Regenstein’s Department Store, a go-to, high-quality women’s fashion emporium among locals in the 1920s.
Upon initially purchasing the building in 1954, Marx Realty decided lead a $10.5 million adaptive reuse and repositioning effort more than 60 years after the original acquisition. In order to preserve the nearly 100-year-old building’s art deco architecture and transform it into an office building, the real estate company partnered with design firm ASD | SKY to manage redesign efforts.
With a deep understanding for the original art deco architectural significance, the team aimed to utilize period details and highlight distinctive features in order to embrace the building’s history, before rebranding and reintroducing the space as a boutique office building.
Marx Realty president and CEO Craig Deitelzweig led the preservation and modernization efforts, seizing the opportunity to blend authentic historic aspects with a state-of-the-art technology-driven details from fixtures to furnishings.
The renovations on this 48,000-square-foot building included restoring 18-foot high terracotta barrel vaulted ceilings, fluted columns, brush walls and original wood floors, as well as implementing new elevator systems, loft-style floor plans, oversized windows, a dedicated lobby and rooftop amenities with downtown city views. The process required extreme care when handling various façade accents and dealing with the building’s original wood flooring, in order to return it back to its former glory.
Catering to the demand of high-quality workspaces and fine dining options in the neighborhood, Marx Realty has quickly filed the street-level retail spaces with prominent stores and restaurants, while working with the country’s top technology firms, streaming media platforms and additional companies to fill office space and welcome a new generation of creative professionals, as the remodel nears completion. The project’s neighborhood impact has also allowed the building to request higher rent from tenants than in years past.
A previously forgotten building, The Department Building has exceeded all expectations, generating a go-to destination, once again, for high-quality experiences in the downtown neighborhood. With an ever-changing city landscape, Marx Realty chose to showcase a stand-out, constant building.
Most Mindful Overall TransformationBy Ingrid Tunberg | September 03, 2019 at 06:00 AM
NEW YORK – For our pre-event coverage of GlobeSt.com’s ADAPT awards, we considered numerous adaptive reuse projects. We have determined the winner of the most mindful overall transformation to be 10 Grand Central in New York. We will be honoring the project at our awards ceremony in Baltimore on September 16th.
10 Grand Central is a 500,000-square-foot office tower, designed by Ely Jacques Kahn in 1931. The building, located at 155 E 44th Street in New York City, had lost all of its Beaux Arts architectural charm and lacked a defining character, until Marx Realty launched a $48 million repositioning and rebranding effort in July 2018.
Acknowledging the building’s desperate need for a powerful transformation, Marx Realty president and CEO, Craig Deitelzweig teamed up with Studios Architecture to lead the entire restoration project for the historic tower to increase occupancy while honoring the original architecture.
The recently completed renovations consisted of a four-story entry portal, a new marquee, lobby reimagination and a “club floor” for tenant amenities. Many structural beams had to be removed in the renovation process due to age, in order to create the high ceiling design. The redesign efforts revealed brushed brass finishings, polished concrete accents, oversized walnut doors and digital art installations for an overall 1930s inspired, hotel-like aesthetic, equipped with a uniformed doorman.
The most prominent, distinguishing change to the structure was the relocation of the building’s entryway, which returned to its original address on 44th Street. This was in an effort to better position the building toward the iconic neighborhood and to showcase the building’s proximity to Grand Central Terminal; something that was not evident with its previous 3rd Avenue address.
Additionally, the firm created an entire floor designated for tenant amenities, including a café space, a 36-person conference facility and an indoor/outdoor lounge with a fireplace, all within the 7,500-square-foot space. No detail too small: the terrace featured plants specifically chosen to reflect 1930s gardens.
The unique project embodied significant historical preservation, as well as a modern office transformation, which was delivered in full in May 2019. Since the project’s completion, the building has seen a 91% occupancy rate, a 38% ROI, more than 75% increase in rents, with an increased building value of more than $150 million.
Mindful of the structure’s original architecture, Marx Realty saw an opportunity to embrace the hospitality and office features and set a new benchmark for office tower design. 10 Grand Central balances classic and contemporary design, with an end result exceeding expectations.
WeWork’s Largest Markets Brace For IPO ImpactAugust 28, 2019 | Mike Phillips and Miriam Hall
LONDON and NEW YORK — In 2010, the biggest office tenants in these two metropolises would have been just as recognizable in 1910, and sum up the history of these places.
In New York, it was JPMorgan Chase, the bank founded by the financier who helped fund the creation of modern America. In London, it was HSBC, the former Hong Kong and Shanghai Banking Corp., a company that ties together London with its former Far East colonial empire.
Today, WeWork has eclipsed both of them, becoming the biggest private sector office occupier in both cities less than a decade into its existence. It occupies or is about to occupy 7.2M SF in New York and 4.4M SF in London.
It is an unprecedented scenario: The world’s two biggest commercial property markets by investment volume have, for some time now, been sister cities in the minds of global investors, each ranking a consistent first or second, depending on the year. They are both also currently racked by turmoil sending tremors through their respective real estate communities.
In New York, Amazon recently decided not to build a major new office in the city following public protests, which sparked fears the city could be viewed as anti-business. Meanwhile, strengthened rent control laws across the state have further slowed the investment sales market and caused some big-name developers to suggest they will no longer do business in the city.
In London, the office market has held up well following the UK’s decision to leave the European Union in 2016, but recent actions from new Prime Minister Boris Johnson are making it more and more likely that come 1 November, the UK will have no trade agreement with its biggest trading partner, Europe. That could have a severe impact on London’s position as a preeminent global financial sector.
Now, for the first time, the two cities share the same dominant office occupier, one whose business model and financials are being debated like no other in real estate history, and one which has permanently disrupted the traditionally minded office market in both cities.
In this new world order, office investors and developers in New York City and London have the most to gain or lose from WeWork’s success or failure, along with the cluster of coworking companies that have surged forward in its wake.
Landlords on both sides of the pond are combing through WeWork’s initial public offering prospectus, waiting to see how the float performs and wondering what a newly public and more transparent WeWork says about where the coworking sector is heading.
There is fear and excitement in both cities about how successful the IPO will prove and the impact it will have on the respective markets. But those sentiments are about more than just WeWork.
Two residential buildings at Southbank Place with the London Eye in the background, taken from the terrace at Shell’s new One Southbank Place office (the glass building on the right).
Flexible offices are a major driver of leasing in both London and New York, accounting for around 15% to 16% of leasing in both cities last year, according to data from Cushman & Wakefield and CBRE. It has become important in the way that financial services was in the early 2000s, and is almost as important as direct tech leasing in both markets.
“There is an enormous division in the commercial real estate community on the viability of this,” said Bryan Woo, a New York City developer currently building around 1M SF of offices.
Woo’s company, Youngwoo & Associates, has yet to do a deal with a coworking company, he said, but he said that doesn’t mean he’s a skeptic.
“On the one hand, there are people who think this business model is sound … [and] there are people out there who don’t believe in the business,” he said. “And that goes for the financing world as well … It’s black and white. People love it or hate it.”
‘Some landlords will be right, and some will be wrong, and we shall see.’
Though WeWork has charged forward with enormous growth in both cities, New York is where the coworking giant got its start — kicking off with a one-floor lease in SoHo back in 2010. Now the biggest private office tenant in the city, its growth has run alongside the city’s rampant expansion. New York’s population went up by 11% between 2000 and 2016, and job growth jumped by 16% — marking the longest periods of expansion since World War II.
Office leasing has hit new highs, with 2018 seeing the highest lease volume in 17 years, even though vast numbers of new office buildings have been added to the city’s supply. Coworking has played no small part in that office ecosystem; flexible leases accounted for 16% of Manhattan leasing in the first half of this year, according to CBRE. WeWork itself has at least 7.2M SF across New York, according to figures provided to Bisnow last year.
While some New York landlords and real estate observers have embraced the growth of WeWork and its ilk, others point to a gnawing anxiety about their voluminous growth and what it will mean for the city’s entire market.
Right now, flexible space takes up 3.6% of the overall Manhattan office market, and 6% for London, per CBRE.
But the details in the prospectus, and the IPO when it hits, won’t do much to sway opinions one way or another, New York sources said.
“It’s [either] going to get people more excited or calm people down,” said the head of Normandy Real Estate Partners’ leasing group, Paul Teti.
Last year, the coworking company leased 117K SF at 575 Lexington Ave., a building Normandy co-owns with Angelo Gordon & Co. and George Comfort & Sons.
“I have seen all the unflattering news,” Teti said. “It’s something we have to follow responsibly as landlords … It’s hard to paint them with one broad brush.”
Others think it is pretty easy.
“[The details in the IPO prospectus] reaffirmed everything I had concerns about … They are losing about $5K per minute,” said Marx Realty CEO Craig Deitelzweig, who has been vocal over his distrust of coworking.
The thesis has a fundamental flaw, he believes, which is that WeWork forms long-term deals with landlords and short-term arrangements with its members. Most WeWork members are allowed to cancel with as little as one month’s notice, according to the prospectus. WeWork typically signs 15-year leases, it says, but it is trying to move more toward management agreements.
Deitelzweig is already eyeing buildings in New York City that have significant coworking exposure, with the view of buying them at a discount in the event of a dip in the market. He thinks WeWork’s flip from private to public could cause some landlords to take a step back.
“The IPO has enabled some landlords to rethink how much exposure they have in this sector and be a bit more cautious,” he said. “[But] there are landlords that do not share that concern. Some landlords will be right, and some will be wrong, and we shall see.”
Time Equities CEO Francis Greenburger, whose company has about 12M SF of office space in the U.S., Canada, Germany, Holland and Italy, said while he believes in coworking as a concept, WeWork’s financials don’t make sense to him.
“Is there some expense they have that is going to go away?” he asked. “Is there some revenue source that is suddenly going to be there? I don’t get it.”
BentallGreenOak President Sonny Kalsi said his firm has always been more conservative about coworking than the market average, and has done around 10 deals with flexible workspace companies and would not lease more than 30% of a building to one. The IPO has done little to change that, he said.
“I don’t think [WeWork will] blow up,” he said. “If there’s a downturn they will restructure.”
He added that when BentallGreenOak leases to any coworking firm it insists on corporate credits or other kinds of enhancements for leases.
“If they decide they have to downsize … the [locations] that have a corporate guarantee are the last ones they are going to give back,” he said.
More volatility, more visibility
WeWork has, for some time, used London as a bit of a poster child for how the company can eventually make a profit. In financial results released in 2018, it flagged how one of its earliest and largest London locations, Moor House in the City of London, started turning a profit two years after opening.
And in its IPO prospectus, it highlighted London as an example of how it can increase occupancy when it wants to. It said that it deliberately slowed its growth in the wake of the Brexit vote in 2016, and as a result, occupancy rose by 10 percentage points.
London is the only city for which it discloses overall occupancy, which was 93% as of June this year. That is higher than the company’s overall occupancy level of 89% and, given WeWork said that its break-even occupancy level was significantly below 89%, the facilities open and stabilised — WeWork-speak for two years old or older — in London are presumably profitable.
As of the end of 2017, WeWork was on the hook for £3.2B of rent in the UK, the vast majority of it in London. That figure has risen dramatically, given WeWork’s London footprint has increased by more than 50% since then, according to Colliers.
Occupancy may have improved when the pace of growth slowed, but the company said in the IPO document it had picked up the pace in London again, and earlier this month, Property Week reported that it had signed for another 330K SF across 11 buildings in London.
The significance of the IPO for London’s landlords is the greater transparency it will offer, not just about WeWork’s fortunes, but of the opaque flexible office sector that is currently a major driver of the London office leasing market.
That growth in flexible offices could increase the volatility in the London office sector more generally. And some are also expecting WeWork’s IPO to herald a period of consolidation for the coworking sector.
“They have been growing so fast, and the pace of growth won’t change, but the market will be able to have some clarity,” St Brides Managers Senior Partner Robert Houston said. “Not straight away, but 12 months after the IPO, there will be the ability for shareholders and analysts to ask probing questions about the sustainability of the business model.
“And if they can get the IPO away [at] a decent price, then it will demonstrate to the non-believers that it is not just SoftBank that believes in them, but the wider market, too.”
Whether the IPO is successful or not, London will have more clarity on which are the profitable and successful locations, and this will be beneficial for the market as a whole, one investor and developer argued.
“There is a real lack of transparency about occupancy in the serviced office sector in London, which is a concern given the market share of overall leasing that the sector has,” Seaforth Land Chief Executive Tyler Goodwin said. “If the IPO is not successful, we’ll see which locations are not successful because they will be rationalised.”
And if The We Company does go public, depending on its level of disclosure, then insight into the London performance of the largest office tenant in the city will be a crucial data point for the market more generally. As flexible offices become a bigger part of the Central London office leasing market, they could potentially increase the volatility of the sector.
According to a recent analysis by Fitch, using data from Cushman & Wakefield, flexible office operators accounted for 15% of all London leasing in 2017 and 2018, and now account for 5% of all office space in London.
In a downturn, flexible office operators will see income suffer and will be quick to try and renegotiate rents or break leases, much more so than traditional office tenants, Fitch warned.
“Landlords are therefore locked into the success of flexi-office operators they rent to and are more exposed to their requests for a rent reset when a downturn happens,” Fitch said.
With that in mind, Goodwin said that the IPO might represent a line in the sand for the London flexible office sector, with consolidation in a fast-growing sector starting to occur, and landlords pushing back against a practice that WeWork has utilised extensively in its rapid growth: leasing buildings through individual special purpose vehicles with no recourse to the parent company.
“The real question is what happens next,” he said. “It feels to me like the serviced office sector has grown very quickly, and that should be followed by a period of consolidation where the strong get stronger and the weak get absorbed.”
That has an implication for landlords: a lot of these operators, including WeWork, have given limited covenants, and there is a risk that in a restructuring, underperforming locations are just rationalised and landlords get the space back, Goodwin said.
He added that landlords were becoming less likely to accept these leases with no recourse to the parent company: The lack of new space currently being built in London meant that vacancy rates were likely to hit cyclical lows in 2021, giving office owners a stronger position in negotiations with tenants.
To keep up the pace of growth in London, operators like WeWork will need to increase its liability for their rented locations or move to profit-sharing agreements with landlords, a strategy the company is already pursuing.
On the general prospects for the company in London and beyond, one of the city’s best-known landlords likens the negative coverage that has surrounded WeWork’s IPO to another major London real estate listing that had plenty of doubters.
“There is a huge negativity about WeWork’s IPO, at present, which there was in a similar way when we floated Canary Wharf in 1999,” Almacanatar Chief Executive Mike Hussey said. “People need to visit an outlet and experience the difference before making too many blind assertions. The prejudice against the Canary ‘disruptors’ soon died away when people saw the quality and differentiations in our offer.”
Almacantar is in the middle of selling an office scheme containing one of WeWork’s largest single locations globally, Southbank Place, where it occupies 250K SF.
The £850M sale could be seen as a vote of confidence in WeWork’s covenant, and Hussey said that contrary to the general assumption, he thought that the financial and accounting benefits against taking space on a direct lease as well as the “softer” benefits of well-designed, amenity-rich space meant that in harder times, flexible office space would not be the first corporate space to be jettisoned.
“If WeWork has got it all wrong, which I doubt, most landlords would relish the opportunity to grab the space back and secure the higher operating margins generated from the coworking model, as it is now an established part of our market and, whether or not in WeWork form, it is here to stay,” Hussey said.
Houston put the company in a wider macroeconomic and historical context. He cites the example of Whitaker Wright, a 19th-century British gold prospector who made a fortune in California and was once declared the richest man in the world before his fall from grace which saw investors — including prime ministers — lose their money.
“People couldn’t get dividends elsewhere, and wanted to get rich quick,” he said. “Today, Greek 10-year bonds are currently yielding 1.8% — come on, this is Greece we are talking about. If you can only get 1.8% from buying Greek debt, then why wouldn’t you buy a City of London office building, or shares in WeWork? After all, Apple launched at $20 a share, and look where it is today.”