Manhattan Office Market

Transcription

1 Manhattan Office Market 4 TH QUARTER 2015 REPORT A NEWS RECAP AND MARKET SNAPSHOT Pictured: Union Square West

2 Looking Ahead NYC Economic Development Corp. Initiatives to Focus on Job Growth A proposal detailing several initiatives focused on job growth across several industry sectors was recently unveiled by the New York City Economic Development Corp. The recent proposal reportedly included the: Creation of a 55,000-square-foot advanced manufacturing hub in Sunset Park, Brooklyn. The city has committed $10 million in public and private funds for the proposed shared workspace and equipment for the companies use. The existing industrial building is currently home to thousands of workers, and it is hoped that a new facility will attract a wider diversity of firms from within the maker culture 1 ; Reopening of a 72-acre maritime industrial facility called the South Brooklyn Marine Terminal by the end of The site offers the potential to connect cargo ships to rail transit that will open the door for additional shipping options for manufacturers; Development of a trio of biotech centers that includes: A further expansion of the east side Alexandria Center for Life Science at 450 East 29th Street. Renovations to increase research capacity of the city s public-health laboratory at 455 First Avenue. Provide financing assistance to the New York Stem Cell Foundation for their new 40,600-square-foot headquarters in Midtown at 619 West 54th Street. The non-profit applied for $12 million in tax-exempt revenue bonds through Build NYC, along with exemption from city and state mortgage recording taxes. The estimated $19.23 million project will reportedly bring 62-jobs to the building, and an additional 18.5 jobs in the next 3-years; and Redevelopment of East 14th Street, currently home to a P.C. Richards & Sons Store. A request for proposal (RFP) was recently released by the EDC, hoping to attract a developer that will redevelop the property for office use intended to attract technology and creative tenants that are either startups or at the stage of graduating from incubator and co-working spaces. Statistics compiled by a reported study commissioned by the EDC projected that the city will need 60 million square feet of additional commercial space in the next 10-years. About 3 million square feet of that space will be needed for the life-sciences and biotech industries that have a growing demand for lab space. It is anticipated that outer-borough markets such as Jamaica, Queens, Downtown Brooklyn, the Lower Concourse in the Bronx, and on the north shore of Staten Island will offer opportunities to develop a significant portion of future commercial space needs for the city. 1 Maker culture: is a contemporary culture or subculture representing a technology-based extension of DIY culture. Typical interests enjoyed by the maker culture include engineering-oriented pursuits such as electronics, robotics, 3-D printing, and the use of Computerized numerical control (CNC) tools, as well as more traditional activities such as metalworking, woodworking, and, mainly, its predecessor, the traditional arts and crafts. P2 P.2

3 Looking Ahead (cont d) NYS Comptroller s Office: Review of the Financial Plan of the City of New York The report released in August noted that while the city s economy continues to remain strong, having experienced 5-years of job growth, external events such as the economic developments in Greece and China; and changes in federal monetary policy could impact the city s future growth. As a safeguard, the city has increased reserves to hedge against an economic setback during the 4-year financial plan period submitted in June for fiscal years 2016 through Other risks to the city s upward economic recovery include the rise in interest rates by the Federal Reserve; as well as the U.S. strengthening dollar, which could dampen the high volume of tourism that has significantly helped the city weather the economic downturn. Budget Gaps projected in the June financial plan are lower than year-over-year projections according to the state report, ranging from 2.5% to 4.5% of city fund revenue which is relatively small, with an annual general reserve of $1 billion set aside if needed that will otherwise go towards closing projected budget gaps. Capital Strategy which totals $83.8 billion in the 10-year biennial strategy through 2025 released in May is 56% higher than the $30 billion designated a year ago. Over 50% of the increase is devoted to housing, transportation and education; and will be financed exclusively through debt. The magnitude of the capital strategy plan is the largest since FY 2008, which was ultimately sharply curtailed in response to the onset of the recession. Keeping risk in mind, the city has set aside operation resources to fund a $500 million Capital Stabilization Reserve. Tax Revenue is projected to decline by 1.8% in 2016 as the city takes a conservative approach for projections, despite expectations of a strong 7% increase for FY The city s conservative projections have proven to be a benefit in recent years, resulting in actual tax revenue collections surpassing projections and creating surplus funds that have helped balance the following year s budget. Expenditures are projected to increase at an average annual rate of 3.9% during the 4-year plan period, a rate which exceeds that of the projected 2.2% inflation rate during the same period. Health Insurance Costs funded by the city are projected to generate savings in FY 2016 through FY Although the city has already reached the FY 2015 target of $400 million, and nearing the $700 million target for 2016, it has reportedly been acknowledged by the Commissioner of Labor Relations that targets for NY 2017 and FY 2018 will present greater challenges. Debt Service is expected to lower over the term of the 4-year plan. The reduction will largely stem from a downward revision in the city s interest rate assumption for fixed-rate bonds, and from excess State building aid that will be used to pay debt service on Transitional Finance Authority (TFA) debt. However the city-funded debt service (adjusted for surplus transfers) is projected to grow by nearly 40% from the $5.4 billion in FY Metropolitan Transportation Agency (MTA) financial plan released in July projects a balanced budget for calendar years 2015 through 2017; and budget gaps in 2018 and However the agency will face funding challenges for its capital program without placing the burden on its riders. Hudson Yards Infrastructure Corporation (HYIC) created in 2005 to facilitate development on the city s Far West Side. Upon its creation was intended to fund debt service from revenues generated by development in the Hudson Yards District, which to date has been insufficient due to slower than expected progress. As a result the city has funded interest payments on behalf of the HYIC in past years. It is however anticipated that HYIC will have sufficient resources to fully cover interest payments during FY 2016 and FY 2017; but assumes the city will resume funding a portion of the interest payments beginning FY Sources: P3 P.3

4 Looking Ahead (cont d) NYC Comptroller s Office: NYC Quarterly Economic Update 3Q15 The report released in November revealed a slowdown in growth of the city s economy during the 3rd quarter. Despite continuing to outperform the nation, the city s economic growth was less robust in comparison to the quarter-over-quarter rate of the 2nd quarter. 3rd Quarter Key Economic Indicators NYC Compared with U.S. for 2Q15 and 3Q14 Gross City Product (GCP)* Gross Domestic Product (GDP)* Payroll-Jobs Growth* Personal Income Taxes (PIT) Withheld, Growth** Inflation Rate* Unemployment Rate*** *Seasonally adjusted annual rate **Not seasonally adjusted *** Seasonally adjusted NYC U.S. NYC U.S. NYC U.S. NYC U.S. NYC U.S. 3Q15 2Q15 3Q % 1.5% 2.4% 1.8% 7.9% 6.3% 0.1% 0.1% 5.4% 5.2% 2.8% 3.9% 2.1% 1.7% 9.1% 5.2% 0.0% 0.0% 6.3% 5.4% 2.7% 4.3% 3.7% 2.2% 8.8% 4.4% 1.3% 1.8% 6.8% 6.1% Venture Capital Investment (VC) Totaled about $1.6 billion spread across 122 deals in New York State, up over 6% from the year-overyear figure of $1.5 billion which comprised 111 deals. President Signs Law Easing Taxes on Foreign Investment in Real Estate The final weeks of 2015 delivered news of an easing the 35-year-old tax on foreign investment in U.S. real estate as part of the $1.1 trillion federal government spending measure that was passed to avoid a government shutdown. As a result of the new law foreign pension funds will be treated the same as their U.S. counterparts with regard to real estate investment, waiving the tax imposed under the 1980 Foreign Investment in Real Property Tax Act (FIRPTA). In addition, the new law allows foreign pension funds to buy as much as 10% of a U.S. publicly traded real estate investment trust (REIT), representing an increase of 5% without triggering FIRPTA liability. Amongst the total $483 billion investment in U.S. property in 2015, foreign investment totaled roughly $78.4 billion, of which foreign pension funds accounted for about 10% according to reported statistics compiled by Real Capital Analytics Inc. The new law brings a welcomed change for the real estate industry, and is anticipated to potentially open the door to increased purchases by foreign investors in the nation s real estate. Sources: P4 P.4

5 In the News East Side Access - Rendering East Side Access Project A Sliver of Light at the End of the Tunnel The massive project being constructed by the Metropolitan Transit Authority (MTA) continues to make headway as tunneling efforts are ongoing at a reported cost of $1 million per foot. Currently targeted for a 2022 completion, the new terminal will cover 5-city blocks to a depth of 14-stories beneath Grand Central Terminal. Upon full completion, an estimated 160,000 passengers will traverse through the new terminal, which represents about 50% of LIRR commuters. People coming in from Long Island and Queens will now be able to extend their ride to the city s east side through a new Queens station in the Sunnyside neighborhood that is linked to the 120-foot tunnel under Northern Boulevard part of a 7-mile network of new tunnels. In order not to interfere with the daily traffic of the Long Island Rail Road (LIRR), Amtrak, and New Jersey Transit, schedules for power shutdowns are carefully planned. The ground below is carefully frozen to allow the removal of dirt so that steel supports can be installed. Newly bored tunnels are being filled in with floors, ceilings and walls; as well as ongoing installation of stairways and escalators up to Grand Central. Upon completed construction, the project will deliver 4-new platforms serving 8-rail road tracks spread over 2-levels, plus a new 350,000-square-foot retail and dining concourse. Several delays were incurred due to challenges in securing financing for the project, and the carting away millions of cubic yards of rock and mud from tunnel boring. As a result the timeline for the project was pushed about 10-years forward, ballooning projected costs to over $10 billion about twice the figure originally estimated. Lower Platform East Side Access - Renderings - Upper Platform Mezzanine P5 P.5

6 In the News (cont d) Residential Landlords Seek Agreement with Airbnb A few U.S. residential landlords are reportedly in discussions with the controversial global hub for short-term housing rentals in an effort to strike an accord that would allow tenants to market their properties in exchange for a share of the revenue. Hoping to establish a revenue-sharing model with Airbnb, an agreement could expand the website s access to rental units across the nation; allow tenants to list without the fear of eviction due to typical lease restrictions that either forbid subleasing, or otherwise require prior permission; and create improved transparency. Equity Residential One of the largest publicly traded apartment operators in the U.S. has about 108,000 units; AvalonBay Communities The equity REIT has about 83,000-units; Camden Property Trust The REIT has about 59,000-units. However an agreement could further spark concerns that a significant portion of the country s housing stock would be used as hotel rooms, potentially pushing rents higher; while simultaneously becoming an increasing threat to established hotels that are growing in numbers throughout New York City. Some sources comment that travelers utilizing Airbnb may not affect hotel occupancy due to a different profile than those seeking hotels; and described as typically young travelers seeking lower prices and amenable to doing more things on their own such as cooking, rather than take advantage of hotel amenities. Despite only accounting for about 3% of New York City s overall-hotel occupancy, Airbnb is able to keep pricing lower since the hiring of hotels staff is eliminated. In addition scrutiny by lawmakers would likely intensify as the legitimizing of the use of apartments as hotel rooms is sought. The growing trend gives rise to arguments that it would take units off the market for local long-term residents due to the potential conversion of units to full-time short-term hotel rooms; and heighten liability concerns since residential buildings don t adhere to the same fire and safety codes as hotels, which are more stringent. Other issues of public debate include: The Airbnb system is currently unregulated and does not enforce the rules and regulations typically required of landlords when renting to tenants, particularly in New York City which is deeply entrenched in a residential regulatory system. Added risk to residents due to strangers entering buildings that have not undergone the same background checks as tenants due to the full identity of both the host and potential guest not fully published on Airbnb s website. City and state are reportedly incurring a net loss of revenue since sales tax, hotel tax and occupancy tax assessments that hotel guests would otherwise pay are not collected. Local laws prohibit renting out a multi-family unit for less than 30 days if the resident isn t present. The Attorney General s Office (AG) released the Airbnb in the City report in October 2014, intending to present a snapshot of short-term rentals in the city from January 1, 2010 through June 2, The report s findings concluded that about 72% of Airbnb s rental units violated the city s Multiple Dwelling Act. Due to unit numbers on Airbnb s website left unpublished, the AG s Office was unable to quantify the precise number of units subject to rent-regulations. The majority of listed units during the AG s review period were concentrated in the neighborhoods of the Lower East Side, Chinatown, Chelsea, Hell s Kitchen, Greenwich Village and SoHo. Despite increased public debate and an inability to win support from some local political officials, tenant groups and rental property owners, the San Francisco, CA-based company launched in 2008 has continued to grow. The concept has been welcomed by some longterm, fair-market tenants as a way to generate supplemental income for those pushing the threshold of affordability; and a suggestion by some that landlords could gain a share of the profits as well by simply imposing a fee to tenants for allowing them to rent out their units. However more serious debate arises in instances where rent-regulated tenants are taking advantage of the profitability of short-term rentals while receiving benefits from low rent subsidies to ensure permanent housing. Airbnb currently claims about 322,500 U.S. listings on their website, according to sources an increase of 80% year-over-year as a heightened number of home dwellers and travelers embrace the service. According to reported statistics from an April 2015 report released by Airbnb, rental activity on the website has injected $1.15 billion into New York City s economy, attracted 767,000 visitors, generated $301 million for hosts, and $844 million in tourist spending during The website initially intending to offer travelers a more informal local experience than traditional hotels has grown to the extent that Airbnb is seeking ways for formalize its business. Sources: P6 P.6

7 Downtown Comeback 7-Subway Extension Stuyvesant Town Peter Cooper Village Hudson Yards Activity Co-Working Space Law Firms Modernize Bulk Unit Sales Shifting Gears China s Economic Downturn Foreign Investment Foreign Lending Investment TASE 2015 ReCap The year 2015 has drawn to a close, boasting several notable highlights and milestone advances that further exemplify the positive energy and determination of New York City the city that never sleeps. Some of the year s news highlights include: Downtown Makes its Mark on the Economy through its Resurgence The revitalization of Lower Manhattan brings a story that is as exhilarating as the energy that fills the neighborhood today. The resiliency of Lower Manhattan has allowed it to emerge as one of the hottest neighborhoods in the city today, despite major setbacks that included the September 11, 2001 attacks; significant damage incurred in the aftermath of Hurricane Sandy; and the decentralization of the financial services industry which at one time served as the economic hub of Lower Manhattan. Activity at the World Trade Center brings the announcement of a possible anchor tenant for 2 World Trade Center, the only tower yet to break ground. A non-binding but detailed letter of intent (LOI) for about 1.3 million square feet was signed by News Corp. and 21st Century for a possible relocation from their current Midtown locations. Downtown s recovery is also projected to make a significant impact on both the city and state s economy. 7-Avenue Subway Extension Opens The city s 469th subway station located at 34th Street and 11th Avenue opened on Sunday, September 13th. The long awaited extension of the 7-subway line which intersects 18 out of the total 22-lines is the first new station to open in 25-years. The project which broke ground in 2007 was originally slated for a December 2013 completion. The cost of $2.4 billion which was funded by the city under the Bloomberg administration had escalated from the original $2.1 billion; but the elimination of a proposed intermediate subway station at 10th Avenue and 41st Street kept costs from reaching what would have been a reportedly significantly escalated figure of $2.9 million. P7 P.7

8 2015 ReCap (cont d) Stuyvesant Town / Peter Cooper Village Residential Complex Sells The sale announced in October of the 11,247-unit Stuyvesant Town / Peter Cooper Village complex further substantiates the growing value of residential properties and heightened interest by investors. The $5.3 billion purchase by the partnership of Blackstone Group and Ivanhoe Cambridge that reportedly closed in December, was just $100 million below the $5.4 billion figure paid in 2006 when the complex last traded. The sale marks the end of the property s longtime state of limbo as it remained in the hands of a special servicer since A surge in the number condo properties developed over recent years combined with ballooning land prices that have made rental development financially unfeasible, has reportedly prompted a growing interest by investors in the acquisition of middle-income rental buildings. As the number of middle-income rentals properties grow more limited in number the assets value is driven upwards, offering higher yields on investment than that of the high-end condo or rental market. Hudson Yards Activity Spikes in 2015 The multi-building project that seemed to get off the ground slower than originally expected has significantly quickened its pace of construction as lease signings and condo-unit sales for commercial space become more robust, with only 2-towers that have yet to break ground 15 Hudson Yards, the only residential tower in Phase 1 will be attached to an event venue dubbed Culture Shed; and 35 Hudson Yards, a planned 1.1 million-square-foot development to be comprised of hotel, office, residential and retail space. Amongst the towers that have broken ground: 10 Hudson Yards The 1.7 million office tower which topped out in October currently boasts roughly 90% occupancy with major space commitments from L Oreal, Boston Consulting, SAP America, and anchor tenant Coach which is rumored to be the seller of its 40% condo-interest (737,774 square feet) in the tower that is slated to deliver in June. 30 Hudson Yards The 2.6 million square foot office tower that broke ground this summer is nearly 100% occupied as a result of the sale of condo-unit interests to law firm Kohlberg Kravis Roberts, Wells Fargo, co-developers Related Companies and Oxford Properties Group, and anchor tenant Time Warner Inc. Shops at Hudson Yards The 7-story retail component that is currently under construction between 10- and 30 Hudson Yards will see high-end department store Nieman Marcus debut in New York City as its anchor tenant. 55 Hudson Yards The 1.3 million-square-foot office tower that broke ground in January 2015, signed its first tenant in June with a commitment of 83,292 square feet by law firm Boies Schiller & Flexner. 50 Hudson Yards The construction of the final office tower in Phase 1 of the project moved a step forward as another piece of the assemblage on the northeast corner of the site was acquired this summer. The recent deal brings the final assemblage closer to completion for the planned 2.3 million-square-foot office development and newly created Hudson Boulevard. Co-Working Space Providers Incur Heightened Competition The ongoing popularity of co-working space has flooded the market with co-working companies. As competition intensifies for market share, some providers have been prompted to market themselves differently so as to standout amongst the growing numbers. Despite some concerns of over saturation, the sector continues to flourish. Some sources further predict that in the event of an economic downturn shared office space is unlikely to fade, but instead anticipate that leasing activity will potentially escalate due to the flexibility of short-term commitments; and staff cuts making shared services typically offered such as legal, accounting and IT more valuable. Although shared-space has primarily attracting start-ups, established companies have discovered the advantages of more readily available short-term space as well. While a few smaller co-working space providers have been unable to make the cut in the light of rising competition, some industry sources point out that there is still room for an enormous amount of opportunity amongst budget options, premium options and luxury options. WeWork continues to control the city s market, increasing 2015 market share in Manhattan and Brooklyn by approximately 717,749 square feet and 149,000 square feet according to reported deals throughout the year. P8 P.8

9 2015 ReCap (cont d) Law Firms Move into the Modern World Law firms have become the latest sector to take advantage of modern technology and open floor plans to improve space use efficiency and reduce rent overhead expenses. Square foot per attorney ratios that have typically averaged around 1,000 square feet 10-years ago, have been declining to today s more typical average of square feet a ratio that is expected to continue a further downward trend. The move to economize has prompted some firms to seek buildings that offer wide-open, column-free floor plates that will allow a more efficient and flexible office layout design. In addition, up-to-date technology with improved connectivity has become another highly sought after feature as non-essential office components such as physical libraries and file cabinets are being replaced by digitized archives. Common areas are becoming mixed-use areas that can accommodate both informal meetings or dining space, while also promoting increased collaboration. Private offices are being downsized and in some cases eliminated for associates. Bulk Unit Sales on the Rise Bulk-unit acquisitions have become a growing trend as it becomes more difficult to find a bargain in the city s real estate market. The purchase of a block of multiple units within a single building is increasing in popularity. A nominal portion of current residential sale activity, it delivers a value-priced option for some creative investors. Although difficult to track, a reported analysis of the city s Department of Finance records substantiated rising activity, increasing from 13-transactions totaling $30.4 million in 2003 to 15-transactions totaling $132 million during the first 7-months of Discounts for buyers have ranged from an atypical high of 35-40% to as low as 2-3% while offering strong cash flow potential from renting the units. Bulk-unit packages are typically under 10-units, but some larger packages have sold in recent years. Sellers benefit from significantly reduced transaction costs such as legal and broker fees; and the time it would take to sell-out the units. Bulk-unit sales tend to diminish in a strong market, a developer having little reason to discount when units are moving, or can be similarly rented in the interim. Crowdfunding Shifts Gears The newer lending option continues to pick up steam as its presence within the real estate industry swells. A concept that actually dates back about 130 years, today s crowdfunding has evolved into a more sophisticated online platform since the JOBS Act of 2012 eased federal restrictions on fundraising for small companies. As competition heightens with the growing number of crowdfund platforms, several startups that relied on everyday investors to raise funds for crowdfund campaigns are beginning to shift to institutional investors to propel further growth. A receptive investor, institutional participants are taking advantage of the convenience of the online technology allowing them to select specific assets, while simultaneously offering a partner base for the city s developers. Some platforms are also directing efforts towards partnering with hedge funds, private equity firms, and wealthy individuals according to reports. The redirection may result in crowdfund platforms functioning more like the traditional financial sector they set out to displace. Overall investment via crowdfunding platforms reportedly surpassed a $1 billion total in 2014; and was expected to reach $2.5 billion in 2015, as a growing number of companies from start-ups to established investment firms are testing the waters. However looking ahead, regulators could reportedly raise the dollar value threshold required to become an accredited investor from the current $1 million minimum to $5 million, which would significantly diminish the pool of investors. China s Economic Downturn and the CRE Market The reported devaluation of China s renminbi (RMB) this summer, that diminished the buying power by Chinese investors and led to the country s stock market crash in late August, has yet to trigger any slowdown of investment abroad. However looming concerns arise including the potential of the Chinese government tightening restrictions on overseas investment to keep money within the country; and the strengthening of the U.S. dollar making investment more expensive for Chinese investors. It is also reportedly anticipated that amidst the volatility of the Shanghai and Shenzhen stock markets, lending practices by Chinese banks could tighten bringing about higher interest rate requirements, more lower-risk deals sought, and loan-to-value (LTV) ratio requirements becoming more conservative. Furthermore China s continued softening of its property market gives rise to concerns that some of New York City s highly leveraged Chinese investors could be vulnerable. Chinese firms whose primary business is real estate development will continue to be affected by the rise and fall of the country s property market, while others that are more diversified are less vulnerable. The impact of the China s economic downturn has yet to reveal its effect on New York City s real estate market. Currently Chinese buyers continue to generate record purchases, wanting to put to work profits generated by other businesses they have. P9 P.9

10 2015 ReCap (cont d) Foreign Investment Investment activity in New York City by foreign investors remains vigorous, many attracted to the federal government s EB-5 Foreign Investor Program. While China and Canada continue to lead the way, other countries have begun to develop a growing interest particularly amongst the emerging markets. It has been anticipated that Brazil and Venezuela will become frontrunners since they don t have treaties of commerce with the U.S., and therefore their citizens are not eligible for any other type of investor visas. The growing roster of countries having filed EB-5 applications includes South Korea, United Arab Emirates, Vietnam, Russia, Nigeria and Egypt. In addition countries such as India, which is focusing efforts to overcome decades of poverty and economic stagnation; and Middle East investors seeking to further diversify portfolios due to lowering oil prices, are expected to see a shifting of investment dollars towards the U.S. and the city. The EB-5 program significantly grew in popularity following the economic downturn when financing from traditional lenders tightened. Currently undergoing review, some proposed bipartisan legislation has recommended modifications that have met with strong opposition. If the bill is adopted, the EB-5 program that was due to expire in September and extended unchanged through September 30, 2016, will continue for another 5-years. However, simultaneously to concerns rising about the future of the EB-5 foreign investment program, the lending marketplace is adding a number of new players offering creative borrowing structures and aggressive pricing. Private equity funds, debt funds, and other non-traditional lenders including insurance companies, sovereign wealth funds, and pension funds, which need to generate yields in order to meet their own fiscal obligations, are becoming key players as they redirect capital away from low yielding U.S. Treasury bonds, money market funds, and the stock market. As the strength of the real estate market holds steady, it has become an essential component of a well-diversified portfolio. Lending Interest rates which have remained at an all-time low since 2008 with expected rate hikes reprieved in mid-september amid a continued low inflation rate, uncertain outlook for global growth, and recent unsettled financial-market. However confidence in jobs growth has reportedly overweighted earlier concerns of the slowing Chinese economy and devaluation of the renminbi (RMB), slumping oil prices, and jarring downturns in the global stock markets. On December 16 at the conclusion of the 2-day session, the Federal Open Market Committee which sets the target rate, announced the moderate rate increase that has been expected since March. It will be difficult to determine effects on the city s real estate market since the National Council of Real Estate Investment Fiduciaries (NCREIF) National Property Index (NPI), the benchmark for commercial real estate yields, is an imperfect measure of prices; and long-term bond yields, which matter most to real estate, don t always respond in the same way to rises in short-term rates according to sources. In the meantime, the city s tight real estate market and soaring property prices has given rise to some new entrants in the lending market. As mezzanine loans become a lucrative business, a few of the city s developers have been prompted to consider entering the subordinate debt market. In addition to the attraction of current double digit interest rates on commercial properties, lenders also have the advantage of being first in line to take control of a real estate asset at a discounted rate in the event of a foreclosure. The Commercial Mortgage-Backed Securities (CMBS) market has recovered since the economic downturn, when new issues reportedly fell to $1.1 billion after the market came to a halt in Factors that have been contributing to CMBS issuance growth are the desire to lock in low rates ahead of the rise in U.S. interest rates that finally came in December; a large number of loans from the boom years maturing; and rising confidence in the real estate market according to some research analysts. However despite rebounding to near 2007 levels with an impressive $11.54 billion issuance in the first-half of 2015, CMBS activity has fallen short of the 2015 estimated $125 billion projected earlier this year; and more recent modified projections now reduce the total to $96.5 billion. Tel Aviv Stock Exchange Attracts Growing Number of the City s Developers A growing number of development projects in the city are being financed in part by funds raised through the Tel Aviv Stock Exchange (TASE). The Israeli capital market offers one of the few markets that is accessible to companies seeking project financing that are not structured as a real estate investment trust (REIT). Companies are allowed to make debt-based public offerings, but the requirement to become a public company in Israeli has discouraged some New York developers not wanting to expose business activities to a large audience. TASE also offers the flexibility for developers to base debt offerings upon an entire portfolio or a large piece of it, increasing the amount of money that can be raised while simultaneously spreading out the risk; versus in the U.S. where financing is typically arranged on a project-by-project basis. U.S. real estate industry debt issuance through TASE in 2014 totaled an estimated $700 million; and was predicted to reach about $2 billion in 2015 according to industry sources. As of July, New York-based real estate firms had reportedly been responsible for all debt offerings among U.S. real estate firms in Israel. P.10

11 Market Snapshot: Class A & B New York City s Unemployment According to the New York State Department of Labor s figures, the city s unemployment rate rose moderately to 5% (not seasonally adjusted) at the end of November; in comparison to 4.8% at the end of the 3rd quarter. Year-over-year figures resulted in a roughly 24% improvement from the 6.6% of last November. Unemployment on the National level fell to 4.7% at the end of November, decreasing 2.08% from the 3rd quarter figure of 4.8%. Year-over-year figures resulted in a 9.62% improvement from the 5.2% rate of November Q 2015 Vacancy Rental Rate Net Absorption Total Class A Class B Employment activity in New York City s private sector resulted in the gain of 95,200 jobs for the 3 month period between August 2015 and November Year-over-year figures resulted in a 2.8% gain of 103,100 jobs; in comparison to 2.3% and 2.2% year-over-year growth for New York State and the nation respectively. Educational and Health Services continued to lead the way, followed by Professional and Business Services. Job numbers rose slightly more robustly in comparison to that of the previous year s 2.7% improvement. Weekly Wages Overall weekly wages in New York City averaged $1,842 at the end of the 2nd quarter 2015, representing a positive 6.4% improvement year-over-year according the recent report released by the U.S. Department of Labor. The Financial sector boasted a 5.3% increase year-over-year at the high, in contrast to the Information sector where wages fell 1.15%. Vacancy for Class A & B office space shrank 3.88% over 3rd quarter s 7.96% figure, resulting in an 7.65% vacancy at the end of the 4th quarter. Midtown South accounted for the strongest quarter-over-quarter improvement, rebounding from the previous quarter with an 11.13% reduction resulting in a vacancy of 4.33% the low for Downtown followed with a 10.22% decline and a vacancy of 9.13%. Only Midtown incurred a slight reversal of a downward trend over the past 3-quarters, increasing 0.47% to 7.79% quarter-over-quarter due to a 15.84% rise in Class B vacancy that significantly offset the 2.17% shrinkage within Class A buildings. Absorption closed the 4th quarter at positive 1,358,699 square feet, representing a significant improvement over 3rd quarter s more moderate climb of positive 176,282 square feet. Both Midtown South and Downtown s positive absorption of 325,651- and 1,132,645 square feet respectively was able to offset Midtown s negative 99,597-square-foot figure. Rental Rates fell for the first time in The overall weighted average asking rent for Class A & B office space of $60.22 per square foot represented a 1.54% decrease over the previous quarter. Midtown South incurred for the sharpest decline of $2.24%, followed by a 1.66% and 0.42% decline in Midtown and Downtown respectively. Class B weighted average asking rents of $56.14 per square foot quarter-over-quarter accounted for the more significant decrease of 2.81%, while Class A asking rents of $61.52 per square foot saw a lessor 1.21% decline. 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 4Q2004 4Q2005 4Q2006 4Q2007 NYC Yr-over-Yr Job Statistics 1,000, , , , , , , , , , , ,900 NYC Unemploy Rate 682, ,900 4Q ,100 4Q ,800 4Q2010 US Unemploy Rate 416,000 4Q2011 Nov 2014 Job#'s 2Q2014 Weekly Wage 432,600 4Q ,200 4Q ,500 4Q2014 $500 $0 Nov 2015 Nov 2015 Job#'s 2Q2015 Weekly Wage $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 Source: NYS Department of Labor and US Department of Labor, Bureau of Labor Statistics Sources: P.11

12 Class A & B Statistics At A Glance 4th Quarter 2015 Vacancy WTD Average Asking Lease Rent Net Absorption Downtown 4.39% 10.65% Downtown $57.20 $44.12 Downtown Midtown South 1.55% 5.23% Midtown South $81.47 $69.70 Midtown South Midtown 8.10% 6.56% Midtown $66.96 $51.77 Midtown % 5.00% 10.00% 15.00% $0.00 $50.00 $ Class A Class B Thousands (1,000) 0 1,000 2,000 Quarter-over-Quarter Vacancy Lease & Sublease Sq. Ftge Net Absorption Net Absorption Class A Net Absorption Class B Class A Class B Lease SF Class AB Sublease SF Class AB 5.63% 8.47% 5.57% 8.92% 5.27% 9.10% 5.20% 9.58% 5.24% 9.39% 4Q14 1Q15 2Q15 3Q15 4Q % 9.00% 6.00% 3.00% 0.00% Thousands 40,000 30,000 20,000 10,000 0 Lease Rent AB Sublease Rent AB $65.00 $60.00 $55.00 $50.00 $45.00 $ Q14 1Q15 2Q15 3Q15 4Q15 4Q14 1Q15 2Q15 3Q15 4Q15 3,384 32,642 3,312 33,242 3,210 31,984 2,979 32,038 3,031 30, (582) 1,450 (90) (383) 560 1,433 (75) 2,000 1,500 1, ,000 Thousands Quarter-over-Quarter Inventory Changes Downtown Midtown South Midtown Removed Added Removed Added Removed Added 4Q2015 3Q2015 2Q2015 1Q2015 4Q2014 4Q2015 3Q2015 2Q2015 1Q2015 4Q2014 4Q2015 3Q2015 2Q2015 1Q2015 4Q2014 Thousands Thousands Thousands *Buildings 75,000 SF and larger; vacancy and absorption calculations based upon move-in date versus deal signing date P.12

13 Submarket Statistics Overview: Class A & B Office Manhattan Inventory Vacant Sq. Ftge. Vacancy Rate WTD Avg Rent PSF Submarkets Districts Total RBA* Direct Sq. Ftge. Sublet Sq. Ftge. Total Sq. Ftge. Direct Vacancy Sublet Vacancy Overall Vacancy Direct Asking Net Absorption Year-to-Date Sq. Ftge Downtown 108,939,457 9,549, ,068 9,950, % 0.37% 9.13% $ ,604,332 City Hall 14,327, , , % 0% 6.65% $ ,273 Financial District 41,586,410 3,559, ,073 3,865, % 0.74% 9.30% $ ,874 Insurance District 12,046, , , % 0% 2.77% $ ,169 TriBeCa 6,522, ,997 4, , % 0.07% 3.04% N/A 7,199 World Trade Center 34,457,265 4,510,362 90,258 4,600, % 0.26% 13.35% $ ,375,363 Midtown South 60,047,539 2,225, ,576 2,599, % 0.62% 4.33% $ ,531 Chelsea 10,555, ,477 77, , % 0.73% 3.35% $ ,652 Flatiron 21,589, , , , % 0.99% 3.81% $ ,453 Gramercy Park 10,212, ,270 21, , % 0.21% 6.90% $ ,555 Greenwich Village 4,353,399 61,858 3,000 64, % 0.07% 1.49% $ ,193 Hudson Square 9,393, ,747 22, , % 0.24% 5.35% $ ,559 SoHo 3,942, ,744 35, , % 0.89% 3.77% $ ,459 Midtown 270,863,991 18,852,562 2,256,002 21,108, % 0.83% 7.79% $ ,479 Columbus Circle 31,893,601 1,912, ,558 2,126, % 0.67% 6.67% $ ,324 Grand Central 52,323,745 4,670, ,885 4,960, % 0.55% 9.48% $ ,746 Murray Hill 11,144, ,647 67, , % 0.60% 5.56% $ ,516 Penn Plaza/Garment 46,974,585 3,148, ,841 3,811, % 1.41% 8.11% $ ,779 Plaza District 80,641,592 5,294, ,334 5,974, % 0.84% 7.41% $ ,184 Times Square 44,323,129 3,246, ,016 3,588, % 0.77% 8.10% $ ,190 U.N Plaza 3,562,575 27, , % 0% 0.76% $ ,164 Grand Total 439,850,987 30,628,172 3,030,646 33,658, % 0.69% 7.65% $ ,367,342 *Buildings 75,000 SF and larger; vacancy and absorption calculations based upon move-in date versus deal signing date P.13

14 Leasing Activity 2015 Office Leasing - A Brief Retrospection Leasing activity throughout the year continued to blur the lines between Manhattan s submarkets as several big-block moves by a diversified mix of companies distributed throughout the city, no longer creating concentrated industries within one submarket as in the past. Activity at Downtown s World Trade Center and the Far West Side s Hudson Yards continued to claim the spot light as both neighborhoods attract an impressive roster of tenants from a mix of both FIRE (financial, insurance, real estate) and TAMI (technology, advertising, media, information) sectors. Heightened activity at Related Companies and Oxford Properties Group s Hudson Yards project has resulted in 10 Hudson Yards achieving a roughly 90% occupancy; and a first tenant signing at 55 Hudson Yards. Across the street Brookfield Property Partner s claimed title to the 2nd largest lease deal in 2015 as a result of the 550,000-square-foot signing that will see law firm Skadden Arp Slate Meagher & Flom shift west from 4 Times Square, further cementing the Far West Side s potential to attract corporate tenants. As larger companies shift west and south to newer construction, it is anticipated that some of the large vacancies left behind in Midtown s older office stock will allow landlords to take advantage of the opportunity to start repositioning their properties beyond spruced up lobbies and new elevators. Looking ahead while some industry sources are concerned about the impact of rising interest rates and a possible slowdown in leasing activity spurred by a somewhat less robust 2015, many remain optimistic with predictions of another strong year of real estate activity for New York City in Office Leasing - The Year s Big-Ticket Deals Tenant Address Submarket/District Sq. Ftge. Kirkland & Ellis 601 Lexington Avenue Midtown / Plaza 403,000 Skadden Arps Slate et. al. 1 Manhattan West 400 West 33rd Street Midtown / Penn Plz 550,000 Publicis Groupe 1675 Broadway Midtown / Columbus Cir 580,000 Citadel 425 Park Avenue Midtown / Plaza 200,000 Chanel 9 West 57th Street Midtown / Plaza 230,000 Boston Consulting Group 10 Hudson Yards Midtown / Hudson Yards 193,295 WeWork 8 Times Square 1460 Broadway Midtown / Times Square 180,000 Bloomberg LP 919 Third Avenue Midtown / Plaza 254,556 Associated Press (AP) Brookfield Place 200 Liberty Street Downtown / World Trade Ctr 172,000 J. Walter Thompson 237 Park Avenue Midtown / Grand Central 270,000 Transaction Type Term Extension (20 Yrs) Relocation (20 yrs) Renewal/Expansion (15 yrs) Relocation (15 yrs) Expansion (15 yrs) Relocation (15 yrs) New (20 yrs) Expansion (15 yrs) Relocation (20 yrs) Renewal (10 yrs) Est. Lease Value Starting Rent $1.1 BN (High $90s) $915 MM (Mid $70s) $611 MM (Mid $60s) $494 MM (Mid $170s) $415 MM (Mid $110s) $255 MM (High $80s) $223 MM (Mid $50s) $220 MM (High $50s) $202 MM (Mid $50s) $192 MM (High $60s) P.14

15 Leasing Activity (cont d) A New Trend on the Horizon Brings the Concept of Space Staging to Office Space Design High-end home furnishings retailer Restoration Hardware, which has offered a hotel and retail design business for some time, has now added office staging to the company s growing roster of businesses. A recent opportunity opened the door to an office tenant seeking to create a look similar to Restoration Hardware s retail store, ultimately leading to the creation of a few design concepts for some Chelsea neighborhood buildings. The idea was enthusiastically met by the buildings landlord, noting that tenants are frequently unable to visualize the space furnished. The idea of creating models similar to what is typically done in residential developments, along with the offering of free consultation, customizing, and furniture discounts is anticipated to be a welcomed convenience for new tenants. Big Block Tenants in the Market UBS AG The Zurich-based global bank is reportedly seeking 700, ,000 square feet in an effort to downsize its footprint in the city. The relocation has been prompted by denied renewal of leases for current offices at both 787 Seventh Avenue and 1285 Sixth Avenue which are being sold. It was previously reported that UBS occupies about 120,000 square feet at 787 Seventh Avenue (Columbus Circle) as a result of a relocation/consolidation deal in 2013; and about 700,000 square feet as UBS main business center at 1285 Sixth Avenue (Columbus Circle) which expires in 2020 due to an early 5-year renewal in UBS also has offices at 299 Park Avenue (Plaza) totaling about 130,000 square feet spread across 5-floors, having reduced their footprint in 2013 by 382,000 square feet through a sublease offering. The majority of the sublease space was shortly after absorbed by Capital One in a direct deal for 250,000 square feet that extended the sublease term expiring in 2018 for an additional 10-years. Formal requests for proposal are expected to be released by UBS upon preliminary viewing of current locations being considered that include: 4 Times Square The Durst Organization 1.8 million square-foot tower will be almost totally vacant due to the relocation of Condé Nast earlier this year to One World Trade Center, and Skadden Arps upcoming relocation to 1 Manhattan West, 400 West 33rd Street in 2020; Time Warner Center, 60 Columbus Circle The Related Companies tower will be seeing a large vacancy upon Time Warner, Inc. relocating to 30 Hudson Yards in 2019; One Vanderbilt The SL Green 1.3 million-square-foot development that recently broke ground with an expected delivery in Manhattan West, 400 West 33rd Street The Brookfield Office Properties planned 1.6 million-square-foot office tower with an expected delivery in Kramer Levin Naftalis & Frankel The international law firm is reportedly considering a possible relocation from their current headquarters of 11-years at 1177 Sixth Avenue (Times Square). The lease for their current 325,000-square-foot office will be up for extension in Modern technology has changed space planning requirements for several industries, prompting companies to re-evaluate size requirements and space layouts. While in early stages of the process, it is likely that Kramer Levin will follow in the footsteps of some other law firms that have been able to downsize into more efficiently designed space and reduce costly rent expense. The trend has been exemplified by Skadden Arps Slate Meagher & Flom, which will downsize by about 15% from the law firm s current 644,671-square-foot office when they relocate to 400 West 33rd Street in National Hockey League (NHL) The sports organization is reportedly evaluating options, currently headquartered in a 5-level 133,000-square-foot space at 1185 Sixth Avenue (Times Square). The space has served as the sport organization s home since 2008, upon relocating there from an 80,000-square-foot office at nearby 1251 Sixth Avenue. In addition, the NHL has a nearly 7,000-square-foot store at the base of the 42-story tower on the corner of West 47th Street. While the exploration is in preliminary stages, the NHL is leaving all options wide-open that could result in a decision to renew at their current location; or relocate to one of several buildings including the World Trade Center, the Rockefeller Center complex, 4 Times Square; as well as the Hudson Yards and Manhattan West which are located near Madison Square Garden. Estée Lauder The cosmetics company is reportedly exploring options to determine whether they should remain at their longtime corporate headquarters at the GM Building, 767 Fifth Avenue, or relocate. Currently housed in nearly 300,000 square feet spread across floors 37-43, 45 and 46 at the tower in a lease that expires in about 5-years according to sources. P.15

16 Leasing Activity (cont d) Large Vacancy on the Horizon 34 East 51st Street (Plaza) The newly constructed 20-story, 75,000-square-foot office building developed by Turkish developer Sedesco will be making its debut into the high-end boutique office market. The property is hoping to attract financial tenants, such as private equity funds and wealth management firms, willing to pay asking rents anticipated to range from $120 - $130 per square foot. The $60 million development located between Madison- and Park Avenues will feature a number of amenities including a golf simulator the only in a New York City office building, a gym, community space with concierge service and an outdoor terrace. Floors range from about 2,700-5,000 square feet of which Sedesco will be occupying the entire 4,800 square feet on the 6th floor, planning to relocate from nearby 444 Madison Avenue. EMI Records Group N.A. / 150 Fifth Avenue (Flatiron) The music label occupied nearly the entire building as a result of a 16-year deal for 155,700 square feet. The lease came shortly after L&L Holdings acquisition of the 11-story building in partnership with the Carlyle Fund for $38 million in EMI s assets were acquired by Universal Music Group in 2012, and a downsizing of the label s footprint at the tower ensued with most of the space ultimately subleased to several tenants. In 2018 EMI s original lease will expire, but this time instead of seeking a single tenant for the almost 200,000 square feet to be vacated, ownership will consider divisions to house up to 3-tenants. The building is currently debt-free and has proven to be a prudent investment, L&L Holdings successfully profiting by a 3-time recapitalization with different partners. Large Blocks of Space that became Vacant in the 4th Quarter 1633 Broadway (Columbus Circle) 212,133 square feet was vacated by advisory and consulting firm Deloitte upon relocating to a 426,139-square-foot office at 30 Rockefeller Plaza, 1250 Sixth Avenue (Plaza) in a move to consolidate New York city offices. The city offered $10.6 million as an incentive to remain in the city and add 2,100 jobs over the course of the 18-year lease. 463 Seventh Avenue (Penn Plaza) 120,000 square feet vacated by the online apparel retail OSP Group upon relocation to a 157,210-squarefoot office at Lower Manhattan s 1 New York Plaza (FiDi). As a result of the 15-year deal announced in early 2015, OSP consolidated (2) Manhattan offices that also included Seventh Avenue. Woolworth Building, 233 Broadway (City Hall) 109,640 square feet was vacated by the U.S. Probation Office / U.S. Pretrial Services Office under a lease that expired the end of October, relocating to Daniel P. Moynihan U.S. Courthouse at 770 Broadway (Greenwich Village). P.16

17 Leasing Activity (cont d) Notable Move-ins During the 4th Quarter 919 Third Avenue (Plaza) 254,556 square feet spanning 8-floors was absorbed as a result of a 15-year lease that will see Bloomberg LP expand into the building that is conveniently located near the data and media company s headquarters at 731 Lexington Avenue. The deal that had an asking rent in the high-$50s had a reported value of $220 million; and required the shifting of existing tenants to create the large block of space. Empire State Building, 350 Fifth Avenue (Penn Plaza) 124,125 square feet was absorbed as a result of the move-in by Mountain View- CA-based LinkedIn. The expansion deal increases the social networking site s presence at the iconic tower to roughly 280,000 square feet. Asking rent for the space was reportedly in the low to mid-$60s. 5 Manhattan West formerly 450 West 33rd Street (Penn Plaza) 173,000 square feet spread across the entire 12th floor and a portion of the 11th floor was absorbed as a result of the Interpublic Group of Co subsidiary R/GA Media relocating from nearby 350 West 39th Street. The move by the digital advertising firm was prompted by the sale of its former location to hotel developer McSam Hotel Group in 2014 for future redevelopment. Asking rents at the building reportedly range $78-$80 per square foot, a figure that is above market for the area due to major renovations currently underway at the Far West Side tower. 395 Hudson Street (Hudson Square) 152,670 square feet was absorbed as a result of the sublease signed by WebMD. The space formerly occupied by sublandlord test preparation company Kaplan had 9-years remaining on the lease term; and included (1) 5-year option for a direct lease with landlord NY District of Carpenters. The online health information and news provider reportedly paid above the original asking rent in the low-$50s in exchange for Kaplan providing tenant improvement (TI) funds for a state-of-the-art buildout. WebMD relocated from Google s 111 Eighth Avenue (Chelsea/MePA), having struck a buyout of their remaining term that ran through November 30, Liberty Street (World Trade Center) 727,529 square feet was absorbed as a result of Time Inc. relocating to the Brookfield Place complex. The move represented a downsizing by the publisher that was spun-off from Time Warner Inc. in 2014, vacating its roughly 1.1 million-square-foot headquarters occupied since 1959 at 1271 Sixth Avenue (Columbus Circle). A $10 million incentive package was awarded by New York State. According to sources the asking rent was reportedly near $60 per square foot, but Time will have a starting rent in the low-$50s for the 15-year lease that was valued at $506 million. One World Trade Center (World Trade Center) 273,004 square feet was absorbed as a result of the move-in by the U.S. General Services Administration (GSA). The lease that spans entire floors runs 20-years plus renewal options for an approximate deal value of reportedly $351 million. The Port Authority of NY & NJ (PANYNJ) had authorized $42.5 million in tenant improvements (TI) as part of the signing according to sources. 1 New York Plaza (FiDi) 157,162 square feet was absorbed as a result of OSP Group relocating and consolidating former offices at 463- and Seventh Avenue (Penn Plaza). The online apparel retailer was awarded a $1.8 million grant from the Empire State Development & Economic Development Corp. for the creation of 150 new jobs. OSP reportedly invested $20 million in the move. P.17

18 Submarket ReCap: Midtown Affordability Along the 3rd Avenue Corridor Draws Tenants The 3rd Avenue corridor between East 39th- and 57th Streets has seen a significant uptick in leasing activity over the last 2-years as an influx of tenants are lured by its affordability. At a time when a tremendous volume of new development throughout the city is adding new office inventory at high prices, the Midtown East neighborhood has become an ideal option that along with lower rents reportedly offers amenity-loaded buildings that are still close to transportation. Available space within the corridor diminished by about 50% from almost 4 million square feet between the end of 2013 through the 3rd quarter of 2015 according to reports, establishing a diversified mix of industries. Some notable deals over the last 2-years include: Midtown Schulte Roth & Zabel / 919 Third Avenue A 15-year renewal of 283,894 square feet by the law firm in 2014; Bloomberg LP / 919 Third Avenue A 15-year lease/expansion for 254,556 square feet that spread across 8-floors at the tower by the media/research conglomerate in 2015; EisnerAmper / 750 Third Avenue An 8-year renewal/expansion for a total of 150,000 square feet by the accounting firm in 2013; Grant Thornton / 757 Third Avenue A 15-year relocation deal for 130,357 square feet by the independent tax advisory firm in 2014, vacating about 103,486 square feet at nearby 666 Third Avenue; Interpublic Group (IPG) / 909 Third Avenue A 12-year sublease for 112,300 square feet by the advertising company in 2015, previously occupied by Forest Laboratories; NYC Empire State Development / 633 Third Avenue A 10-year renewal of 104,200 square feet by the New York State agency in 2013; Troutman Sanders / 875 Third Avenue A 15-year relocation deal for 87,126 square feet by the law firm in Class A and B Vacancy 7.79% Rental Rate Net Absorption $63.26 per sq. ft. 99,597 sq. ft. P.18

19 Submarket ReCap: Midtown (cont d) Times Square s Big Block Vacancies Offer Ideal Property Upgrade Opportunity Despite over 2 million square feet of vacant office space within the district, area landlords are reportedly not overly worried about filling the big blocks of space resulting from recent and upcoming relocations; and instead taking advantage of the opportunity to upgrade properties to better compete with newer construction. A prime example is at 4 Times Square where Condé Nast vacated about 800,000 square feet earlier this year upon relocating to One World Trade Center. As part of the deal, the Port Authority of NY & NJ agreed in 2010 to take over the remaining 4-years in rent of the publisher s lease, valued at about $200 million. In addition Skadden Arps Slate Meagher & Flom will be vacating 644,671 square feet at the Times Square tower in 2020 when the law firm relocates to 1 Manhattan West, 400 West 33rd Street. Landlord The Durst Organization plans to invest $80-$100 million to renovate the building, also planning to convert Condé Nast s 4th floor 20,000-square-foot cafeteria into a food court; utilizing the remaining 25,000 square feet on the floor for a conference center with access to a 20,000-square-foot outdoor space. However some sources monitoring activity in Times Square are keeping a steady eye on renewal discussions by Morgan Stanley at 750 Seventh Avenue. Should negotiations fail to keep the financial firm in their over 400,000 square feet, a relocation would significantly impact vacancy in the district. Furthermore, sizeable leases along bordering 6th Avenue are reportedly nearing expiration in 2018 and 2019; and should large blocks be introduced to the market, would create direct competition for landlords of Times Square buildings. Currently News Corp. & 21st Century are considering vacating roughly 1.2 million square feet at and 1211 Sixth Avenue, having signed a non-binding letter of intent (LOI) to relocate to 2 World Trade Center upon lease expiration in Other nearing lease expirations include Home Box Office s (HBO) lease for 350,000 square feet at 1100 Sixth Avenue (aka 51 West 42nd Street) that was renewed in 1999 with a 2018 expiration; and accounting firm RSM McGladrey, Inc s 2008 renewal/expansion of their 164,771 square feet office that will also expire in Highlights - Lease Deals over 140,000 square feet Tenant Address District Sq. Ftge. Type/Term Industry Publicis Groupe 1675 Broadway Columbus Circle 580,000 Renewal/Expansion (16 yrs) Advertising Skadden Arps Slate et. al. 400 West 33rd Street (1 Manhattan West) Penn Plaza 550,000 Relocation (20 yrs) Law MetLife 200 Park Avenue Grand Central 495,551 Relocation (12 yrs) Insurance Kirkland & Ellis 601 Lexington Avenue Plaza 403,000 Extension (20 Yrs) Law Morgan Stanley 750 Seventh Avenue Times Square 400,000 Renewal Finance Interpublic Group (IPG) 450 West 33rd Street (5 Manhattan West) Penn Plaza 278,037 Renewal/Expansion (15 yrs) Advertising Bloomberg LP 919 Third Avenue Plaza 254,556 Expansion (15 yrs) Media J. Walter Thompson 237 Park Avenue Grand Central 270,000 Renewal (10 yrs) Marketing Chanel 9 West 57th Street Plaza 230,000 Expansion (15 yrs) Fashion Fortress Investment Group 1345 Sixth Avenue Columbus Circle 200,000 Renewal/Expansion Finance Citadel 425 Park Avenue Plaza 200,000 Relocation (15 yrs) Finance Boston Consulting Group 10 Hudson Yards Hudson Yards 193,295 Relocation (15 yrs) Consultants WeWork 1460 Broadway (8 Times Sq) Times Square 180,000 New (20 yrs) Co-work Nike 855 Sixth Avenue Penn Plaza 147,000 Relocation (11 yrs) Footwear Foot Locker 330 West 34th Street Penn Plaza 145,000 Area Relocation (10 yrs) Footwear P.19

20 Submarket ReCap: Midtown (cont d) Hudson Yards Leasing Activity Update Activity at the multi-building Far West Side project being constructed by Related Companies and Oxford Properties Group has picked up speed in recent months, October bringing the topping-out celebration of 10 Hudson Yards. Upon full completion, the 28-acre site will deliver an estimated 17 million square feet of new mixed-use space. Currently there are 3-buildings plus a 7-story retail component that are in different phases of construction amongst the 6-buildings and nearly 10 million square feet of new mixed-used space that will eventually rise in the Eastern Yard as part of Phase 1 of the massive project. Phase 2 of the project located on the Western Yard will be roughly half the size of Phase 1 and scheduled for a 2024 completion. Tentative plans reveal 8-buildings 7-residential buildings, 1-office tower approximately 2 million square feet, and a 750-seat school. The project which has been successful in attracting some notable large block tenants will face increased competition as other large projects on the Far West Side take shape, such as Brookfield Property Partner s multi-building Manhattan West totaling roughly 5.4 million square feet; Tishman Speyer s planned 2.9 million square-foot project at 435 Tenth Avenue; and Moinian Group s planned 1.8 million-square-foot development at 555 West 34th Street dubbed 3 Hudson Boulevard. 10 Hudson Yards aka 501 West 30th Street The first tower to break ground at the multi-building project with an expected delivery in June, currently boasting a roughly 90% occupancy. The 52-story, 1.7 million-square-foot building will house office space beginning on the 8th floor, plus a retail component that will include a 46,000-square-foot Food Hall to be operated by restaurateur Danny Meyer according to a pending deal announced earlier this year. Large lease signings during the 4th quarter include: Boston Consulting (BCG) The Boston, MA-based global consulting firm has leased 193,295 square feet spread across entire floors in a 15-year deal at the tower. BCG is currently headquartered in a roughly 96,500-square-foot office at 430 Park Avenue (Plaza) where they have been a tenant since 2002; and another 50,342 square feet they are reportedly subleasing from Credit Suisse that expires April BCG will be relocating 500 employees in the fall of 2016, joining anchor tenant Coach in a 740,000-square-foot condo interest acquired in 2013 as well as SAP America, L Oreal and VaynerMedia. Designs for the new space will be eclectic, with a non-corporate feel and flexible space to support different work styles and uses while supporting wellness and sustainability for employees. A central hub for clients and employees to interact will be surrounded by an immersion room that facilitates real-time sharing with multiple, interactive display screens to allow virtual editing; and hexagonal-shaped venture rooms with touch-screen monitors for accelerating the design and incubation of new business. Technology through BCG s new office will enable work anywhere and anytime. As a result of the recent deal the tower will be over 90% leased, paving the way for a potential partial sale that would allow developers Related Companies and Oxford Properties Group to capitalize on the value they created and provide cash to help finance further construction at the multi-building project. 10 Hudson Yards Tenant Roster Snapshot Company Sq. Ftge. Floors Industry Coach 737,774 E9-23, P24 Leather Goods Condo unit acquired in 2013 for $750 million ($1,034 per square foot) VaynerMedia 88,000 P24, E25 Digital Marketing L Oreal 466,032 E27-36 Cosmetics Boston Consulting Group 193,295 E42-47 Consulting SAP America 144,066 E48-52 Technology 55 Hudson Yards aka West 34th Street The 51-story, 1.3 million square foot tower broke ground in January. The building is being constructed along with Japan-based Mitsui Fudosan America, as a result of a $258.8 million investment purchase for a 90% stake announced in early Hudson Yards Tenant Roster Snapshot Company Sq. Ftge. Floors Industry Boies Schiller & Flexner 83,292 E14-16 Law P2 P.20