This report is a confirmation that the positive trends of 2017 are continuing this year. Multifamily development continues to be strong, with a full pipeline of projects in various stages of approval, construction and leasing throughout the county.
The second-quarter office leasing statistics are not yet done as of this writing, but they will show the office market as essentially flat in the first half of the year. That does not sound like good news. But my experience in the market this year and my conversations with my office broker colleagues tell a different story. Building agents are busy showing space. Many times there is more than one tenant interested in a particular space. There is a general optimism in the market and a consensus that our market is turning from a pure tenant”™s market toward a landlord”™s market. We are certainly not at that point yet, but it is at the least a balanced market in which both tenants and landlords have similar bargaining power.
The White Plains Central Business District (CBD) has very little inventory available. There are a significant amount of tenants with more than 10,000 square feet in the market. Some existing tenants are expanding. Our inventory of office space continues to shrink. And the flex and industrial markets are extremely tight, with very little inventory and significant increases in rental rates.
First-quarter leasing activity totaled 453,000 square feet, which was down slightly from the prior year, but up 7 percent from a very quiet Q4 of 2017. Overall availability fell to 22.2 percent, a decrease of about 1 percentage point from a year ago.
Millions of square feet of empty office space in the northern submarket artificially drag down the county”™s published availability rate. If these spaces were removed from the statistics, the county”™s availability rate would be a healthy 14.4 percent. All quoted statistics are from Newmark Knight Frank”™s reports.
Down county, there are fewer spaces available than there have been in years. These are good signs for the market. While the countywide asking rental rate is averaging $26.74 per square foot, it is being kept in check by the lower-priced offerings in the northern submarket. And we continue to take inventory off the market. While the second quarter has not closed as of this writing, leasing activity has been fairly flat.
“Slow leasing activity in the first half of this year is primarily due to a lack of quality space, especially in the White Plains Central Business District, and demolition of obsolete buildings continues, with 900 King St. in Rye and 555 White Plains Road in Tarrytown as the latest buildings to be slated for the wrecking ball,” said Karolina Alexandre, research manager for Newmark Knight Frank.
In the last decade or so, our multitenant office market has shrunk from about 32 million square feet to a little more than 27 million square feet through repurposings and demolition of obsolete office buildings.
Vacancy in the Northern Submarket
No one that I have spoken to in the real estate industry has any idea what the owner”™s game plan is for the former IBM and Pepsi properties in Somers, which total approximately 1.6 million square feet. There has been no application to the municipality for any change of use or rezoning.
While Robert Weisz has had significant success repositioning large former corporate headquarters buildings on the I-287 corridor into multitenant buildings, the Somers properties are simply located too far north to attract the typical office tenants looking for space in Westchester County. Additionally, the floor plates of these former corporate headquarters buildings are so large that they are not desirable for typical-size tenants. In the first quarter of 2018, more than 62 percent of all lease transactions were for less than 10,000 square feet.
Rents Rising in White Plains CBD
With a number of large leases last year in the White Plains CBD, we are seeing a very significant disparity in occupancy costs between the CBD and suburban buildings.
Lease deals in the CBD are in the mid-$30s per square foot, escalating over the lease term. Asking rental rates in the CBD have gone up more than $3 per square foot in the last two years (almost 10 percent), while asking rents in the suburban submarkets are still basically at mid-1980s levels, with no adjustment even for inflation over the last three decades. In addition, CBD parking rates are going up as well, adding about $3.50 per square foot to the occupancy cost. So rent plus parking and electric are now in the low $40s per square foot.
Suburban buildings are still in the mid $20s per square foot, plus electric, with no parking cost. So they will be in the high $20s all in. That is a differential of about $14 per square foot, which is extremely significant. On a 5,000-square-foot lease, that would result in an occupancy cost differential of about $70,000 per year between being in the CBD and in a suburban park. We have never seen this amount of rent disparity between submarkets and it reaffirms the health of the White Plains CBD market.
Insurance broker Willis Towers Watson did the largest lease transaction in the county in the first quarter, a 44,713-square-foot renewal at 44 S. Broadway. Medical deals included CareMount”™s 24,000-square-foot lease at 100 S. Bedford Road in Mount Kisco and Montefiore”™s 22,000-square-foot lease at 20 Cedar St. in New Rochelle. Mass Mutual renewed its 20,531 square foot lease at 565 Taxter Road in Elmsford, and USI insurance expanded its lease at 333 Westchester Ave. in White Plains by 15,500 square feet.
Some law firms, including Danziger & Markhoff and Gaines, Novick, Ponzini, Cossu & Venditti, moved to 1133 Westchester Ave. last year from downtown White Plains. Given this new cost dynamic, I believe that other CBD tenants will likely look seriously at the suburban markets before they make a decision to renew their leases.
Big Changes on the East Side
Normandy Partners bought 13 multitenant buildings (most of the former Schulman portfolio) in 2009. This was really the bulk of the multitenant inventory on the I-287 East corridor. As of this writing, they own six of those buildings. Five buildings have been demolished to make way for a new 125,000-square-foot Wegmans supermarket and Toll Brothers new 420-unit multifamily development, both of which are now under construction. Two of them ”” 925-1025 Westchester Ave. ”” have recently been sold to the RPW Group. This is a very interesting snapshot of what is happening in our market in the last few years.
The town of Harrison has done a great job in rezoning its land on the Platinum Mile to accommodate a variety of new uses, including recreation, medical, residential and retail. Its vision and hard work will pay off in new and increased tax ratables.
With all of these obsolete office buildings being demolished, some might ask why no one is building new office buildings. Look at it this way: Existing suburban office building rents are in the mid $20s. If a developer built a new building at today”™s construction costs with all of the technology and features that tenants want, they might need to achieve rents in the high $30s or low $40s in order to make a profit. While down county demand is reasonably good today, I think there would be few tenants who would choose to pay almost twice the rent per square foot to be in a new building. It would be a significant risk for a developer and our market has not yet reached the point that would make it a good bet.
Mack-Cali Exits White Plains
With the sale of the 571,000-square-foot Westchester Financial Center and the pending sale of 1 and 3 Barker Ave., Mack-Cali is officially out of the office market in the White Plains CBD for the first time since the 1980s. That was when its predecessor company (Robert Martin) developed all of these buildings. In addition, Mack-Cali has cleared its OneWater St. building of tenants and its Roseland subsidiary intends to demolish the building and build multifamily residential. This is a significant change in the market, where Mack-Cali has been a major owner of office buildings since it purchased Robert Martin in 1997. At this point, Mack-Cali only owns four office buildings (two in Yonkers, one in Elmsford and one in Hawthorne). The balance of their portfolio is flex and warehouse space.
Ginsburg is Reducing Inventory in the CBD
Martin Ginsburg is now taking the marketing and brokerage lead in the Ginsburg/Robert Martin partnership that bought the Westchester Financial Center earlier this year. He has rebranded the complex as City Square. In addition to making major improvements to 50 Main St. (which are long overdue) and the Main Street streetscape with new retail and restaurants, he will relocate some office tenants from the Martine Avenue building to the Main Street building and turn most of the Martine building into residential. Obviously, this takes more office space off the inventory in the already tight CBD submarket.
$92 Million in Improvements to the White Plains Station
MTA started renovations on the White Plains train station in April. The agency has repainted the rusting overpasses on Main Street and Hamilton Avenue and is continuing with its $92 million renovation to the third busiest station in its system after Grand Central and Stamford. Commuting ridership is fairly even between commuters to New York City and reverse commuters to White Plains.
While the MTA is moving forward, it is not clear what is happening with expressions of interest from developers for the land the city of White Plains owns adjacent to the Metro-North station. Reportedly, there is a deal to sell the land that is currently visitor parking for the Gateway Building (1 N. Lexington Ave.) for development of a hotel and multifamily residential. Phase I of the new Continuum residential complex on Bank Street is reportedly leasing very well. Phase II is now under construction and the conversion of 1-11 Martine Ave. to residential will add even more multifamily inventory to this transit-oriented development location.
Big Changes on the West Side
As of this writing, four buildings owned by Keystone Property Group (555 and 565 Taxter Road Elmsford and 200 and 220 White Plains Road in Tarrytown) are officially in receivership. They will be essentially off the leasing market until a new owner buys the debt and forecloses to acquire the buildings. Reportedly there is a contract of sale on 200 White Plains Road, which is contingent on rezoning that building to residential use. If that zoning change goes through, the building will be converted into apartments, taking it off the office inventory.
On the positive side, the RXR-owned buildings at 560 and 580 White Plains Road are about to undergo a transfer to a new ownership entity. The new owners are intent to recapitalize the buildings and perform major (and long-overdue) upgrades to the common areas, parking areas and landscaping. The management company for the new owners has indicated they will be quick to move forward on their renovations, as this will give them an opportunity to get a leg up on any new deals in the market until the Keystone buildings transition to a new owner and begin a renovation and re-leasing program. Also, the 555 White Plains Road building is now officially off the office inventory (another 135,000 square feet) as new owner Robert Martin Co. has indicated that it will demolish the building after sole tenant Tappan Zee Constructors leaves and replace it with other uses on that site.
Big Sales Activity in the Office Market
Reckson/S.L. Green has significantly reduced its Westchester portfolio. It sold the 115 and 117 Stevens Ave. buildings in Valhalla to GHP, and its six-building, 540,000-square-foot Reckson Executive Park in Rye Brook to George Comfort and Sons. GHP”™s purchase was for about $66 per square foot. Last year, GHP bought 660 White Plains Road in Tarrytown from RXR for $107 per square foot. And over the past two years, Reckson /S.L. Green also sold 520 White Plains Road in Tarrytown and 140/150 Grand St. in White Plains.
570 Taxter Road in Elmsford was sold by Keystone Property Group to a private owner. Recently, RPW Group purchased 925 and 1025 Westchester Ave. from Normandy Partners. The key takeaway here is that all of these buildings sales are at prices that are substantially below replacement cost. This gives a new owner the ability to invest capital in generally long-overdue upgrades and improvements and still be able to profit on its re-leasing of the properties at current market rents. Part of the reason that these buildings are selling so cheaply is that their owners failed to make adequate investments in them, and their leasing (and income) suffered. On the East Side of I-287, 3 Westchester Park Drive sold to a Boston developer who is reportedly going to demolish the building and turn the site into residential.
Just a Few High-End Condos
National Realty and Development has reportedly sold out its first phase of waterfront condominiums on the site of the former Beckwith Pointe Beach Club in New Rochelle, which are in the beginning stages of construction. Alfred Weissman has just broken ground on his St. Regis Condominiums on the grounds of a former office building in Rye. To my knowledge, these are the only for-sale multifamily projects in the county. I am sure they will be well received by empty nesters and snowbirds who want high-end product with services and amenities. Construction continues on King Street at Reckson Executive Park (now owned by George Comfort & Sons) on high-end duplexes and freestanding homes. With all of the baby boomers selling multimillion-dollar homes in Westchester, we need more upscale empty-nester product to keep these people in the county.
White Plains: Multifamily Pipeline Full
Lennar has told White Plains city officials that their large mixed-use project on East Post Road is on hold. The country”™s largest residential developer bought the fully approved site from retail REIT Urstadt Biddle. The approvals included two large towers containing 707 apartments, and about 77,000 square feet of retail space and about 94,000 square feet of office space. Reportedly, Lennar wants to re-think the amount of office and retail, particularly as there are significant retail vacancies all up and down the East Post Road corridor. They have indicated that they will be back to the city next year for a new site plan approval. The site, which was the former Westchester Pavilion has been completely demolished, so the large hole in the ground will be there for a while.
Across the street, the conversion of the former Esplanade senior citizens residence to multifamily rental apartments has stalled, and the property is on the market. The former Alliance project, which is now part of Lennar, has been approved for the Mamaroneck Avenue/Post Road corner. The White Plains Mall project, named Hamilton Green, has begun moving again, and the White Plains Common Council is scheduled to vote on a zoning change to permit the multifamily project next week. Rose Associates from New York City has taken over the project for 440 Hamilton Ave., and is revising and expanding its plans for the site. While the former owner intended to convert the former AT & T office building to multifamily and leave the large surface parking lot behind it in place, Rose has proposed building townhouses and a parking structure on the existing parking lot, which will result in approximately twice the number of housing units contemplated by the previous developer.
The White Plains Common Council also approved The Collection, a project consisting of 25,000 square feet of retail and restaurant space and 276 apartments on Westchester Avenue, across from The Westchester mall.
The functionally obsolete White Plains YMCA building on Mamaroneck Avenue near Maple is up for sale, which will ultimately be another development site. I would think there would be a lot of developer interest in this site.
The Truth About All the Multifamily Development
There is obviously a lot of multifamily projects in the planning and approval pipelines. When and in what order they will actually hit the leasing market is difficult to tell at this point. There are certainly people (both in and out of the real estate industry) who are questioning whether the market can absorb the thousands of apartment units that are planned. A couple of thoughts: The median age of the apartment stock in Westchester is 50 years. That means many of the existing units are functionally obsolete. Current apartment vacancy is less than 5 percent. These two facts alone would speak to the necessity for new inventory. Not to mention that virtually all of these projects are being built with very attractive amenity packages, including pools, common rooms, roof decks and business centers.
Also, these thousands of units are at various stages in the approval/development pipeline. It can take years from the announcement of a new development for it to be approved in Westchester. Once it is approved, the construction documents need to be done, a contractor hired, and bids received and accepted from all the subcontractors. The timeline to construct a large project can range from 18 months or so to multiple years. So these units will actually go into the leasing phase over a relatively long period of time. So far, completed projects have leased very well. There was a recent news article that included interviews of people who have leased in these projects. Many of them came from New York City or other areas. Some were empty nesters from Westchester who were downsizing. All had their own reasons for their move, but found Westchester an attractive place to live, with the bonuses of scenic river views and an easy commute to New York City. Yonkers, New Rochelle and White Plains have the biggest pipelines, but many of these projects will not begin leasing for five years or more.
Multifamily is Hot in Many Westchester Cities
Yonkers has a lot of buildings under construction and the Modera just opened for leasing. Ginsburg Development is continuing its building boom along the Hudson River on Warburton Avenue. The combination of the Hudson River and easy access to Metro-North has attracted many developers to this area. Lots of people are already living there and I anticipate that the new inventory will lease up as well.
New Rochelle is also seeing buildings come out of the ground. RXR”™s 28-story 587 Main St. has topped out and the curtain walls are going up. The same developer has two more 28-story residential buildings in the approval pipeline for the site of the now-demolished Church-Division parking structure. These buildings will have the Long Island Sound views from their upper floors, as well as a walk to the Metro-North Station. Soon, commuters will be able to commute to either Grand Central or Penn Station from New Rochelle, and the city also has the advantage of Acela and Amtrak services. A number of other multifamily projects have already been approved and a number of them have been completed or are under construction. The city”™s new, simplified approval process has attracted a number of developers to the Queen City on the Sound. Port Chester has hired a consulting firm to help its planning efforts for its downtown area. The biggest question mark in the village is who will take over the former United Hospital site now that Starwood Capital has decided not to move forward on it. This is a very large site
in a key location.
Industrial Keeps Getting Tighter
The industrial and flex (office/warehouse) market keeps getting tighter and higher priced. Westchester is seeing an influx of industrial tenants that are being pushed out of the Bronx either by lack of inventory or high rental rates and sale prices, putting additional pressure on our market. Space that used to rent for $8 to $10 per square foot is now routinely asking (and getting) $15. Larger buildings with higher ceilings and good loading are commanding rents that approach suburban office rents. Never in my 30-plus years in the market have I seen this type of rent growth. The fact that there are literally no space alternatives for many tenants is part of what is keeping the rates high. Old buildings (particularly in Yonkers) are being demolished to make way for high-rise multifamily developments, and there is no way to replace them. Notwithstanding the fact that our industrial and warehouse product is primarily old, low-ceiling buildings with difficult loading and little or no parking, its value keeps increasing as
inventory shrinks.
There have not been a lot of industrial deals, primarily due to inventory constraints.
Laboratory Space
The brokerage community has just been notified that 100,000 square feet of laboratory space has come to market at Ardsley Park. This is important, as we have had literally no lab availability in the county. Regeneron has taken every square foot at its Landmark at Eastview facility. This has shut out existing tenants (some of whom have had to vacate their space), and has taken one of the few purpose-built laboratory facilities completely off the market. Westchester companies with laboratory space requirements have had to relocate to Rockland County (the former Pfizer facility, which was bought by a California developer) or to New Jersey. I also just heard that the 99-year lease for the North 60, which has been proposed by John Fareri to include laboratory, medical, hotel and other types of space, has not yet been signed, despite years of negotiation and the approval of the county legislature. If constructed, this project would have the ability to develop custom-tailored laboratory space to increase Westchester”™s capacity
for biotech tenants.
Summary
Even though the office leasing statistics for the first half of the year will look anemic, I think our county is in great shape. Our primary office market is continuing to get healthier. Westchester has not historically been a market where out-of-area companies set up new offices or headquarters. But with our reduced inventory, our current tenants are finding fewer space options when their leases expire or their needs change.
Technology continues to enable companies to be located anywhere they want. Fewer and fewer clients and customers actually come to offices these days, adding to that geographical flexibility. New owners are upgrading their buildings, making up for decades without capital improvements. CBD rental rates have risen significantly and suburban rental rates are starting to rise. The excess inventory in the northern submarket is just not relevant to the great majority of tenants in the market.
Our cities are also getting healthier. Developers (including large national developers) are seeking out sites in Westchester. The Hudson River and the Long Island sound are seen as desirable areas for development, as they should be. I think the multifamily projects in the pipeline will likely come onto the market in a reasonable orderly fashion in the next five years or so. There is also a self-policing feature to development. Developers are smart business people. They carefully study a market, its available inventory, its pipeline and its absorption rates before they commit to a project. If they deem the market overbuilt, they will likely not jump in.
Howard E. Greenberg is president of Howard Properties Ltd. in White Plains. He has been active as a commercial real estate broker in Westchester, throughout the United States, and in Europe for more than 30 years. He can be reached at 914-997-0300 or howard@howprop.com.
