In late January, File Mile Capital Partners L.L.C. swooped in to buy a stake in Boston”™s John Hancock Tower, with the reflective-glass skyscraper the tallest in New England.
In so doing, the company may have unwittingly held up a mirror to the state of the Northeast office market going forward, including within a 15-mile radius of its own headquarters on Tresser Boulevard in Stamford.
Commercial real estate leasing activity dropped in the first quarter in Fairfield County, according to a new report by the Greenwich office of commercial broker Newman Knight Frank, though neighboring Westchester County, N.Y., saw an even steeper drop.
“The takeaway news is that there”™s activity,” said John Goodkind, managing principal of Newmark Knight Frank, in a statement. “Compared to 24 months ago, today”™s numbers would be bad news. Just the fact that we”™ve seen some movement is a plus. We sense that leasing activity will begin to turn around.”
The largest deal tracked by Newmark Knight Frank in Fairfield County was Sikorsky Aircraft Corp.”™s sublease of more than 90,000 square feet of space at Transwitch Corp.”™s headquarters at 6 Corporate Drive in Shelton. As first disclosed in the April 6 edition of the Fairfield County Business Journal, Stratford-based Sikorsky now reports having more than 9,200 employees in its local facilities.
Bridgewater Associates signed for 56,000 square feet of space at 500 Nyala Farms Road in Westport, expanding its hedge fund operations against the prevailing trend of other funds making space available for sublease as they downsize. That exceeded the largest deal in Westchester County, Acorda Therapeautics Inc.”™s renewal of a lease for 45,000-square feet of space in Hawthorne, N.Y.
In Westchester, UBS AG took the deed on a 500,000-square-foot commercial property at 500 Westchester Ave. in White Plains, according to CoStar Group, which Verizon Communications Inc. sold in 2007 to GHP Office Realty.
The development could be a signal of wider distressed debt in the suburban markets in New York and Connecticut, where properties fetched record prices in 2006 and 2007 in debt-laden deals only to see vacancy rates rise in 2009. If property owners cannot refinance those deals, some real estate experts say, they may not be able to keep bankers at bay.
Manhattan rents dropped 6 percent between the fourth quarter of 2008 and the just-completed first quarter, according to Cushman & Wakefield, which has its local offices in Stamford.
“In a post-Lehman economic environment, it is not a surprise that on a percentage basis we”™ve seen such a sharp drop in rents,” said Joe Harbert, a Westport resident who is chief operating officer of Cushman & Wakefield”™s metro New York operations.
“Sublease space is on the rise, tenant demand has decreased and landlords are becoming more competitive to attract new tenants and retain current ones. The net result is rents falling faster than they did in the last two recessions.”
Harbert added that the majority of investors circling the New York market are in a holding pattern, and that those interested in investing now face the issue of whether they can obtain financing.
The 500 Westchester Ave. deal was dwarfed by Five Mile Capital”™s deal for the Hancock Tower, partnering with Normandy Real Estate Partners to offer $20 million and assume more than $640 million in debt to acquire the I.M. Pei-designed building.
Morristown, N.J.-based Normandy Real Estate Partners manages the Darien Green office buildings at 320 and 330 Post Road in Darien, as well as office buildings along the Platinum Mile in White Plains, N.Y.
Five Mile Capital has $2.9 billion in assets under management at last report. The company is led by Gary Holloway, the former chairman of Greenwich Capital Markets.
