2Q18 New York - NAI Queens

 
2Q18 New York - NAI Queens
2Q18 New York
Commercial Real Estate Market Report
2Q18 New York - NAI Queens
2Q18
Table of Contents
New York Economic Overview					Page 03
     Southern Queens Spotlight						page 06

Office Market   							Page 09
     Overview								page 10
     Leasing								page 11
     Rent									page 13
     Construction								page 14
     Sales									page 16
     Submarkets								page 19

Retail Market								Page 20
     Overview								page 21
     Leasing								page 22
     Rent									page 23
     Construction								page 24
     Sales									page 26
     Submarkets								page 29

Industrial Market							Page 30
     Overview								page 31
     Leasing								page 32
     Rent									page 33
     Construction								page 34
     Sales									page 36
     Submarkets								page 39

Multi-Family Market							Page 40
     Overview								page 41
     Vacancy								page 42
     Rent									page 44
     Construction								page 45
     Sales									page 47
     Submarkets								page 50

                    175 Broadhollow Road, Suite 150 | Melville NY 11747 | +1 718 215 1400
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2Q18 New York - NAI Queens
New York
Economic Overview 2Q18
2Q18 New York - NAI Queens
2Q18                                                                                                                      Economy

Overview
Welcome to the new New York. Based on information from the U.S.          Media and technology should stand out as New York’s long-term
Census, the Office of Management and Budget changed the metro’s          growth drivers. This market’s employment base has been gradually
definition to include Middlesex, Monmouth, and Ocean counties in         shifting from finance toward TAMI (tech, advertising, media, and
New Jersey (formerly of Edison) and Orange County in New York            information) sectors for almost three decades. Tech industry
                              ThePutnam
(formerly of Poughkeepsie), while     LongCounty
                                             Islandwas
                                                    office   market
                                                        removed  from    heavyweights such as Bloomberg and Google have accounted for
the geography. The New York metro now includes an additional 2.3         some of the largest payroll expansions so far in this recovery, and
                              ended
million people, and the economy     nowthe  1sttoward
                                        skews    quarter
                                                       the 2015
                                                           blue-collar   firms like DraftKings and BuzzFeed contributed to more than $7.3
                              with areas
industries more prevalent in outlying an increased    vacancy
                                            and away from  highvalue-    billion of venture capital investment in 2015, raising $300 million and
                              rate of 8.4%. The vacancy
add industries, like finance, and   high-growth  ones such        rate
                                                             as tech,    $200 million respectively. Venture capital investment in the New York
more often found in Manhattan and closein sections of the boroughs.      metro area rose to its highest level on record in 17Q3 surpassing
                              was 8.2% at the end of the 4th             Silicon Valley. The bulk of the funding was Softbank’s $3.0
The past year has been a mixedquarter
                                  bag for2014,   8.0%financial
                                           New York’s   at thesector.
                                                                end      billion direct investment in WeWork. Tech’s recent popularity has
Thanks largely to expansions  of the 3rd quarter, and 7.7%
                                  by privateequity  investors, hedge     encouraged studies like that by the Federal Reserve Bank of New
funds, and merger and acquisition boutique shops, the metro’s most       York, which found that the city’s workforce in industries that use
                              at the end of the 2nd quarter
prominent economic driver added more jobs than historic averages         technology in their core business has grown by more than 60%
                              2014.
and national average. Profits of the six largest U.S. banks also has     since 2007, compared with 12% nationally. Of the nation’s top tech
been substantially increasing and with deregulation could see a larger   employment centers, only Seattle has a greater concentration of tech
jump. And according to the Office of the New York State Comptroller,     jobs within the urban core. The majority of New York’s tech jobs are
average annual Wall Street compensation topped $400,000 for only         based in Manhattan, though more and more firms are pushing out
the second time ever. Yet financial firms such as Barclays, Bank         into Brooklyn and even Queens. Tech still accounts for only slightly
of America, Morgan Stanley, and Goldman Sachs continue to                more than 5% of total metro employment, but it is growing quickly.
announce layoffs and slash bonuses, fueled by a yearlong slump           And adding creative industries to the tech total produces a subset
in fixed income and rising business and litigation costs. Legal          that makes up about 15% of metro employment, compared with 10%
settlements and new regulations have helped keep the number of           in financial activities. As these industries continue to grow, the metro’s
jobs in the sector just at the prerecession peak. However, as long       appeal to highly educated workers should remain a key advantage
as financial-sector employees account for more than one-quarter of       as the U.S. economy shifts toward professional/high tech services
total wages paid, finance will be a driving force behind New York’s      over the long term. Near term, however, the sector is not without its
economy.                                                                 challenges.

Low-paying sectors continue driving steady employment growth,
although growth in middle-wage sectors picked up in recent years,
according to the office of the city comptroller. The Bureau of Labor
                                                                                                   Vacancy Rate
Statistics reported in August 2018, the New York metro had the
largest year-over-year employment increases (+117,400) when
compared to other national metros. On another positive side, average
hourly private-sector earnings continues to rise.

Overall job additions in both the city and the metro as a whole
have been heavily concentrated in lower value-add sectors in this
expansion. Over the past year, sectors such as education and health
services and leisure and hospitality accounted for a disproportionate
share of employment gains in both the city and the metro. With the
metro’s population over the age of 65 expected to increase by an
average of more than 58,000 residents annually over the coming
years, the healthservices sector should continue growing relatively
rapidly. Unfortunately, jobs associated with eldercare tend to pay
much less than others in the industry.

                                                                    Page 04
2Q18 New York - NAI Queens
2Q18                                                                                                  Economy

     Overview
                                   New York Employment by Industry in Thousands:
                                          Current Jobs           Current Growth      10 Yr. Historical         5 Yr. Forecast
NAICS Industry                         Jobs           LQ        Market      US      Market        US         Market        US

Manufacturing                           205           0.4       -1.58%     -0.41%   -2.05%       -0.98%      -1.24%       -1.26%

Trade, Transportation & Utilites       1,211          0.9       1.36%      1.30%    0.72%        0.52%       0.01%        0.27%

  Retail Trade                          667           0.9       1.48%      0.70%    1.15%        0.41%       0.12%        0.28%

Financial Activities                    627           1.5       0.73%      0.54%    -0.01%       0.31%       0.05%        0.78%

Government                              901           0.8       -0.12%     0.09%    -0.39%       -0.08%      0.39%        0.51%

Natural Resources, Mining &
                                        269           0.7       3.08%      4.08%    0.93%        -0.09%      0.60%        1.52%
Construction

Education & Health Services            1,475          1.3       3.02%      1.50%    2.81%        2.01%       0.57%        1.25%

Professional & Business Services       1,150          1.1       1.91%      2.56%    1.77%        1.65%       1.03%        1.34%

Information                             245           1.9       -0.54%     0.58%    0.64%        -0.88%      0.17%        0.29%

Leisure & Hospitality                   686           0.9       1.39%      1.64%    3.22%        1.86%       0.60%        1.28%

Other Services                          303           1.1       1.00%      0.62%    1.44%        0.46%       -0.09%       0.41%

Total Employment                       7,074          1.0       1.44%      1.26%    1.22%        0.75%       0.39%        0.75%

                                                      Demographic Trends
                                         Current Level           Current Change       10 Yr. Change          Forecast Change
Demographic Category                   Metro          US        Metro       US      Metro         US         Metro         US

Population                           14,584,478   328,212,555   0.3%        0.7%    0.6%          0.8%       0.3%         0.7%

Households                            5,498,168   126,281,516   0.5%        1.0%    0.7%          0.8%       0.8%         1.1%

Median Household Income               $68,407      $60,991      1.3%        3.6%    1.2%          1.6%       2.7%         2.9%

Labor Force                           7,158,421   161,862,122   -0.5%       1.0%    0.5%          0.5%       0.6%         0.8%

Unemployment                            4.2%         3.9%       -0.3%      -0.4%    -0.1%        -0.2%         -            -

      Population Growth                                  Labor Force Growth                              Income Growth

                                                                Page 05
2Q18 New York - NAI Queens
Southern Queens

                      2Q18                                                                                            Sales Report
                                                                                                         First Half 2018

                                                                                                         Sales Report
                      Southern Queens Spotlight
    Southern Queens First Half 2018 Sales Report
                                                                  Sales Dollar Volume
                                                                   (Q2 2017 vs. Q2 2018)
                                                  Sales Dollar Volume (2Q 2017 vs. 2Q 2018)
                      $140

                      $120

                      $100

                       $80
(In Millions)

                       $60

                       $40

                                                                      Demographic Trends

                       $20
      (In Millions)

                        $0
                               Multifamily       Industrial       Garage            Retail           Office         Mixed Use       Development

                      Sales volume
                      Sales  volumeininSouthern
                                        Southern  Queens
                                                Queens    in the
                                                       in the firstfirst half
                                                                    half of   of 2018
                                                                            2018       dropped
                                                                                  dropped      6% overall,
                                                                                          6% overall,        from approx.
                                                                                                      from approx.        $280to
                                                                                                                   $280 million
                      million
                      $263     to $263 million.
                            million.
                       Multifamily properties saw the most significant decrease in sales volume, down 92%, from almost
                       $110 million
                      Multifamily       to just $8
                                    properties     sawmillion
                                                         the mostin the  first halfdecrease
                                                                      significant   of 2018. in sales volume, down 92%, from almost $110
                      million  to just $8sales
                       Development          millionvolume
                                                    in the first
                                                             more half than
                                                                       of 2018.
                                                                              doubled, increasing 257% in the same period from $34
                       million to almost $120 million, encompassing 14% of all southern Queens sales volume in dollars.
                       Industrial sales
                      Development           fellvolume
                                        sales     over 50%,
                                                          morefrom than$58    millionincreasing
                                                                         doubled,      to $27 million,
                                                                                                 257% in  capturing
                                                                                                            the samejust  9% of
                                                                                                                       period      sales
                                                                                                                                from   $34volume
                                                                                                                                             millioninto
                       the first
                      almost       halfmillion,
                                $120    of 2018.     Mixed use trades
                                                 encompassing        14% ofnearly     doubled
                                                                              all southern     in sales
                                                                                            Queens        volume
                                                                                                       sales      compared
                                                                                                             volume  in dollars.toIndustrial
                                                                                                                                    the firstsales
                                                                                                                                               half of
                                                                                                                                                    fell
                       2017,
                      over      from
                             50%,      $28
                                    from  $58million
                                                 million to $27
                                                             $50 million,
                                                                     millioncapturing
                                                                               in the first   halfofof
                                                                                        just 9%         2018,
                                                                                                     sales     representing
                                                                                                           volume  in the first 48%
                                                                                                                                half ofof2018.
                                                                                                                                           all dollar
                                                                                                                                                Mixed
                       volume
                      use        in nearly
                            trades   Southern      Queens.
                                             doubled    in sales volume compared to the first half of 2017, from $28 million to $50 million
                 in the
                NAI     first half of
                     Queens        1752018, representing
                                        Broadhollow Road,48%
                                                          Suiteof150,
                                                                  all dollar volume
                                                                       Melville,    in Southern
                                                                                 NY 11747    718Queens.
                                                                                                 215 1500                        www.naiqueens.com

                                                                                  Page 06
2Q18 New York - NAI Queens
First Half 2018
       2Q18                                                                  Sales Report
                                                                                          Sales Report

       Southern Queens Spotlight
Southern Queens First Half 2018 Sales Report

                                      Transaction Volume By Building Class
                    Transaction Volume(Q2
                                       by2017
                                          Building    Class (2Q 2017 vs. 2Q 2018)
                                              vs. Q2 2018)

                                                 Garage
                                                  7.5%                         Retail
                         Industrial
                                                                               10%
                           10.5%
                                                                                                Office
                                                                                                4.5%
          Multi-
          Family
           3%

                                                                                                            Mixed
                                                                                                             Use
                                                                                                            19%

                                                 Demographic Trends

       Southern Queens had slightly more transaction activity through the first half of 2018 than the
       first half
  Southern        of 2017,
             Queens        with 132
                      had slightly   transactions
                                   more transactionso far thisthrough
                                                    activity    year up
                                                                      thefrom
                                                                           first115,  representing
                                                                                 half of 2018 than a
                                                                                                   thenearly
                                                                                                       first
       15%    increase.
  half of 2017, with 132 transactions so far this year up from 115, representing a nearly 15%
  increase.
        The most notable increase in trades was in Mixed Use properties, with 63 in the first half of
  The most
        2018,notable
               up fromincrease   in trades
                         43 in the   first halfwas in Mixed
                                                of the        Use properties,
                                                       year prior, representing with  63 inincrease.
                                                                                   a 46%       the first half of 2018,
  up from 43 in the first half of the year prior, representing a 46% increase.
  GarageGarage
           tradestrades  moredoubled,
                   more than    than doubled,
                                           from 4 from   4 transactions
                                                    transactions         to 9first
                                                                 to 9 in the   in the
                                                                                    halffirst half of 2018.
                                                                                           of 2018.
  Office trades fell by half from 8 to 4 office buildings traded during this period.
       Office trades fell by half from 8 to 4 office buildings traded during this period.

 NAI Queens        175 Broadhollow Road, Suite 150, Melville, NY 11747        718 215 1500        www.naiqueens.com
                                                           Page 07
2Q18 New York - NAI Queens
Southern Queens

  2Q18                                                                                     First Half 2017Sales Report

                                                                                           Sales Report
  Southern Queens Spotlight
Southern Queens First Half 2018 Sales Report
                                P.P.S.F.
          P.P.S.F. Values (Q2 2017 vs. Q2 Values
                                          2018):                  (2Q 2017 vs. 2Q 2018)
      $450

      $400

      $350

      $300

      $250

      $200

      $150

      $100

                                                        Demographic Trends
        $50

         $0
                 Multifamily        Industrial         Garage             Retail            Office           Mixed Use       Development

   Sales volume in Southern Queens in the first half of 2018 dropped 6% overall, from approx.
   $280
 The averagemillion
             price perto $263
                       square foot million.
                                   (P.P.S.F.) of all commercial properties sold in Southern Queens in the first half of 2018 was $288 per
 sq. ft., up from $2015 at the same time in 2017.
 Multifamily properties dropped slightly in price per square foot value, from $314 per square foot to $264 per square foot in the first half
   Multifamily properties saw the most significant decrease in sales volume, down 92%, from
 of 2018, due to larger properties trading.

   almost $110 million to just $8 million in the first half of 2018.
 Retail price per square foot values jumped 14% from $359 per square foot to $411 per square foot in the first half of 2018.
 Office properties dramatically increased in price per square foot, from $192 per square foot in the first half of 2017 to $425 per square
 foot in the first half of 2018, primarily due to a reduction in transactions.
   Development sales volume more than doubled, increasing 257% in the same period from
 Industrial properties continue to appreciate significantly in price per square foot value, from $236 to $298 per square foot.
 Mixed use property price per square foot values surged similarly, from $241 per square foot to $298 per square foot in the first half of
   $34 million to almost $120 million, encompassing 14% of all southern Queens sales volume
 2018.
   in dollars. Industrial sales fell over 50%, from $58 million to $27 million, capturing just 9%
 Development price per square foot values saw a remarkable surge from $104 to $117 per buildable square foot, a nearly 13% increase.
 Retail Price per square foot values gained 14%, up to $411 per square foot from $360 per square foot, driven by high priced trades in
   of sales volume in the first half of 2018. Mixed use trades nearly doubled in sales volume
 Briarwood & Downtown Jamaica.
   compared     to the
       Contact Brian     first half
                     J. Sarath  for aofcomplimentary,
                                        2017, from $28      million no
                                                      confidential,  tocost
                                                                        $50or million in Opinion
                                                                              obligation the firstofhalf of 2018,
                                                                                                     Value.
   representing 48% of all dollar volume in Southern Queens.

                                                                    Page 08
2Q18 New York - NAI Queens
New York
Office Market 2Q18
2Q18 New York - NAI Queens
2Q18                                                                                                    Office

    Overview

     916M                          22.5M                                 6.6M                            5.0%
    Inventory SF             Under Construction SF                 12 Mo. Net Absorp. SF             Market Cap Rate
                        The Long Island office market
                        ended the 1st quarter 2015
                        with an increased vacancy
                  8.8%                        $55.11
                        rate of 8.4%. The vacancy rate                                $659
                        was 8.2% at the end
             Vacancy Rate                     of theRent/SF
                                          Market     4th                 Market Sale Price/SF
                        quarter 2014, 8.0% at the end
                        of the 3rd quarter, and 7.7%
    The New York office at themarket
                               end of the 2ndreach
                                      could   quarter
                                                    an inflection point over the coming years as major projects
                        2014.
    such as World Trade Center and Hudson Yards deliver. Although many planned tenant moves will be pure
    relocations, a fair share of tenants will be downsizing on net. Coupled with new deliveries, this could take a toll
    on occupancies and rent gains. The fate of Sixth Avenue in particular remains a point to watch, with Time and
    McGraw-Hill both defecting to Lower Manhattan, though News Corp and 21st Century Fox decided to stay
    put after mulling leases there. Nonetheless, the removal of older office buildings from inventory for residential
    (primarily luxury condo) conversions should help protect fundamentals.

    Institutional-grade Midtown towers are selling at well above 2007 prices, which has pushed average cap
    rates lower. An influx of foreign capital has bolstered pricing, although the prospect of more interest-rate
    hikes in 2018 appears to leave limited room for further cap rate compression. Rent growth has decelerated
    appreciably relative to gains posted in 2014–15. That said, there is no doubt that New York offers superior
    liquidity, supply constraints, and an educated workforce to satisfy longterm, conservative investors. Moreover,
    global capital distortions coupled with weaknesses abroad continue to propel a flight to quality assets, while
    near-zero (in some cases, negative) rates on government-issued bonds in countries like Germany and Japan
    are sending investors elsewhere in search of yield. Both trends should continue to have a positive impact on
    property valuations.

Key Indicators:
                                                       Gross Asking   Availability   Net Absorption Deliveries       Under
Current Quarter              RBA        Vacancy Rate
                                                           Rent         Rate               SF          SF        Construction SF
4 & 5 Star                448,135,587      10.5%          $66.26        14.8%           143,029      244,000       19,368,630
3 Star                    347,200,322      8.0%           $47.80        11.2%          1,160,697      23,019        3,093,472

1 & 2 Star                120,648,689      4.7%           $33.14         6.5%          (139,124)        0            73,333
Market                    915,984,598      8.8%           $55.11        12.4%          1,164,602     267,019       22,535,435

                                                          Page 10
2Q18                                                                                                               Office

Leasing
With lukewarm demand apparently the new norm, only gradual            & 5 Star properties over the past year is among the highest
improvement in fundamentals should be expected as the cycle           in the country. That leaves many buildings constructed in the
progresses. Following the recession, New York vacancies               1970s and ’80s—disproportionately falling into Manhattan’s
peaked much lower than those of the National Index, but the           Midtown submarkets—scrambling to replace tenants that
recovery, and subsequent expansion, has left much to be               have committed to space in recently delivered or under-
desired. As market conditions have improved nationally, the           construction properties across the city.
metro’s net absorption has remained inconsistent—without
positive demand continuing for more than three consecutive                                  Vacancy Rate
quarters since 2007—causing New York’s vacancy spread to
the National Index to fall noticeably below its historical average.
Finance, long the market’s most important economic driver,
is partially responsible—high business costs and increasing
use of technology in the industry have made it easier for
firms to move nonessential personnel out of the city, capping
financial services employment below prerecession levels.
Beyond the financial sector, many industries have adopted
more collaborative office layouts, which, combined with the
digitization of documentation, have decreased the square
footage required per employee over the last couple of cycles.
And the increasing popularity of coworking and alternative work
arrangements (i.e., freelancers, contractors, etc.) appears to
be reducing the space needs among traditional office users as
well. In fact, WeWork leases about 4 million square feet in the
New York metro.
                                                                      Ten Hudson Yards recently opened its doors, and several
  Net Absorption, Net Deliveries & Vacancy                            other large towers are expected to deliver over the coming
                                                                      years. This is likely to cause pain for less competitive
                                                                      properties that continue to charge relatively high rents. Minimal
                                                                      availability exists at 10 Hudson Yards, while 30 Hudson Yards
                                                                      and 50 Hudson Yards has already been fully spoken for—an
                                                                      unprecedented leasing pace—but relocations to the mixed-
                                                                      use complex will leave behind blocks greater than 500,000 SF
                                                                      in both the Columbus Circle and Times Square submarkets.
                                                                      Although UBS bucked the trend toward Midtown defections
                                                                      by opting to renew its lease at 1285 Avenue of the Americas
                                                                      through 2033, leasing velocity on the Far West Side coupled
                                                                      with forthcoming deliveries would appear to presage challenges
                                                                      for Midtown’s submarkets in the coming years. While owners
                                                                      of newer properties are likely to emerge as winners in this high-
                                                                      stakes game of musical chairs, prewar buildings have also
                                                                      been buoyed by a preference for exposed brick and ducts
                                                                      among technology, advertising, marketing, and information
The burden of historically low demand growth is unlikely to           (TAMI) tenants, as well as by others targeting a Millennial-
be shared equally across the market. Average quarterly                heavy workforce. Investors with exposure to “middle-aged”
demand of less than 500,000 SF since the end of 2010 pales            properties may not be as lucky, because the prospects for
in comparison to the average of nearly 1.5 million between            backfilling newly vacated space appear increasingly bleak
1985 and 2007, yet occupancies in properties built since              given the lack of pure tenant expansion this cycle, and with
2000 continue to hold up well. In comparison, average                 the economy likely closer to the end of the expansion than
occupancies among offices built between 1970 and 1989                 to the beginning. Several high-profile landlords have already
are roughly eight percentage points lower than the rate among         undertaken significant renovation projects in an attempt to
the newest stock. Tenant preferences for newer, nicer office          make outdated product more competitive, a trend that is
space is nothing new, but the share of net absorption by 4            expected to continue.

                                                                 Page 11
2Q18                                                                                                              Office

Leasing
Despite an improvement in the financial sector, storm clouds         million SF over the next three years, with more likely to come.
continue to gather on the horizon. Throughout the recovery, net      Regus didn’t get shut out of the boom in coworking spaces,
absorption has lagged behind that of the last cycle—an average       either—it’s opened nine locations since 2015, and smaller
of about two million SF since 2011 compared with more than           providers have opened as well. Traditional office tenants are
10 million annually between 2004 and 2007. Pointing a finger         incorporating many of the same concepts into their own office
at finance has been easy—traditionally, it’s the office market’s     designs, though several studies contest the limits of productivity
strongest driver. Increased regulation and higher legal costs,       in communal work spaces. Increasingly efficient office space
legacies of the financial crisis, have helped spur nonessential      has not kept other TAMI tenants from continuing their cycle-
personnel to move to lower-cost markets, keeping total               long growth, especially in Midtown South, though some have
financial-services employment below prerecession peaks. The          required the inclusion of options for future expansions. Certain
sector has grown consistently over the past year and a half,         landlords have been willing to make such commitments in
and subsequently leasing to financial tenants has picked up—         hopes of landing the next unicorn as a future anchor tenant,
JPMorgan Chase moved into 344,000 SF on the Jersey City              but the trend is only the latest indication that catering to
waterfront and Morgan Stanley added 261,000 SF at 1633               startups and smaller tech companies can be more capital
Broadway. However, a large percentage of financial leasing has       intensive than traditional tenants would be. Among larger tech
come from smaller hedge funds and private equity firms, and          tenants, Facebook leased another 80,000 SF, bringing its total
while they tend to lease expensive office space they do not fill     footprint at 770 Broadway to 355,000 SF, and also recently
office buildings as quickly as their investmentbanker brethren.      took around 200,000 SF on Park Avenue South in Gramercy.
A number of tenants, both inside of finance and out, are in the      Meanwhile, the social networking behemoth is believed to be
market for big blocks of office space. Leasing at Hudson Yards       seeking at least 500,000 SF in a newly built tower to create
has been extremely rapid: With the addition of Sidewalk Labs         an urban campus on a par with Google’s in Chelsea. As part
and Intercept Pharmaceuticals, little space remains available at     of a plan to aggressively expand in the city, Salesforce.com
10 Hudson Yards, and the office condos at 30 Hudson Yards            signed for 300,000 SF at 3 Bryant Park, including signage
have already been fully spoken for. Moreover, Blackrock has          atop the tower. However, the news has not all been good for
an LOI to take 850,000 SF, or 29%, of 50 Hudson Yards when           the sector. The New York State Attorney General’s fight against
the currently proposed project completes in 2022. But don’t          daily fantasysports wagering caused DraftKings to sublease
expect a dramatic increase in net absorption over the coming         its 23,000 SF NoHo office after only a few months. Ad firm
years. Many of the tenants signing these leases will be moving       Rocket Fuel left 90,000 SF at 100 W. 33rd St. in Herald
to their new homes from elsewhere in the market—Time                 Square for 42,000 SF at 195 Broadway in June, and adtech
Warner is leaving Columbus Circle for 30 Hudson Yards, and           startup Collective is looking to break its 57,000 SF, 10-year
law firm Skadden, Arps, Slate, Meagher & Flom is vacating 4          lease at the former New York Times building after only two
Times Square for 1 Manhattan West, decreasing its footprint          years. The market may be showing early signs of a pullback by
in the process. As the use of footprint in the process. As the       venture capital investors who have voiced concerns over lofty
use of office space continues to become increasingly efficient,      valuations in the industry, causing VC investment to fall from
other tenants will likely require less space as well. Coupled with   16Q1 peaks.
slowing growth in the working-age population these factors
should put downward pressure on future demand.
                                                                                          Availability Rate
The growing prominence of TAMI and WeWork’s rapid growth
are having a significant impact on leasing trends in New
York. Coworking is not a new concept. Shared office-space
providers like Regus had their day during the last cycle, but
none has been as successful as WeWork. As the company’s
valuation has skyrocketed to more than $15 billion, its number of
locations has grown to 23 in Manhattan, three in Brooklyn, and
one each in Queens and Jersey City. During 2015, WeWork
opened locations totaling nearly 792,000 SF, accounting for
more than 20% of the metro’s net absorption, an astronomical
percentage. In 2016 that number grew to 1.1 million SF, or four
times the metro’s net absorption for the year. In 2017, WeWork
currently leases more than 3 million square feet in the metro.
The company has already signed leases to open close to one

                                                                Page 12
2Q18                                                                                                                                 Office

Rent
New deliveries could precipitate a slowdown in rent growth                       popularity of both areas with New York’s rapidly expanding
over the coming years. Rent growth slowed significantly in                       TAMI tenants. The prices for prime addresses in Midtown are
2016 and continued to decline in 2017. The best gains of the                     still lofty enough to rank among the highest in the metro, as
cycle appear to have already been made, despite remaining                        evidenced by Citadel’s record-breaking lease at 425 Park.
well shy of the peaks of last cycle. And while New York ranks in                 However, average asking rents in Midtown South are rapidly
the top five metros in the nation for cumulative rent growth since               converging with those in Midtown, with rents in both Hudson
2010, large deliveries are expected to erode the bargaining                      Square and Gramercy having already surpassed those in
power of landlords. Owners of older, less competitive buildings                  Times Square. Both Downtown and Brooklyn could see rent
will almost certainly have to reassess their rent expectations                   growth to outperform Midtown’s rate over the coming years,
or come to terms with the reality of lower occupancies when                      albeit to a lesser extent. Brooklyn in particular is an interesting
many newer properties are aided by public incentive programs                     case, because it has become a much more viable office
and the cycle gets a little old.                                                 market during this cycle; rents in Downtown Brooklyn have
                                                                                 grown more than 40% cumulatively since 2010. But that pace
As tenant preferences and expectations continue to change,                       is not likely to continue. More square footage is expected to
Midtown’s rent premium is likely to decrease further. Midtown                    deliver in the next several years than in any such stretch in
is the only one of Manhattan’s three main office submarket                       recent history. Hence, competition will increase, mostly among
groups where asking rents are still below 2008 levels. Aided                     companies with a substantial portion of their labor force coming
by a surge of leasing among communications and marketing                         from Brooklyn or Lower Manhattan, due to transportation
companies, rents in both Lower Manhattan and Midtown                             constraints.
South have eclipsed last cycle’s peaks, thanks largely to the

                 Market Rent Growth (YOY)                                                      Market Rent Per Square Foot

4 & 5 Star Expenses Per Square Foot (Annual):
 Market / Cluster                                 Utilities          Cleaning           Insurance            Taxes              Other             Total
 New York                                          $1.35               $1.38               $0.46             $8.89              $9.97             $22.05
   Midtown                                          $2.20              $1.43               $0.57             $15.18            $13.86             $33.24

   Queens                                           $0.91              $1.23               $0.38             $5.58              $7.21             $15.31
Expenses are estimated using NCREIF, Trepp, IREM, and CoStar data using the narrowest possible geographical definition from Zip Code to region.

1 & 2 Star Expenses Per Square Foot (Annual):
 Market / Cluster                                 Utilities          Cleaning           Insurance            Taxes              Other             Total
 New York                                          $0.52               $0.95               $0.27             $5.87              $3.01             $10.62
   Midtown                                          $0.54              $1.16               $0.40             $13.13             $6.96             $22.19

   Queens                                           $0.37              $1.11               $0.33             $5.24              $2.65             $9.70
Expenses are estimated using NCREIF, Trepp, IREM, and CoStar data using the narrowest possible geographical definition from Zip Code to region.

                                                                         Page 13
2Q18                                                                                                                           Office

Construction
Projects on the Far West Side continue to drive the Manhattan                year for deliveries in Brooklyn since MetroTech opened in 2004.
construction boom. During much of the recovery, deliveries have              And these numbers do not account for the abundant renovations
fallen shy of the metro’s historical annual average of 3.2 million SF, but   underway and planned throughout Kings County. In preparation for
construction is quickly ramping up thanks to Related’s Hudson Yards.         these additions to the market’s outdated office stock and in reaction to
In fact, metrowide deliveries over the coming years are expected to          renewed interest in Brooklyn among various types of tenants, several
be the heaviest since 2002–04, and nearly half of that supply growth         of Manhattan’s bestknown brokerages have opened offices on the
will occur in Midtown. With a tenant roster including Coach, L’Oréal,        other side of the East River. Some of the largest projects include
and SAP, among others, the 1.7 million SF 10 Hudson Yards opened             Kushner and RFR’s recently opened 950,000 SF Dumbo Heights
in 2017. Soon 55 and 30 Hudson Yards are expected to deliver in              complex, which is home to Etsy and WeWork; Boston Properties
2018 and 2019, respectively. And Related is not the only developer           and Rudin Management partnering on the 670,000 SF Dock 72,
targeting the Far West Side—Brookfield’s 2.3 million SF 1 Manhattan          also anchored by WeWork; and Greenland Forest City Ratner’s
West is also targeting 2019 for delivery, anchored by Skadden and            proposal of two offices, totaling more than one million SF, as part
Ernst & Young. Only slightly farther east, Vornado is investing hundreds     of its Pacific Park project, adjacent to the Barclays Center. As these
of millions of dollars to update its eight million SF portfolio around       projects come to fruition, more tenant relocations from Manhattan will
Penn Station, including connecting One and Two Penn Plaza so that            almost certainly have to take place to keep fundamentals as healthy
tenants can easily shift from one to the other. Once the governor’s          as they are today. Although tenants have yet to defect en masse, the
proposed overhaul of Penn Station and the Farley Post Office across          Downtown Brooklyn Submarket has managed to attract the likes of
the street gets underway, expect more renovation and redevelopment           Frog Design and Wipro Digital, and other tech/creative tenants may
as landlords try to capitalize on the area’s revitalization and increase     well follow.
their rent rolls. The only other office projects under construction larger
than one million SF outside of the Penn Plaza/Garment Submarket are                           Deliveries & Demolitions
3 World Trade Center (2018) and One Vanderbilt (2021). In the Plaza
District, the 675,000 SF 425 Park Avenue (2018) is also underway.
Hedge fund Citadel will anchor the building, leasing 200,000 SF
and paying approximately $300/SF for the 15,000 SF top floor or a
blended $175/SF across all the leased space.

Unknown timelines for several large projects could cloud this outlook.
Several developers are waiting on anchor tenants to start construction
on large office towers at and around Hudson Yards, including three
from Tishman Speyer totaling more than six million SF. Once large
tenants are secured, construction should increase further on the Far
West Side. Twenty-First Century Fox/News Corp.’s decision to remain
on Sixth Avenue in Midtown left Silverstein Properties scrambling to
find an anchor for 2 World Trade Center. The developer plans to find a
replacement by the end of the year, pushing the tower’s delivery date
back to at least 2021. Despite the pricing advantage associated with
the World Trade Center site, as well as momentum with TAMI tenants,
not every tenant is well suited to Lower Manhattan. The location makes       Commercial real estate’s version of less is more, boutique office
most sense for companies with a majority of their non-Manhattan-             construction is increasing following the attainment of triple-digit rents
based workforce coming from Brooklyn and New Jersey, both areas              in several of Manhattan’s smaller offerings. New York’s boom in office
with booming residential development, which should only increase             development hasn’t been limited to large towers, and while 200,000
World Trade Center’s desirability. Two large projects, 390 Madison           SF may be considered an average-sized office building in most
(862,000 SF) and One Vanderbilt (1.7 million SF), could be the start         markets, it’s boutique in Manhattan. Romanoff Equities and Property
of massive office redevelopment in the Grand Central Submarket.              Group Partners’ 120,000 SF 860 Washington St. in the Meatpacking
The Midtown East rezoning recently passed, allowing for owners of            District kick-started a push into the niche market segment after
landmarked buildings to sell up to four million SF of unused air rights to   announcing that the first tenant, Delos Living, agreed to rents north
other developers in the district, a number of the submarket’s outdated       of $140/SF. Vornado, Rockpoint Group, Aurora Capital, and Savanna
buildings will become candidates for redevelopment, especially given         have projects in the works, catering to deep-pocketed tenants
the stark occupancy premium associated with newly built properties           looking for new high-end spaces, and all seem to be asking for rents
throughout Midtown.                                                          in excess of $150/SF. Many of these boutique properties could be
Major New York office developers are looking to take advantage of            delivering at the right time, as hedge funds have been particularly
Brooklyn’s resurgence. Following the borough’s residential boom,             active in leasing of late.
Brooklyn’s population now includes a large number of very well-
educated residents, many of whom want to work close to where they
live, or so developers are hoping. Over two million more SF is expected
to deliver over the coming years. In fact, 2017 marked the heaviest

                                                                        Page 14
2Q18                                                                                       Office

Construction
    Properties                Square Feet                        Inventory                 Preleased

      53                    6,638,882                            0.7%                      46.2%

Under Construction:
Property Name/Address        Rating    Bldg. SF        Stories         Start    Complete    Developer/Owner

1   Dock 72                            670,000              17       May-2016   Sep-2018    Rudin Management
    63 Flushing Ave.

2   The Wheeler                        623,771              14       Jun-2016   Jan-2019      Tishman Speyer
    181 Livingston St.

    Three Jackson                                                                            Tishman Speyer/
3                                      550,000              26       Jun-2017   Jan-2019
    28-10 Queens Plz. S.                                                                         H&R REIT

    One Jackson                                                                              Tishman Speyer/
4                                      550,000              26       Jun-2017   Jan-2019
    28-01 Jackson Ave.                                                                        Chris McCartin
                                                                                            Heritage Equity Ptrs.
5   25 Kent Ave.                       507,611              8        Sep-2016   Sep-2018
                                                                                            Rubenstein Ptrs. L.P.

6   One Willoughby Square              500,000              40       Jul-2018   Apr-2021    JEMB Realty Corp.
    420 Albee Sq.

    Corporate Commons 3                                                                     The Nicotra Group,
7                                      391,223              8        Sep-2017   Sep-2019
    1441 South Ave.                                                                                LLC

                                                  Page 15
2Q18                                                                                                               Office

Sales
Global investors continue to increase their allocations to U.S.       paid for the property. Jamestown purchased partial interest
commercial real estate (CRE), and as the most liquid national         in the asset in 2003 and again in 2011. What was once the
office market, New York is benefiting immensely. Pricing for          building for the National Biscuit Company selling in 1999 for
many institutional deals rebounded quickly after the downturn,        $27.6 million is now one of the priciest sales in New York’s
and with prices now well exceeding those of the last cycle’s          history. Another great example of Midtown South pricing is
peak, cap rates are running below 4.5%. Ivanhoé Cambridge,            exemplified by the August 2015 sale of 11 Madison Ave. to
the Canadian asset manager that made waves with its                   SL Green for $2.3 billion ($2.6 billion including lease-stipulated
purchase of Stuyvesant Town–Peter Cooper Village (with                improvements), at a 4.6% cap rate (3.5% pro forma). At the
the Blackstone Group), also made headlines in 2015 with its           time that price was the second-highest ever commanded by
joint acquisition (with Callahan Capital Properties) of 3 Bryant      a New York office tower, surpassed only by the GM Building,
Park for $2.2 billion. Ivanhoé Cambridge is among a crowd of          which traded for $2.8 billion in 2008. In June 2015, another
foreign buyers plowing capital into Manhattan CRE in search of        example of soaring asset valuations in Midtown South was
longterm safety coupled with relatively healthy yields.               the 50% interest sale of the Starrett-Lehigh Building, which
                                                                      valued the building at 115% more than RXR paid for it in 2011
In May 2017, the Chinese conglomerate HNA purchased                   (the property was around 90% occupied at the time of both
245 Park Avenue for $2.21 billion ($1,236/SF) at a 4.6% cap           transactions).
rate. Although, less than a year later, HNA is selling most of it’s
trophy assets and 245 Park Avenue is currently on the market.         Pricing gains haven’t been as dramatic Downtown, due to
In August 2016, German insurer and asset manager Allianz              relatively high vacancies in the Financial District and World
purchased a 44% partial interest in 10 Hudson Yards, with             Trade Center submarkets, the age of its inventory, and the risk
the deal valuing the property at $2.15 billion ($1,250/SF). In        associated with ongoing and planned construction. However,
May 2015, the Bank of China purchased 7 Bryant Park for               valuations still have been boosted by properties being sold for
nearly $600 million ($1,260/SF). That same month, Anbang              conversions. For instance, in August 2016 China Oceanwide
Insurance picked up 717 Fifth Ave. for $414 million ($1,170/          Holdings picked up the adjacent buildings at 80 South St. and
SF)—nearly triple its 2004 price.                                     163 Front St. for allocated prices of $3,200/SF and $4,500/
                                                                      SF, respectively, intending to convert them into an 800,000
Perhaps most emblematic of the global rush to invest in               SF development with both residential and commercial
Manhattan office space is the buying spree of Norges Bank,            components.
manager of the $830 billion Norwegian pension fund and the
largest sovereign wealth fund in the world. In October 2014,          Investors are still willing to pay up for Midtown assets. For
Norges purchased a 45% interest in 601 Lexington Ave. for             example in 2016, CalPERS and CommonWealth Partners
close to $1 billion ($1,320/SF), at a pro forma cap rate of 3.8%.     purchased the Equitable Building for $1.95 billion gross
In February 2015, Norges acquired a 45% stake in 11 Times             ($1,143/SF) or $1.89 billion ($1,109/SF) net seller credits and
Square for $630 million ($1,260/SF). And then in December             a 4.1% cap rate. The 1.7 million SF trophy asset was 98.4%
2015 it acquired a 44% stake in Trinity Church’s five million SF,     leased at the time of sale.
11-building office portfolio in Hudson Square, for $1.56 billion
and a 3.3% cap rate.                                                        Sales Volume & Market Sale Price PSF
In one of the largest deals of 2016, RXR Realty acquired
1285 Avenue of the Americas for $1.65 billion, at a 4.7%
cap rate, with China Life Insurance Co. as a partner. With few
markets globally offering the safety and growth prospects of
the U.S. economy, and fallout from Britain’s Brexit vote further
incentivizing global asset allocators to deploy capital here
rather than in London, international investors are likely to keep
coming to New York.

Prices for many Midtown South properties are also well
above those of the last cycle’s peak. In March 2018, Google
purchased the 1.2 million SF Chelsea Market for almost $2.4
billion, well above the $800 million valuation Jamestown

                                                                 Page 16
2Q18                                                                                      Office

 Sales
Sale Comparables             Avg. Cap Rate                 Avg. Price/SF             Avg. Vacancy at Sale

      218                     6.6%                          $362                        15.3%

Sale Comparables Summary Statistics:
 Sales Attributes                       Low                 Average         Median              High

 Sale Price                            $45,000             $10,724,064     $1,500,000        $400,000,000

 Price Per SF                           $2.95                 $362           $469               $1,812

 Cap Rate                               3.0%                  6.6%           5.8%               14.3%
 Time Since Sale in Months               0.2                   6.7            6.8                12.0
 Property Attributes                     Low                Average         Median              High
 Building SF                             400                 29,880          3,802            1,134,086
 Stories                                  1                    3               2                 36
 Typical Floor SF                        90                   6,923          2,211             150,000
 Vacancy Rate at Sale                    0%                  15.3%            0%                100%
 Year Built                             1901                  1951           1935               2016

                                                 Page 17
2Q18                                 Office

Sales
Recent Significant Sales

                           Page 18
2Q18                                                                                                                                               Office

  Submarkets
Inventory                                     Inventory                                   12 Month Deliveries                                Under Construction
No.    Submarket            Bldgs.        SF (000)    % Market      Rank     Bldgs.        SF (000)        Precent     Rank          Bldgs. SF(000)        Percent           Rank

 1     Bronx                 558           12,328       1.3%         21          1            51             0.4%       14             2           386      3.1%              10

 2     Central Queens         286          4,824        0.5%         46          1            2                0%       25             1           111      2.3%              18

 3     Chelsea                513          44,458       4.9%         5           2           253             0.6%       5              4           762      1.7%              7

 4     Downtown Brooklyn      202          24,227       2.6%         11          4           348             1.4%       3              3           1,254    5.2%              5

 5     Northeast Queens       714          11,255       1.2%         23          7            63             0.6%       11             3           338      3.0%              13

 6     Northwest Queens       444          16,161       1.8%         15          2           193             1.2%       7              6           1,316    8.1%              4

 7     South Brooklyn        1,045         18,284       2.0%         13          9           439             2.4%       2              9           276      1.5%              14

 8     South Queens           400          6,405        0.7%         39          0            0                0%        -             3            19      0.3%              28

 9     Staten Island          913          6,864        0.7%         37          1            2                0%       26             4           755      11.0%             8

 10    World Trade Center     48           38,560       4.2%         7           1          2,861            7.4%       1              0             -        -               -

Rent                                   Gross Asking Rent                          12 Month Asking Rent                                Annualized Quarterly Rent
No.    Submarket                    Per SF                Rank                   Growth                       Rank                     Growth                      Rank

 1     Bronx                         $34.30                    29                    0%                        24                          -0.3%                     40

 2     Central Queens                $39.15                    26                 -0.8%                        61                          -0.3%                     38

 3     Chelsea                       $64.75                    11                 -0.8%                        58                          0.5%                      15

 4     Downtown Brooklyn             $48.87                    20                 -0.8%                        57                          0.9%                      7

 5     Northeast Queens              $42.18                    23                 -0.9%                        66                          -0.7%                     49

 6     Northwest Queens              $42.60                    22                 -0.2%                        29                          1.0%                      5

 7     South Brooklyn                $35.26                    28                 -0.8%                        63                          -0.3%                     37

 8     South Queens                  $40.21                    24                 -0.7%                        56                          -1.0%                     55

 9     Staten Island                 $30.19                    36                 -0.3%                        37                          -0.7%                     51

 10    World Trade Center            $61.77                    14                 -0.8%                        60                          0.5%                      16

Vacancy & Net Absorp.                                Vacancy                                                         12 Month Net Absorption
No.    Submarket                     SF               Percent              Rank                       SF                % of Inv.                  Rank     Construct. Ratio

 1     Bronx                    723,631                 5.9%                19                     285,135                   2.3%                    12               0.2

 2     Central Queens              229,785              4.8%                14                     (130,901)                 -2.7%                   59                  -

 3     Chelsea                  2,848,104               6.4%                24                     451,556                   1.0%                    8                0.4

 4     Downtown Brooklyn        2,022,408               8.3%                38                     131,491                   0.5%                    20               0.7

 5     Northeast Queens            376,615              3.3%                 6                      58,995                   0.5%                    28               0.7

 6     Northwest Queens         2,565,251              15.9%                65                     (555,481)                 -3.4%                   68                  -

 7     South Brooklyn           1,796,359               9.8%                46                     478,695                   2.6%                    7                0.5

 8     South Queens                366,137              5.7%                17                     (41,716)                  -0.7%                   55                  -

 9     Staten Island               292,241              4.3%                11                     (18,658)                  -0.3%                   53                  -

 10    World Trade Center       5,755,559              14.9%                62                     1,632,197                 4.2%                    1                1.8

                                                                          Page 19
New York
Retail Market 2Q18
2Q18                                                                                                       Retail

    Overview

        579M                             8.6M                                  2M                           5.9%
    Inventory SF               Under Construction SF                  12 Mo. Net Absorp. SF             Market Cap Rate
                           The Long Island office market
                           ended the 1st quarter 2015
                      3.8%                        $38.66
                           with an increased vacancy
                           rate of 8.4%. The vacancy rate
                                                                                          $405
                 Vacancy Rate                    Market Rent/SF                 Market Sale Price/SF
                           was 8.2% at the end of the 4th
                           quarter 2014, 8.0% at the end
                           of the 3rd quarter, and 7.7%
    The New York retail    at themarket’s recovery
                                  end of the         continues with vacancies expected to remain below their historical
                                               2nd quarter
    average over the coming years, though it is important to understand what retail means here. The data reflected in these
                           2014.
    rent, vacancy, and performance statistics is for buildings whose primary use is retail, not necessarily the ground-floor
    space in office towers. The market’s extremely healthy fundamentals shouldn’t be surprising given its unmatched density
    and concentration of wealth, both which have continued to grow as New York benefits from a reurbanization of the
    country’s population and a general lack of new construction thanks to local supply constraints. Construction has picked
    up, with several high-profile projects expected to deliver over the next few years, but even these large developments
    constitute only a small percentage of total stock, and preleasing has been strong despite observable weaknesses
    elsewhere. Vacancies and rental concessions have climbed in several of Manhattan’s prime retail corridors because
    tenants have been unable to justify the skyhigh asking rents. New York was the first market where investors swooped
    back in and bid pricing back up to prerecession levels. With much of the pricing recovery in the rearview mirror and
    cap rates among the lowest in the U.S., this isn’t a market for investors seeking to beat the national major-markets
    average in total returns. However, New York is still a strong choice for core investors given its relatively low vacancies,
    unparalleled density, liquidity, and history of above-average income growth.

Key Indicators:
                                                          Gross Asking   Availability   Net Absorption Deliveries       Under
Current Quarter                RBA        Vacancy Rate
                                                              Rent         Rate               SF          SF        Construction SF
Malls                       38,203,922        1.6%           $42.17         3.1%           (43,165)        0           2,069,000
Power Center                24,298,372        2.8%           $28.43         6.7%           85,468          0              0

Neighborhood Center         78,746,656        6.3%           $29.08         9.0%           56,477          0           347,615

Strip Center                15,720,944        5.8%           $26.16         7.6%            9,185          0           108,913

General Retail              419,216,952       3.5%           $41.22         5.5%           411,681      156,920        6,139,750
Other                        3,250,940        2.3%           $29.38         4.0%              0            0              0
Market                      579,437,786       3.8%           $38.65         5.9%           519,646      156,920        8,665,278

                                                             Page 21
2Q18                                                                                           Retail

Leasing
Vacancies appear to have finally stabilized following a   than 3.5 million SF of new supply on line. Still, this
slow but steady five year decline. With expectations      is a mere drop in the bucket as a percentage of the
for strong income growth and limited supply growth        market’s total retail inventory. Furthermore, American
as a percentage of overall inventory, New York should     Dream Meadowlands has struggled to secure
maintain its position as one of the preeminent retail     financing for over a decade, hitting roadblocks
markets in the country. A few large projects are on       that could push off completion for several years.
the docket, the most notable being Northern New           Extremely high population density and iron-fisted
Jersey’s American Dream Meadowlands project in            zoning boards also help to keep supply growth and
East Rutherford and the retail component of Hudson        vacancies well below the national major markets’
Yards. Cumulatively, these projects will bring more       average here over the long term.

 Net Absorption, Net Deliveries & Vacancy                                     Vacancy Rate

                                            Availability Rate

                                                     Page 22
2Q18                                                                                           Retail

Rent
With rent growth slowing in some of the city’s premier   rents bordering on exorbitant in many of these
retail corridors, up-and-coming neighborhoods            Manhattan neighborhoods, retailers appear to be
appear ready to pick up some of the slack. After         reaching a limit for what they are willing to pay. Even
a slow start to the recovery, metrowide rents finally    in SoHo, where per-SF rent records have been set
picked up in 2013, led by some of New York’s             repeatedly during this cycle, sporadic vacancies
most desirable shopping corridors. The Upper             have appeared with increasing frequency, because
East Side, Times Square, and Chelsea—which               tenants have been unable to justify rental expense
has become increasingly popular from both a              as a percentage of sales. Even in quickly emerging
residential and commercial standpoint, providing a       neighborhoods of Brooklyn, rent growth seems to
large pool of shoppers both during the week and          have stalled after reaching new heights.
on weekends—all outperformed. But with asking

                                        Market Rent Growth (YOY)

                                       Market Rent Per Square Foot

                                                    Page 23
2Q18                                                                                                               Retail

Construction
Despite high-profile deliveries, supply risk is minimal in New       aforementioned center on the corner of Malcolm X Boulevard.
York, both in the near term and beyond. The metro has by far         Victoria Secret and Bath & Body Works have both signed
the highest population density in the U.S. Moreover, thanks          leases to occupy a combined 36,000 SF.
to stingy zoning boards (even in New York’s suburbs) and the
lack of developable land, supply growth on a percentage basis        Across the East River, Downtown Brooklyn is welcoming the
has ranked among the lowest of all major U.S. markets over           675,000 SF City Point, where Century 21 recently opened. The
the long term—a major advantage for investors. In fact, the          project should do much to accommodate the relatively well-off
projects underway are a drop in the bucket for a market this         apartment dwellers likely to fill the thousands of units expected
size, and most have significant preleasing.                          to deliver over the coming years. This particular project is
                                                                     between two subway stations serving Downtown Brooklyn,
Westfield’s sprawling 365,000 SF World Trade Center                  and features Target and Trader Joe’s as tenants, as well as a
shopping complex, below Calatrava’s Oculus, opened in                food hall featuring local purveyors—not uncommon for newly
August 2016 with around 60 stores and restaurants already            built urban retail in New York. Williamsburg recently got its first
operating, and an additional 40 joined them by the holidays.         Whole Foods Market, while Apple opened its new outpost at
Consumer demand should be robust, thanks to commuters                the corner of Bedford and North Third. Prime retail corridors like
using the adjacent transit station and tourists flocking to the      North Bedford Avenue have among the highest asking rents
area. Meanwhile, Lower Manhattan’s burgeoning residential            outside of Manhattan. The wildcard for parts of Williamsburg
population isn’t likely to shy away from the center’s impressive     and Bushwick is the looming 18-month shutdown of the L
roster of shops, which includes the city’s second Eataly.            train for repairs, scheduled to begin in 2019. Some retailers
Neiman Marcus has chosen the Shops at Hudson Yards                   are already concerned that foot traffic will suffer dramatically.
for its only Manhattan location and will be joined by other          In New Jersey, the American Dream—a two million SF mall/
luxury retailers, as well as by restaurants featuring some of        entertainment center alongside MetLife Stadium—is back
the city’s best-known celebrity chefs. By the time the mall          under construction. Despite significant preleasing, retailers’
opens, the first of the three large office towers at the mixed-      success (or lack thereof) in this location remains to be seen.
use complex will be complete. The other two, as well as luxury       Most New Yorkers will be unlikely to make the trek from the
condominiums and a hotel, expected shortly after, will provide       city, while the depth of demand among tourists may fall short
a built-in consumer base as the Far West Side continues to           of expectations.
develop. Also underway is Extell’s supertall Central Park Tower
project off of Columbus Circle, which is slated for delivery in
early 2019. The luxury condo building will feature a 100,000
SF Nordstrom at its base—another first for the city.                                   Deliveries & Demolitions

Two sizable retail projects have recently delivered on the rapidly
transforming 125th Street in Harlem. A 161,000 SF center
outside of the 125 Street Station on the corner of Malcolm X
Boulevard was completed in late 2016. Although the project is
anchored by Burlington Coat Factory and Raymour & Flanigan,
perhaps more noteworthy is the addition of the first Whole
Foods Market in the area. Just four months later, the 101,000
SF 5 West 125 Street opened less than one block away.
Major retail tenants include TJ Maxx, Bed Bath & Beyond, and
New York & Company, though the building is also home to a
27,000 SF WeWork office. And more is underway: Rockfeld
Group will add an additional 97,000 SF directly adjacent to the

                                                                Page 24
2Q18                                                                                            Retail

Construction
    Properties                    Square Feet                         Inventory                 Preleased

      75                         2,988,302                            0.5%                      55.8%

Selection of Under Construction Properties:
Property Name/Address             Rating    Bldg. SF        Stories         Start    Complete     Developer/Owner
1   2655 Richomnd Ave.                      418,000              -        Jun-2015   Oct-2018          GGP, Inc.

2   Empire Outlets                          350,000              1        Sep-2015   Nov-2018       BFC Partners LP
    55 Richmond Ter.

3   1504 Coney Island Ave.                  250,000              8        Jan-2016   May-2019     Triangle Management

                                                                                                     SCG America/
4   3709 College Point Blvd.                225,000              2        May-2015   Oct-2018    Two Fulton Square LLC

5   Hyland Blvd.                            224,391              2        Mar-2018   Oct-2019   Kimco Realty Corporation

                                                                                                  Sun Equity Partners/
6   40-31 82nd St.                          160,000              3        Jul-2017   Jun-2019        304 GC LLC

7   Retail Portion of The Cro.              100,000              3        May-2018   May-2020    BRP Development Corp.
    93-01 Sutphin Blvd.

                                                       Page 25
2Q18                                                                                          Retail

Sales
New York’s retail investment has slowed. Capital        Demand for more traditional retail opportunities has
markets have been volatile, and national retail         been quite strong among domestic buyers as well,
investment volume ultimately failed to reach the        especially in established retail corridors, and with
highs of 2015. And although 16Q1 was the metro’s        interest rates rising and risk tolerance diminishing,
strongest quarter on record since 2012, the year’s      core retail assets will continue to attract investor
total sales volume was over a billion dollars short     interest. The Vanbarton Group acquired the ground-
of 2015 levels. The number of total transactions        floor retail unit at the Astor—a multifamily building on
fell, and pricing growth has stalled, three years       the Upper West Side—for $103.5 million ($5,475/
after the metro surpassed prerecession highs.           SF) in July 2016, and Invesco paid $112 million
Both volume and pricing may continue to benefit         (an eye-popping $25,000/SF) for 139 Spring St. in
from international investors looking for access to      SoHo, a property leased to luxury retailer Chanel.
the relative safety and strong growth prospects         Just the year prior, Invesco paid $222 million
of New York real estate. Following several sizable      for an 80% stake in neighboring 131 Spring St.
deals that included international buyers in 2015,       While Invesco seems prepared to double down
the Qatari Investment Authority partnered to acquire    on SoHo, Thor Equities seems ready to cash out
the retail condo at the base of 432 Park for $411.1     its portfolio there—Joe Sitt’s outfit sold at least
million ($3,750/SF). That said, 2017 continued the      one SoHo property last year and is rumored to be
lackluster performance of 2016, with just a handful     marketing several others in the submarket. Some
of deals valued at over $50 million.                    of the available assets are not fully leased, leading
                                                        to speculation that the investor has been unable to
Recent strength can also be attributed to               find tenants willing to meet his lofty rent expectations
redevelopment opportunities. As 2015 came to            and that the market is approaching, if not already
a close, the Related Companies purchased 427            past, its peak. With New York’s pricing premium to
10th Ave. for $152.3 million. The parcel was the        the National Index easily exceeding prerecession
last piece the developer needed to get started on       levels, it is hard to argue that prices can continue to
50 Hudson Yards, a 62-story office tower. In early      grow at the pace of recent years.
2016, Tishman Speyer reached an agreement to
pay $170 million for a portion of the existing Macy’s         Sales Volume & Market Sale Price Per SF
in Downtown Brooklyn, with plans to convert the
space to high-end office. A joint venture between
three Brooklynbased real estate firms purchased
a 36,000 SF storefront in Downtown Brooklyn for
$68 million ($1,889/SF) in May 2017. Based on
the property’s FAR the buyers may be able to build
over 750,000 SF on the site. If office construction
continues to pick up and the multifamily market
remains healthy, similar transactions are likely to
occur.

                                                   Page 26
2Q18                                                                                       Retail

 Sales
Sale Comparables             Avg. Cap Rate                  Avg. Price/SF             Avg. Vacancy at Sale

   1,158                      5.4%                            $450                         4.2%

Sale Comparables Summary Statistics:
 Sales Attributes                       Low                 Average          Median              High

 Sale Price                            $25,418             $2,630,901       $1,376,000        $115,000,000

 Price Per SF                            $19                 $450             $438              $10,171

 Cap Rate                                2.3%                5.4%             5.3%               14.3%
 Time Since Sale in Months               0.2                  6.2              6.2                12.0
 Property Attributes                     Low                Average          Median              High
 Building SF                             135                 6,860            3,300             250,000
 Stories                                     1                 2                2                  8
 Typical Floor SF                            3               4,141            1,582             219,109
 Vacancy Rate at Sale                    0%                  4.2%              0%                100%
 Year Built                              1848                1938             1931               2019

                                                 Page 27
2Q18                                 Retail

Sales
Recent Significant Sales

                           Page 28
2Q18                                                                                                                                              Retail

  Submarkets
Inventory                                       Inventory                             12 Month Deliveries                                   Under Construction
No.    Submarket            Bldgs.        SF (000)    % Market      Rank     Bldgs.       SF (000)       Precent      Rank          Bldgs. SF(000)        Percent           Rank

 1     Bronx                3,803          31,937       5.5%         3           6          82             0.3%        12             8            54      0.2%              25

 2     Central Queens        2,036         14,914       2.6%         10          2          11             0.1%        30             4            66      0.4%              21

 3     Chelsea                493            5,678      1.0%         32          4          17             0.3%        26             4           234      4.1%              10

 4     Downtown Brooklyn      520            6,796      1.2%         28          0           0               0%         -             1            22      0.1%              30

 5     Northeast Queens      3,046         23,344       4.0%         6           8          128            0.5%        4             14           417      1.8%              6

 6     Northwest Queens      1,656         12,741       2.2%         15          3          57             0.4%        18             7           235      1.8%              9

 7     South Brooklyn        7,427         40,988       7.1%         2           3          62             0.2%        17             9           471      1.1%              5

 8     South Queens          2,928         19,099       3.3%         8           2          18             0.1%        24             8           279      1.5%              8

 9     Staten Island         2,436         17,632       3.0%         9           4          65             0.4%        15             9           1,105    6.3%              3

 10    World Trade Center     16              886       0.2%         63          0           0               9%         -             0             -        -               -

Rent                                   Gross Asking Rent                          12 Month Asking Rent                               Annualized Quarterly Rent
No.    Submarket                    Per SF                  Rank                 Growth                      Rank                     Growth                      Rank

 1     Bronx                         $41.30                    27                 -2.0%                       53                          -1.5%                     18

 2     Central Queens                $45.27                    23                 -2.1%                       59                          -1.4%                     14

 3     Chelsea                       $87.93                    13                 -2.0%                       51                          -1.8%                     33

 4     Downtown Brooklyn             $77.26                    18                 -2.0%                       49                          -1.9%                     41

 5     Northeast Queens              $45.82                    22                 -1.9%                       44                          -1.6%                     27

 6     Northwest Queens              $43.49                    25                 -2.1%                       57                          -1.5%                     20

 7     South Brooklyn                $41.70                    26                 -2.0%                       46                          -1.2%                     7

 8     South Queens                  $37.28                    30                 -1.9%                       42                          -1.5%                     21

 9     Staten Island                 $31.84                    39                 -1.6%                       25                          -1.3%                     11

 10    World Trade Center            $77.82                    17                 -2.1%                       61                          -3.0%                     61

Vacancy & Net Absorp.                                Vacancy                                                        12 Month Net Absorption
No.    Submarket                     SF               Percent              Rank                     SF                 % of Inv.                  Rank     Construct. Ratio

 1     Bronx                   1,341,807                4.2%                40                    234,694                   0.7%                    5                0.3

 2     Central Queens              442,721              3.0%                21                   (105,642)                  -0.7%                   65                  -

 3     Chelsea                     250,349              4.4%                47                    24,504                    0.4%                    30               0.6

 4     Downtown Brooklyn           306,568              4.5%                50                    (93,135)                  -1.4%                   64                  -

 5     Northeast Queens            646,334              2.8%                18                    (58,458)                  -0.3%                   59                  -

 6     Northwest Queens            448,834              3.5%                28                   (119,887)                  -0.9%                   66                  -

 7     South Brooklyn           1,069,852               2.6%                12                    (70,548)                  -0.2%                   60                  -

 8     South Queens                826,060              4.3%                45                    (48,763)                  -0.3%                   58                  -

 9     Staten Island               608,851              3.5%                27                    (83,740)                  -0.5%                   63                  -

 10    World Trade Center           29,296              3.3%                23                     1,487                    0.2%                    40                  -

                                                                          Page 29
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