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NYC Offers Tax Breaks to Renovate Obsolete Manhattan Offices

Declaring that more than half of the 450M SF office inventory in Manhattan is under water economically—the city is calling these buildings “underperforming,” CRE analysts prefer the term “obsolete”—NYC’s two economic development agencies have launched new tax incentives to spur renovations.

The New York City Economic Development Corp. (NYEDC) and the New York City Industrial Development Agency (NYIDA) have jointly announced the Manhattan Commercial Revitalization Program.

The program is offering property tax abatements of up to 20 years and a tax exemption on construction materials to building owners who renovate aging office buildings south of 59 Street in Manhattan.

The two city agencies, who estimate that more than 255M SF of aging offices in Manhattan are underperforming, said they’re aiming for projects up to 10M SF that will be “transformative.” To be eligible for the new incentives, buildings must encompass at least 250K SF and have been built before 2000.

“Every office sitting empty means less funding for everything from schools and affordable housing to emergency food and police officers,” Mayor Eric Adams said in a statement. “There is real demand for the newest, highest-quality office space—and having more of that in New York City means bringing more employers to our city.”

Manhattan generates 58.5% of the citywide office and retail property tax revenues, and 45% of all jobs in the city, the release from NYEDC and NYIDA said.

As in other urban centers, the flight to quality of office tenants in the emerging post-pandemic economy of hybrid work patterns has been a bonanza for new Class A towers while leaving older office buildings struggling to raise their occupancy levels, retain tenants and sign new leases.

NYC is dovetailing the new program in Manhattan with efforts to retrofit building across the city to comply with Local Law 97, which soon will begin penalizing buildings encompassing more than 25K SF that exceed carbon emissions limits.

While the city moves to spur renovations of aging offices, private equity players are showing increased interest in office-to-residential conversions in Manhattan.

Northwind Group, a Manhattan-based real estate debt fund manager and private equity firm, announced this week that it is providing a $100M senior A-note as part of a $207M senior leasehold mortgage.

The loan was secured by the Hudson Hotel, a 24-story, former 878-key hotel which is being converted into 441 multifamily units and 51K SF of retail space. The property is located on 58th street between 8th and 9th Avenue in the Columbus Circle submarket of Manhattan.

The property was acquired by a repeat borrower of Northwind Group and was originally capitalized by Montgomery Street Partners as the fee holder and Parkview Financial, who provided a leasehold mortgage in 2022.

This loan is being provided by Northwind Group as part of its recently launched A-Note financing product, a vehicle that is targeted to provide the most senior tranche of the capital stack on real estate transactions. This pool of capital can be provided as an A-Note or Loan-on-Loan and will be available for all major asset types across the country, with a major focus on residential transactions, with loan size of $50 million and above.

Northwind Group provided the A-Note with flexible terms, which will provide the owner and existing lender with the required capital to complete the conversion project.

"Northwind Group is excited to provide our A-Note loan, as we recognize a big gap in the market for financing due to commercial banks stepping back from regulatory and macro issues," said Ran Eliasaf, founder and managing partner of Northwind Group.


Reprinted with permission from the Wed, 17 May 2023 06:48:16 EDT online edition of GlobeSt © 2023 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or reprints@alm.com.