Commercial Brokers See Improvement in All CRE Sectors

WHITE PLAINS—Commercial brokers and developers who participated in the Building Owners and Managers Association recently held annual State of the Market program were generally optimistic that the Westchester commercial real estate markets will continue to rebound from the devastation wrought by the COVID-19 pandemic.

While some segments are expected to be stronger than others, specifically the multifamily and industrial sectors, even the long-troubled Westchester County office market will be bolstered somewhat by a continued push by public and private companies to bring employees back to the office and building owners seeking to repurpose outdated properties.

The BOMA Westchester program also featured an update on the redevelopment of the former Galleria Mall, as well as plans by the New York Power Authority to build a new nearly 300,000-square-foot corporate headquarters at the Hamilton Green development parcel (former White Plains Mall) site located across the street from its current headquarters property at 123 Main St.

The Jan. 16 panel, moderated by Glenn Walsh, Executive Managing Director, Newmark, based in Rye Brook, featured: Andrew Weisz, President, of development firm RPW Group of Rye Brook; Bruce Berg, Chief Executive Officer, Cappelli Development Company of White Plains; Jay Black, Vice President Operations, Diamond Properties of Mount Kisco; and Howard Greenberg, President, Howard Properties of Valhalla.

Office Market’s Continued Transformation

Weisz noted that in the past 15 years, the county’s office market has been reduced from 35 million square feet to approximately 26 million square feet as outdated office buildings have been razed to make way for adaptive reuse developments that have mostly included new multifamily housing along with healthcare and other uses, such as Lifetime Fitness opening some years back at the former Journal News offices in Harrison.

He related that the office market was overbuilt in the 1970s and 1980s and the oversupply put downward pressure on rents and resulted in rents remaining mostly flat for the overall office market for decades. He related that office properties must be upgraded to keep pace with changing tenant demands. Weisz said that this trend must continue going forward.

Weisz added that there is an expectation or hope that another 10 million square feet of office space will be demolished or repurposed into some other use.

“A diversification of uses will make Westchester more attractive to businesses and also provide some rent growth so that we can actually start to see perhaps some new office construction, which we haven’t seen generally speaking in the last 50 years,” he said.

Weisz concluded that his firm is bullish on Westchester and feels that the strong multifamily sector will eventually allow the office sector to grow as these projects and experiential retail uses create a more vibrant lifestyle that attracts more businesses, workers and residents to the county.

Greenberg noted that there are plans to possibly redevelop even more current office space to other uses, while there are other properties that either cannot or choose not to undertake any lease transactions at this time. He said that there is a significant amount of “shadow space” on the market today that is not available for one reason or another.

“So, I think the market will be further contracting in the very near future,” Greenberg predicted.

Diamond Properties Black said that his firm is constantly looking at its portfolio to perhaps repurpose some of its commercial portfolio and related that going forward developers will have repurposing opportunities, but must be creative to be successful.

However, he said that the increase in construction and labor costs since the onset of the pandemic in some cases have made repurposing projects “cost prohibitive.”

Greenberg also advised that tenants, looking for 20,000 to 30,000 square feet of space in the county, should be asking their prospective landlords the current status of their debt, when do they plan to refinance and what is their capital structure going forward since most office transactions now have a seven to 10-year term or longer.

“A lot of stuff can happen in seven to 10 years. You have to be prepared. It is kind of a new world. You used to assume that every landlord is financially viable, but you just cannot assume that anymore,” he said.

Greenberg noted that during his career he has witnessed four distinct economic downturns, but characterized the COVID-19 pandemic as “the most devastating” since it prompted economic and lifestyle changes that adversely impacted the office market in Westchester and elsewhere.

He believes that some market dynamics, such as remote work and hybrid work will be part of corporate operations “in perpetuity.”

Berg, however, citing recent reports that firms such as JP Morgan and Amazon have directed all their workers to return to their offices, believes the commercial market “may have turned the corner” as more companies embark on a return-to-work strategy. Earlier this month upon taking office, President Trump issued an executive order requiring all departments to order their workers back to the office.

NYPA Headquarters Update

Berg of Cappelli Development noted that the New York Power Authority issued a Request for Proposals in late 2023 and last June approved a resolution to continue negotiations with the Cappelli firm to build a new corporate headquarters at the Hamilton Green project site in Downtown White Plains.

“It is our hope that we will be building a headquarters for them on Hamilton Green on the corner of MLK and Hamilton Avenue directly across the street from where they are today,” Berg said.

The transaction would have NYPA acquire the land and contract with a Cappelli affiliate to build the new headquarters. Cappelli would serve as the developer and general contractor for the project. He shared that NYPA plans to have the building feature geothermal, solar panels and electrochromic glass that will have the glass change color depending on the direction of sunlight to reduce glare and heat inside the building.

Berg said the building will be highly energy efficient and all electric, with the exception of gas for building generators.

At press time the New York Power Authority Board of Trustees has scheduled a meeting this morning (Tuesday, Jan. 28). It is not known if any action will be taken on the firm’s planned new corporate headquarters or if it will reveal any plans for its current more than 417,000-square-foot office building property at 123 Main St.

Newmark’s Walsh said of the planned new NYPA headquarters: “It’s an exciting project for White Plains. We all know that there hasn’t been a new office building built for years. This is going to be something that will be nice to see for the landscape of White Plains.”

Cappelli Development and partners Pacific Retail Capital Partners and Aareal Bank are also currently in the approval process in White Plains on its proposed District Galleria plans that, if approved as proposed, will add thousands of new apartment units to the downtown district.