Shifting the center of gravity in New York City

The UNC Kenan-Flagler MBA Real Estate Club with Pamela West (MBA ’07) inside TH Real Estate’s 475 Fifth Avenue building.

Whether traveling by train, plane or boat, arriving onto the island of Manhattan in New York City evokes a sense of awe and wonder. The city is known as one of the world’s leading financial hubs, a premier shopping destination and an exciting place to live. But perhaps even more recognizable is the New York skyline – and Manhattan contains some of the most inspiring and impressive collections of commercial real estate in the world.

Yet it’s not enough to be regarded as one of the most recognizable and sought after cities for commercial real estate. Staying one step ahead, and continually innovating to remain current with the changing desires of the tenants, is the challenge of every urban developer. The UNC Kenan-Flagler MBA Real Estate Club’s Fall 2016 career trek was an unparalleled learning experience that provided backstage access to ongoing and innovative development projects that continue to transform New York and cement its place as a world-class city.

We learned that office and retail tenants are placing a premium on providing environments that give employees and customers natural light (and even views!) and a desirable location within Manhattan. In the current market cycle, there has been a gradual and deliberate shift that has moved the city’s professional center of gravity out of Midtown Manhattan. Opportunities for office tenants and retailers have expanded significantly thanks to projects like Related Companies’ Hudson Yards development, which features 17 million square feet of retail, office and residential space set to be delivered by 2025.

On our trek, we were given exclusive access to 10 Hudson Yards – the first building delivered in the project – by Jordan Rathlev (MBA ’12), development manager with Related Companies. In partnership with other major stakeholders, Related was able to enclose an entire rail yard and re-engineer transit in the area to resolve engineering and infrastructure challenges and create a new vertical footprint for the city. By doing so, the firm has unlocked incredible value in the area – evidenced by the stunning views we took in at 10 Hudson Yards – and provided a significant amount of new square footage for retailers and office tenants.

While Hudson Yards opens up a new, highly sought after neighborhood within the city, we were also given access to some impressive new construction and revitalization in more established neighborhoods. In 2011, TIAA-CREF (now TH Real Estate) purchased and rehabilitated 475 Fifth Avenue, a 24-floor pre-war building with views of the New York Public Library and Bryant Park. With 275,000 square feet of office space, the project caters to the preferences of office tenants who value open space, natural light and buildings with character and artistic merit.

Pamela West (MBA ’07), senior director of the Mid-Atlantic Region at TH Real Estate, gave us a tour of the building and explained the rationale behind the firm’s corporate reorganization and targeted investment strategy. Location was one of the key drivers behind the firm’s investment. The building sits across Fifth Avenue from the New York Public Library and offers to tenants on upper floors unobstructed views of Bryant Park secured in perpetuity – a rarity in such a dense city. The promise of unencumbered views, combined with the Fifth Avenue address, means TH Real Estate can charge a premium on rent and achieve what promises to be a very attractive return on investment.

We were also able to tour 7 Bryant Park, another impressive building built by Hines. The 30-story office building features stunning architecture and is situated on Bryant Park with largely unobstructed views across Manhattan. Tommy Craig (BA ’78), senior managing director at Hines, highlighted shifts in construction technology, innovative architecture and special features that will be in-demand from future tenants. For example, Hines is incorporating a terrace feature on the tenth floor to exploit the park view and provide tenants with a desirable and unique entertainment / social space.

We were given incredible access to some of the most striking sites in the city and some of the most dynamic real estate developers and investors in the world. Hearing from industry leaders highlighted the importance of finding innovative opportunities and solutions to meet the demands of the tenants and create value in a rapidly changing market.

By Matthew Leitch (MBA ’18)