"We're seeing tenants move out of commodity spaces and into the very best offices they can afford," David Smith, Cushman & Wakefield's head of global occupier insights, said."It's left older spaces that haven't seen reinvestment less likely to find takers."
Rockefeller Group, the owner of 1271 Avenue of the Americas in Midtown, Manhattan, was able to entice new tenants with a $600 million renovation.But Bill Edwards, an executive vice president at Rockefeller who helps oversee its New York portfolio, said that it might have reconsidered the scale of such a thorough and costly makeover today.
"This is a time in the market where you want to be cautious about investments and make sure you're managing the downside risks," Edwards said.The financial gambit of lavishing money on upgrades has become even more challenging as cracks have formed in the financial foundations that underpin a growing number of office properties.
This leaves owners, their buildings, and the wider office market in a precarious position. Robert Verrone, a principal at Iron Hound, a commercial real-estate-financing firm and advisor, said he now spends the majority of his time working on ailing debts. Lenders are often reluctant, he said, to seize office buildings because of the costs and expertise required to operate the properties.
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