The developer that knocked down a landmark hotel opposite Madison Square Garden may build an interim-use recreational space that could include tennis and basketball courts after scrapping plans for a shiny new skyscraper — a sign of the “office apocalypse” in the commercial real estate market.
Vornado Realty Trust had initially planned to build a 56-story, 2.7 million-square-foot office tower on the site where the Hotel Pennsylvania once stood at 15 Penn Plaza. The century-old building in the Central Business District (CBD) near Penn Station was demolished last year.
However, demand for commercial office space has been slow to recover in the post-COVID age of hybrid work, while financing options are limited against the backdrop of high interest rates.
“We have a CBD office apocalypse involving the work-from-home threat and the total blacklisting of offices in the capital markets,” Vornado CEO Steven Roth told investors on an earnings call earlier this week.
Vornado released a brochure with renderings that turn the site on Seventh Avenue between West 32nd and 33rd streets into an 80,000-square-foot pavilion. The area could be used to set up temporary tennis courts for possible US Open matches, basketball courts in the shadow of the Knicks’ home, Fashion Week tents, and a digital billboard that rises 10 stories, the images show.
The renderings were shared with city officials “for conceptual purposes,” the company said.
Vornado told Crain’s New York, which was the first to report the news, that it was mulling “a number of potential interim options” for the site.
Vornado had initially planned to build 18 million square feet of space around Penn Station, and state officials were hopeful that tax revenue generated from rent and commercial activity in the area would help fund an overhaul of the busy transit hub.
But in late 2022, Roth said his company would be putting on hold plans to build new office and residential towers due to the soaring interest rates and inhospitable economic environment that have hamstrung the commercial real estate sector.
Vornado’s possible alternatives are subject to approval by the state.
Empire State Development, the agency under Gov. Kathy Hochul that is tasked with approving large-scale public works, was not immediately available to comment.
Experts are warning of a reckoning in the commercial real estate market.
Although the Manhattan office market hit bottom in 2023 with a more than 20% vacancy rate, the short-term future looks rosier, according to a recent report from national real estate technology platform VTS.
Its latest quarterly Office Demand Index (VODI) found that demand for space in the Big Apple rose nearly 40% in 2023 over the previous year — lifting demand to 75% of pre-pandemic times, as The Post previously reported.
Nevertheless, according to Goldman Sachs, some $1.2 trillion of commercial mortgages are scheduled to mature this year and next.
That’s almost a quarter of all outstanding commercial mortgages, and the highest recorded level going back to 2008. The biggest single holder is banks with a 40% share.
Other estimates put the “maturity wall” as high as $1.5 trillion.
Analysts predict there could be a steady drip over the coming years of borrowers refinancing mortgages at significantly higher interest rates, buildings remaining empty, and asset values heading south.
With Post wires
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