Launched in 2014 to invest in New York City office buildings when the country was emerging from the Great Recession, New York City REIT now says it’s time to move beyond the property type as the economy heads into another possible downturn.
The real estate investment trust announced it intends to expand the scope of the assets and businesses it may own and operate, and change its company structure.
Were it to invest in operating businesses, the company would no longer qualify as a REIT. As a result, the company expects to change its REIT election status and become a taxable C corporation effective Jan. 1, 2023.
“We are excited to expand the scope of [New York City REIT] beyond Manhattan real estate, which we believe will allow us to diversify our revenue streams and pursue opportunities that may not have been previously available to us,” Michael Weil, CEO of New York City REIT, said in a statement.
Such other opportunities include hotels, parking facilities, expanding its co-working office space business and seek to invest in and operate businesses such as hotel or parking lot management companies, the company disclosed in a U.S. Securities & Exchange Commission filing.
“While we continue to believe in the long-term necessity of New York City real estate, the pace of recovery of the office segment since the COVID outbreak remains challenged,” Weil said. “Despite the resilient performance of our portfolio over the last two years, portfolio growth has been incremental, and we believe that we will be able to generate greater growth and profitability by evolving NYC’s business strategy.”
A shift in strategy could also potentially increase the company’s ability to raise capital as it broadens its stockholder base to investors who seek companies with greater asset and business diversification.
The city's office market has struggled since the pandemic took hold. Office leasing flattened in the fourth quarter, according to a CoStar analysis. Thus far, about 6.1 million square feet has been leased in more than 1,000 deals. That sum was easily the lowest quarterly total in 2022 and a stark contrast to the 12.1 million square feet leased across more than 1,600 deals in the fourth quarter last year.
The office market's recovery has been so slow that some political, community and business leaders are now pushing to repurpose properties to other, more productive uses.
As of Sept. 30, New York City REIT owned eight properties consisting of 1.2 million rentable square feet, acquired for an aggregate purchase price of $790.7 million. It also launched Innovate NYC, a coworking company, at its 1140 Avenue of the Americas property in the third quarter of 2021.