Manhattan Office Landlords Expected to Face a Spike in Interest Expense

High hopes of a nearing interest rate cut in early 2024 by the Federal Reserve have faded, leaving Manhattan office landlords without any relief of the pressure caused by persistently weak demand for space. The situation has led to a deterioration of fundamentals, prompting money managers to “slash their real estate exposure.” Typically borrowing costs are a landlord’s biggest cash expense, but the current lending landscape will see owners facing double-digit increases in borrowing costs. According to forecasts by macro and fundamental research firm Evercore ISI, the interest rate expense in 2025 for two of Manhattan’s largest landlords, SL Green Realty and Vornado Realty Trust, will increase by 17% and 15% respectively, with “higher borrowing costs expected to take a more than $50 million bite out of earnings at both Manhattan office owners.”