CoStar News
Fallout from the financial challenges facing the FTX cryptocurrency exchange has spread to the struggling U.S. office market as the firm seeks to reject five leases in major cities amid its bankruptcy reorganization.
The leases, all signed in the past 15 months, including one as recently as two months ago, give testament to the fast rise and sudden fall of the firm founded and led by Sam Bankman-Fried. Bankman-Fried was arrested after extradition to the U.S. on Dec. 13. He faces multiple fraud charges by the U.S. Department of Justice and the U.S. Securities & Exchange Commission after the firm's top executive said it lost billions of dollars of clients' money.
FTX, a Nassau, Bahamas-based firm, filed for Chapter 11 bankruptcy protection Nov. 17 in the U.S. Bankruptcy Court for the District of Delaware. John J. Ray III has been appointed chief executive officer to take over FTX and lead its restructuring. Ray, who has over 40 years of financial firm restructuring experience including notable cases such as Enron, has said he has never seen the lack of corporate controls he discovered coming into FTX.
The firm wrote in its request to the court to walk away from the leases that FTX “determined that there is no longer a need for the leases going forward as these premises are no longer being utilized by the debtors. The debtors will save millions of dollars in total rent and associated costs. Absent rejection, the debtors would be obligated to pay rent and associated costs even though the debtors are not occupying or utilizing any of the leased premises.”
The request to have the FTX leases thrown out comes as office markets across the country struggle to return to pre-pandemic occupancy levels.
The firm said the costs of the leases would eclipse any marginal benefits that could potentially be achieved from assigning or subleasing the spaces. The leases FTX is asking the court to reject include deals that were considered sizable in their respective markets.
CoStar News reached out to representatives of the owners, managers and leasing brokers of the other properties but did not immediately hear back. Representatives of FTX also did not immediately respond to requests to comment.
In Chicago, FTX US planned to invest $1.2 million to build out new space at 167 N. Green St. in Chicago for its U.S. headquarters in a deal touted as a win by the mayor's office. The 645,000-square-foot property is owned by affiliates of Walton Street Capital. The square footage of the lease deal was not disclosed.
In San Francisco, FTX US signed an 18,548-square-foot lease in January at 101 Second St., a 388,370-square-foot office building owned by Invesco. It was one of that city’s largest office leases of the first quarter.
In Miami, FTX took occupancy of 3,008 square feet in December 2021 at 1111 Brickell Ave., where its rent is approximately $65 per square foot. Parkway Properties owns the 529,468-square-foot building.
Parkway said it has significant interest from prospects to backfill the FTX space.
“As soon as the news on FTX broke we had multiple tenants and brokers reach out asking if this was a potential for them or their clients,” Phil Marchese, managing director of Parkway, told CoStar in an email. “There are not many opportunities for move-in ready space of this quality with great views in Brickell today.”
The other two leases included in the request appear to be at 1450 Brickell in Miami, owned by EPSA of America, and 2200 Pennsylvania Ave. NW in Washington, a building owned by Boston Properties.
Earlier this month, Ray told Congress that the FTX exchange lost $8 billion of its customer's money.
“Nearly every situation in which I have been involved has been characterized by defects of some sort in internal controls, regulatory compliance, human resources and systems integrity,” Ray wrote in bankruptcy court filing. “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”
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