Real Estate Executives Outlook for 2020 | The Stoler Report-New York’s Business Report

Real Estate Executives Outlook for 2020 | The Stoler Report-New York’s Business Report


♪ [THEME MUSIC] ♪ ♪ [THEME MUSIC] ♪>>>OH, CRYSTAL APPLE. YOU SEEM
BRIGHT. BUT I DON’T KNOW AFTER THE END OF THIS SHOW IF YOU’RE
GOING TO BE BRIGHT OR DULL. SO TODAY WE’RE GOING TO DISCUSS THE
OUTLOOK FOR 2020 AND I’VE ASSEMBLED THESE THREE
INDIVIDUALS, OR SHOULD WE SAY CHARACTERS, TO DISCUSS THEIR
THOUGHTS ON THE MARKET. MY GUESTS INCLUDE MY BUDDY OVER
THERE, DAVID SCHECHTMAN, WHO’S THE SENIOR EXECUTIVE MANAGING
DIRECTOR AT MERIDIAN INVESTMENT SALES. DAN PARKER, WHO’S A
MANAGING DIRECTOR, I’M SORRY, NOT SENIOR MANAGING DIRECTOR, AT
HODGES, WARD, AND ELLIOTT. THE NEXT ONE IS KENT SWIG, PRESIDENT
OF SWIG EQUITIES, PRESIDENT OF HEMSLEY SPEAR, PRINCIPAL AT
HALSTEAD, PRINCIPAL AT BROWN, HARRIS, STEVENS, AND ALSO
PRESIDENT OF FALCON PACIFIC. SO MR. SCHECHTMAN, WHERE DO YOU SEE
THE MARKET? IS 2020 GOING TO BE A GOOD YEAR? ARE YOU GOING TO BE
STILL UPSET ABOUT THE JUNE 14TH, 2019 EFFECT ON RESIDENTIAL
RENTAL? WHERE DO YOU SEE THE WORLD? >>>YOU KNOW, THE GREAT THING
ABOUT WORKING IN NEW YORK IS THERE’S ALWAYS A NEW ENTRANT AND
THERE’S ALWAYS DEMAND AND BUILDING’S TRADE HAND AND FOR US
FOLKS WHO ARE TRANSACTIONAL, THERE’S ALWAYS FORTUNATELY MONEY
TO BE MADE. BUT I SEE 2020 LARGELY AS THE YEAR WHEN THE
MARKET AND ALL THE PLAYERS IN THE MARKET REACT. THEY REACT TO
TWO MAJOR EVENTS LAST YEAR. ONE WAS THE DRACONIAN AND MISGUIDED
LEGISLATION, WHICH WAS PASSED IN MID-JUNE, WHICH IS OBVIOUSLY
HAVING A TREMENDOUS EFFECT ON THE RESIDENTIAL MARKET. AND THE
OTHER MASSIVE EVENT THAT WE HAVE LAST YEAR WAS NEW YORK CITY’S
REJECTION OF AMAZON IN LONG ISLAND CITY, AND I THINK WHAT
2020 IS GOING TO BRING, IT’S GOING TO BE BRING FINALLY, THE
DUST IS GOING TO SETTLE AND WE’RE GOING TO SEE HOW PEOPLE
REDEFINE PRICING AND SENTIMENT IN THE NEW YORK MARKET. >>>DAN? >>>SO I’M NATURALLY AN OPTIMIST
AND I SEE A LOT OF OPPORTUNITY IN THE VALUE ADD SPACE, BUT I
HAVE TO AGREE THAT THIS IS THE YEAR IN WHICH THE MARKET HAS
BEEN DIGESTING AND FIGURING OUT WHAT TO DO WITH THE RENT
STABILIZED CHANGES. AND I THINK THAT SELLERS, ESPECIALLY
FAMILIES WHO MAYBE HAVE THE BASIS THAT GIVES THEM THE
ABILITY TO SELL INTO THIS MARKET, SOME OF THEM ARE
STARTING TO SAY, THIS IS THE MOMENT THAT WE’RE GOING TO SELL.
>>>I KNOW THAT YOU HAD AN INVOLVEMENT IN QUEENS LAST YEAR.
WHAT EFFECT HAS THAT HAD ON THE LONG ISLAND CITY MARKET IN YOUR
MIND? >>>SO WE SOLD 1 QPS LAST YEAR.
IT CLOSED ACTUALLY IN THE LATE ‘18. BUT THEN, YOU KNOW, I THINK
WE WERE ACTIVE IN THAT MARKET AND I THINK THAT WHAT YOU’RE
SEEING IS PROBABLY THERE WAS A LOT OF HOPE THAT THE AMAZON WAS
GOING TO REVIVE THE OFFICE MARKET OVER THERE AND WAS GOING
TO CONTINUE TO BRING THE RENT GROWTH THAT EVERYBODY’S
ANTICIPATING. DESPITE WHAT HAPPENED, EVERY APARTMENT
BUILDING OVER THERE IS FULL OF TENANTS. THEY’RE PAYING TOP
RENTS, AND NOW THEY’RE ALL TALKING ABOUT THEIR COMMUTE TO
HUDSON YARDS ON THE 7 TRAIN THAT’LL TAKE THEM OVER TO
FACEBOOK. SO LONG ISLAND CITY STILL HAS A VERY GOOD STORY. I
THINK THAT AS QUICKLY AS WE WERE EXCITED ABOUT AMAZON, SUDDENLY
AT THE END OF 2020 IT WAS ALL ABOUT FACEBOOK, THE EXPANSION OF
APPLE. THE TECH INDUSTRY TAKING OVER THE WEST SIDE LIKE THAT IS
REALLY, REALLY SOMETHING ELSE. >>>AND EVEN, YOU KNOW, THE
HUDSON YARDS AREA, YOU KNOW, WITH THE ST. JOHN’S BUILDING AND
ALSO THE NEW PROPERTY FOR DISNEY OVER THERE ON HUDSON SQUARE.
NOW, SOMEBODY WHO’S BEEN HERE ON MY SHOW WHO WAS A VISIONARY ON
FIDI MANY YEARS AGO. I THINK HE COINED THE FIDI DISTRICT WAS KEN
SWIG. HOW DO YOU SEE LOWER MANHATTAN? HOW DO YOU SEE THE
MARKET IN GENERAL? >>>WELL LOWER MANHATTAN LAST
YEAR IF YOU LOOK AT, THEY LEAD IN LEASING, IN TERMS OF
ABSORPTION, ONE OF THE FEW PLACES THAT ACTUALLY HAD
POSITIVE ABSORPTION ACTIVITY WAS VERY STRONG THERE. THERE ARE
MORE CONDOS BEING BUILT THERE AND PROJECT DEVELOPMENT, NOT
NUMBER OF, IN NUMBER, IN TERMS OF UNITS, NOT NECESSARILY IN
TERMS OF PROJECTS. SO IT’S GROWING. IT’S A STRONG PLACE.
IT’S A 24-HOUR ACTIVITY AREA. SO FROM THAT PERSPECTIVE, I’M
POSITIVE. >>>WE HAVE TOO MUCH CONDO
INVENTORY ON THE MARKET RIGHT NOW. SO BUILDING NEW CONDOS IN
THE FINANCIAL DISTRICT IS NOT THAT GREAT BECAUSE IT’S GOING TO
TAKE COUPLE OF YEARS TO ABSORB.>>>WELL, IF YOU LOOK AT THE
CONDO MARKET IN NEW YORK CITY, LAST YEAR SAW AN INCREASE OF
OVER 42% OF SALE CLOSINGS OVER THE YEAR BEFORE. GOING FORWARD
ON NEW DEALS WE WERE DOWN JUST TO SHADE, SO WE’LL SEE WHAT
HAPPENS. BUT I WOULD SAY THAT THERE ARE A LOT OF CONDOS BEING
BUILT, YES, BUT ONE OF THE THINGS THAT WERE GOING ON MORE
IS THAT THE OVERALL TRANSACTION VOLUME OF NEW YORK CITY,
PARTICULARLY MANHATTAN, HAD RECEDED LAST YEAR COMPARED TO
THE AVERAGE OF WHAT IT WAS. YOU KNOW, LAST YEAR WAS ABOUT THE
SAME AS 2018 AND A LITTLE BIT MORE THAN A LOW POINT WAS OF
2009. SO WE’VE GOT TOO MUCH SUPPLY COMING ON POTENTIALLY OF
SOME NEW CONDO DEVELOPMENT, BUT IT’S NOT NECESSARILY JUST LOWER
MANHATTAN. >>>I WOULD ADD THAT YOU KNOW,
ONE OF THE UNINTENDED CONSEQUENCES OF THE JUNE LAWS
THAT I THINK HELPS THE CONDO MARKET, THAT WOULD PREDICT THAT
THE NEXT DECADES GOING TO BE BETTER THAN THE LAST DECADE IS
THAT CONVERSIONS ARE VIRTUALLY IMPOSSIBLE NOW. SO ALL CONDO
SUPPLY IS GOING TO HAVE TO COME FROM NEW CONSTRUCTION. >>>THAT 51% RULE CHANGES. >>>CHANGES EVERYTHING. MARKETS
LIKE THE UPPER WEST SIDE, WE LOOKED AT THE LAST 40 YEARS, IN
THE DATA SHOWS 85% OF FOR SALE HOUSING ON THE UPPER WEST SIDE
CAME FROM CONVERSIONS. ONLY 15% CAME FROM NEW CONSTRUCTION. IT’S
JUST IMPOSSIBLE TO FIND SITES ON THE UPPER WEST SIDE. SO THE NEXT
DECADE SHOULD BE GOOD FOR CERTAIN MARKETS OF MANHATTAN
WHERE IT’S ALL COME FROM CONVERSION. >>>YOU KNOW, IN THE GREEN ROOM
YOU WERE TALKING ABOUT THE CHANGE OF THE LAW WITH REGARD TO
THE 70/ 30. WANT TO DISCUSS THAT? >>>WELL, THE 70/ 30 RULE ON
AFFORDABLE NEW YORK PROGRAM THAT ENCOURAGES AFFORDABLE
DEVELOPMENT, WHICH I THINK WE ALL AGREE AS NEW YORKERS, WE
NEED MORE AFFORDABLE HOUSING. WE WANT MORE AFFORDABLE HOUSING,
BUT WE NEED A PROGRAM THAT TRULY INCENTIVIZES IT. I THINK THAT
WHAT’S MISSING, AND ONE OF THE OTHER UNINTENDED CONSEQUENCES OF
THE LAW CHANGE, IS THAT NOW A UNIT IN A 70/ 30 NEW YORK
AFFORDABLE BUILDING THAT LEASES FOR LESS THAN $2,770, WHICH IS
PROBABLY A TYPICAL STUDIO IN THE BOROUGHS AND MANY ONE BEDROOMS
IN THE BOROUGHS, THOSE ARE RENT STABILIZED. THE DEAL DEVELOPERS
MADE WAS THAT THOSE WOULD BE FREE MARKET UNITS. >>>IF THEY WERE OVER $2,770. >>>IF THEY WERE OVER $2,770 BUT
AT THAT TIME THEY MADE THE DEAL THERE WAS DEREGULATION. THERE
WAS A 20% VACANCY BONUS. IT WAS REASONABLE. THE UNINTENDED
CONSEQUENCE OF THE LAW WAS THAT ALL THOSE UNITS IN THOSE
BUILDINGS THAT WERE LEASED FOR LESS THAN $2,770 SUDDENLY WENT
FROM FREE MARKET TO RENT STABILIZED- >>>FOREVER. >>>FOREVER. >>>SO LET’S TALK ABOUT WHAT
HAPPENED WITH REGARD TO VALUATIONS. >>>I ALWAYS THINK IT’S HELPFUL
TO GIVE REAL TIME EXAMPLES. 60 DAYS AFTER THE LAWS WERE PASSED
OUR FIRM, ALONG WITH TWO OTHER FIRMS, WERE INVITED TO SPEAK
WITH A FAMILY THAT’S BEEN IN BUSINESS IN NEW YORK. THEY WERE
BUILDERS AFTER THEY IMMIGRATED FROM EASTERN EUROPE. THEY BUILT
1,100 UNITS IN THE LATE 1920s. CALL IT THE MOTT HAVEN SECTION
OF THE BRONX. AND THEY HAVE NOT SOLD A SINGLE UNIT FOR NEARLY A
HUNDRED YEARS. THESE ARE FOR RENT UNITS. THEY’RE ALMOST
EXCLUSIVELY RENT STABILIZED, BOTH RENT CONTROLLED AND RENT
STABILIZED. THE FAMILY HAS BEEN WONDERFUL CITIZENS OF NEW YORK.
THE BUILDINGS ARE IN PRISTINE CONDITION. THERE ARE ALL KINDS
OF COMMUNITY PROGRAMS. THEY’VE GIVEN BACK. THEY’RE JUST THE
IDEAL NEW YORK OWNERS. AFTER 100 YEARS OF OWNERSHIP, THIS FAMILY
SOUGHT THREE BROKER OPINIONS OF VALUE BECAUSE IN LIGHT OF THE
NEW LAWS THEY’VE DECIDED TO DIVEST THEMSELVES 100% OF THEIR
HOLDINGS IN NEW YORK. WHEN COLLEAGUES OF MINE AND MY
COMPETITORS ALSO ON THIS DEAL, WE ACTUALLY ALL GOT TO SPEAKING.
WE ALL CAME UP WITH VALUES, WHICH WERE JUST UNDER 30% OF
WHAT THESE BUILDINGS WOULD HAVE TRADED FOR A YEAR AND A HALF
AGO. AND I THINK TO DANIEL’S POINT, THERE’S A REALIZATION BY
OWNERS WHO HAVE THE FINANCIAL WHEREWITHAL, IF THEY MAKE THE
DECISION TO SELL THEY’RE ACCEPTING THIS NEW PARADIGM,
THIS NEW PRICING PARADIGM. AND THAT’S KIND OF A SEGUE INTO A
POINT THAT I THINK IS IMPORTANT REGARDING THE MARKET OUTLOOK. AS
THE MARKET HAS CHANGED, JUST BECAUSE WE’VE HAD A WONDERFUL
RUN FROM 2010 TO 2017, PART OF THE REASON WHY THERE IS A
DECRESCENDO IS JUST THE CYCLE. REAL ESTATE CYCLES ARE ANYWHERE
FROM SEVEN TO TWELVE YEARS. WHAT STARTED HAPPENING TWO YEARS AGO,
ESPECIALLY WITH THE CHANGES IN RETAIL, WAS PROFESSIONAL REAL
ESTATE OWNERS, FOLKS WHO BUY AND SELL AND DEAL IN GOODS ARE THE
KIND, THEY REALIZED THAT LEASING PRICES WOULD CHANGE AND
THEREFORE SALES PRICES WOULD CHANGE. THEY STOPPED IN 2017 –
18, VOLUME DROPPED PRECIPITOUSLY AND WE SAW A BOUNCE BACK IN
2019. WHAT ALWAYS TAKES A LITTLE BIT LONGER, AND WHAT MOST PEOPLE
DON’T REALIZE, YOUR VIEWERS CERTAINLY DO, MOST OF NEW YORK
COMMERCIAL BUILDINGS, WHICH ARE DEFINED BY ANY EDIFICE WITH MORE
THAN FOUR RESIDENTIAL UNITS OR EXCLUSIVELY FOR COMMERCIAL OR
RETAIL USE, MOST OF THOSE BUILDINGS ARE NOT OWNED BY LARGE
COMPANIES. THERE ARE A TON OF ONE-OFF AND PRIVATE FAMILY
OWNERS. THEY HAVE BEEN HEARING NOTHING BUT NEGATIVE NEWS FROM
AMAZON TO OUR FIFTY-ONE CITY COUNCIL MEMBERS AND SOME OF THE
WACKY LEGISLATION THEY’VE PROPOSED. WE FINALLY HAVE THE
LAY PERSON AND THE GENERAL MEDIA, NOT JUST THE REAL ESTATE
PRESS, EXPLAINING TO THEM THAT THE WORLD HAS SHIFTED. WHAT
WE’VE STARTED TO SEE BY Q TWO OF 2019 AND I REALLY EXPECT THIS TO
TAKE HOLD THIS YEAR, IS THE AVERAGE PROPERTY OWNER
RECOGNIZES THE VALUES THAT THEY BELIEVED IN FROM ’14, ’15, ’16,
‘17 ARE NOW DOWN HERE, AND SOME OF THOSE PEOPLE ARE GOING TO
TRANSACT. >>>YOU INITIALLY STARTED THIS
WITH THE 1,100 UNITS. SO HOW MUCH OF THE 1,100 UNITS
DECREASED IN VALUE? >>>THOSE 1,100 UNITS, WE GAVE
THEM A NUMBER THAT WAS ABOUT 33% BELOW WHERE IT WOULD’VE BEEN 24
MONTHS AGO. WE SOLD THE FIRST FOUR BUILDINGS INSIDE OF 10
WEEKS. HARD, NONREFUNDABLE THE FIRST SEVERAL HUNDRED UNITS FOR
$36 MILLION. THE PROBLEM THERE WAS THE BUYER POOL WAS AS THIN
AS I’VE EVER SEEN FOR WELL-MAINTAINED REALLY, REALLY
WELL MAINTAINED MULTIFAMILY BUILDINGS IN THE BRONX. IT WAS
SEVEN TIMES THE GROSS RENT MULTIPLE. 24 MONTHS AGO IT WAS
ELEVEN OR TWELVE TIMES THE GROSS RENT MULTIPLE. >>>I’M HEARING ABOUT THE
RESIDENTIAL. YOU KNOW, WHEN WE’RE TALKING ABOUT THE REAL
ESTATE MARKET, WE HAVE FOUR OR FIVE DIFFERENT ASSET CLASSES.
THE OFFICE MARKET CAN’T- HOW WAS IT LAST YEAR? >>>ON A VOLUME BASIS FOR
LEASING IT WAS ONE OF THE BEST YEARS THAT WE’VE HAD, YOU KNOW,
DEPENDING ON WHO YOU LOOK AT, ANYWHERE FROM 43 MILLION TO 46
MILLION SQUARE FEET CHANGED HAND. HOWEVER, THE ABSORPTION
RATE WAS IN THE NEGATIVE OVER 3 MILLION SQUARE FEET. SO, BUT IF
YOU LOOK AT THE INVESTMENT SALES SIDE AT A LITTLE OVER 23
BILLION, $23.2 BILLION FOR LAST YEAR, IT HAS BEEN STEADILY GOING
DOWN SINCE 2014. >>>BUT WE ALSO HAVE PICKED UP A
LARGE NUMBER OF NEW BUILDINGS ON THE FAR WEST SIDE. >>>WELL, THERE’S GROWTH. WE
HAVE 16 MILLION NEW SQUARE FEET OF NEW OFFICE SPACE COMING
THROUGH RIGHT NOW IN NEW CONSTRUCTION. >>>AND RENTS HAVE REACHED A
HIGHER LEVEL THAN BEFORE. >>>THEY HAVE REACHED, YEAH. I
THINK THE REAL ESTATE INVESTMENT ACTIVITY IS GOING TO INCREASE
ACROSS THE UNITED STATES AND HOPEFULLY NEW YORK CITY TOO,
BECAUSE IF YOU LOOK AT BIG PENSION FUNDS FROM OHIO STATE
TEACHERS TOO, YOU KNOW, CALPERS, CALSTERS, ALL THE ROLEX PENSION
FUND, ALL THESE, THE STOCK MARKET IS VERY FULL AT THIS
POINT, RIGHT? AND THE INVESTMENT CRITERIA OF A LOT OF THESE
PLACES HAS TO START LOOKING AND DIVERSIFYING MORE INTO REAL
ESTATE. SO I THINK THERE’S GOING TO BE MORE MONEY SEEKING REAL
ESTATE. THE PROBLEM IS THE RESIDENTIAL MARKET ON
MULTIFAMILY HOMES, WHICH IS REALLY WHAT PEOPLE LIKED SO MUCH
HAS A PROBLEM AND PEOPLE DON’T UNDERSTAND IT YET. AND SO
THEY’RE GOING TO EVALUATE. SO THE ACTIVITY LEVEL ON THE
RESIDENTIAL SIDE, WHICH WAS A BIG PORTION OF OUR MARKETPLACE,
I THINK IS GOING TO TAKE A PAUSE FOR A MOMENT. AND THE SECOND
THING IS, IS IF YOU BUY RESIDENTIAL, THERE WAS ALWAYS A
WAY TO INCREASE YOUR VALUE. YOU COULD INCREASE RENT, YOU COULD
DECOMMISSION A RESIDENTIAL UNIT FROM RENT STABILIZED IF IT HAD
CERTAIN CRITERIA. ALL THAT IS GONE. SO YOU’RE BUYING A YIELD
RIGHT NOW AND THAT YIELD ACTUALLY COULD DECLINE, NOT
INCREASE. AND YOU DON’T EVEN GET AN INCENTIVE FOR RENOVATING
ANYMORE. SO WHAT YOU’VE CREATED IS A MARKET FOR LANDLORDS THAT
ARE GOING TO GO BACKWARDS. AND I DON’T WANT TO CALL THEM CREATION
OF SLUMLORDS, BUT YOU’RE REALLY CREATING AN ENVIRONMENT WHERE
NOBODY HAS AN INCENTIVE TO PUT MONEY IN THE BUILDING, TO
COMBINE UNITS, DO ANYTHING LIKE THAT IN THE MARKET. AND, THAT
DOESN’T HELP THE HOUSING. THAT DOESN’T TALK ABOUT AFFORDABLE
HOUSING. THIS IS TAKING PEOPLE WHO ARE, SOME OF WHOM ARE NEED,
SOME OF WHOM AREN’T, IN A RENT STABILIZED ENVIRONMENT, BUT
THEIR BUILDINGS ARE NOT GOING TO BE WELL MAINTAINED AND CARED FOR
BECAUSE THERE’S ZERO INCENTIVE NOW TO GO DO THAT. IN FACT, YOU
WON’T BE ABLE TO AFFORD TO DO IT. AND THAT’S A BIG PROBLEM. SO
THERE NEEDS TO BE AN ADJUSTMENT WITH THE LAW. I THINK BECAUSE IT
WAS WRITTEN VERY QUICKLY AND VERY SHORTSIGHTED AND DIDN’T
ACCOMMODATE REALLY WHAT I THINK THE GOALS WERE. >>>DAN, WITH 67 MILLION
VISITORS TO NEW YORK, AND I KNOW THAT YOUR FIRM SPECIALIZES IN
HOSPITALITY, HOW DO YOU LOOK AT THE MARKET IN NEW YORK? >>>THE TOURISM INDUSTRY’S UP.
IT’S NEVER BEEN MORE AFFORDABLE FOR A TOURIST TO BE ABLE TO
VISIT NEW YORK, RIGHT. HOTEL- BUT THAT’S, THAT’S NOT ALWAYS
GREAT NEWS FOR A HOTEL OWNER. BUT GENERALLY SPEAKING, YOU’RE
SEEING, I THINK ONE OF THE MARKET CHANGES HAS BEEN THAT YOU
CAN NOW TAKE A HOTEL AND YOU CAN CONVERT IT BECAUSE OF THE
EXPIRATION OF CERTAIN LAWS, YOU CAN CONVERT IT TO RESIDENTIAL OR
YOU CAN CONVERT IT TO OFFICE IF A DEVELOPER WANTED TO DO THAT. I
THINK THE OTHER THING, THERE WERE SOME ARTICLES RECENTLY
ABOUT THE POWER OF THE UNIONS AND THESE UNIONS HAVE FIGURED
OUT, PARTICULARLY PETER WARD AND THE HOTEL UNION, THAT THEY CAN
RALLY A LOT OF THESE TRADE, THE TRADESMEN THAT WORK IN THE
HOTELS, AND WITH ALL OF THOSE DONATIONS, THEY CAN HAVE A REAL
VOICE IN THESE ELECTIONS. AND SO I THINK THAT THERE IS A REAL
NEED TO CATER TO WHAT, YOU KNOW, THAT TRADE GROUP WANTS IN THE
NEGOTIATION, BECAUSE THEY REALLY DO HAVE SOME POWER. >>>KENT, YOU’RE IN THE
CONSTRUCTION BUSINESS WITH FALCON PACIFIC. HOW DO YOU SEE
THE CONSTRUCTION MARKET? >>>WELL, I MEAN, THERE’S BEEN A
LOT OF ACTIVITY RIGHT NOW. WE’VE GOT TWO PROJECT, TWO HOTELS THAT
ARE GOING UP ON 38TH STREET, BOTH ON THE WEST SIDE. AND I
THINK THE ACTIVITY IS VERY STRONG. PRICES ARE EXPENSIVE. I
THINK THAT THERE WILL BE AN ADJUSTMENT AT SOME POINT TO SOME
OF THE PRICING THAT’S GOING ON. I DON’T THINK YOU’RE GOING TO
SEE AS MUCH BREAKING GROUND FOR THE MOMENT OF NEW CONSTRUCTION
ON SOME OF THE COMMERCIAL AND OTHER THINGS UNTIL EVERYTHING
GETS DIGESTED. YOU HAVE A LOT OF SPACE THAT’S GONE UP. BUT WE
WERE SEEING, YOU KNOW, YOU HAVE HUGE ACTIVITY LEVEL. YOU LOOK AT
THE WEST SIDE, YOU KNOW, WITH ALL THE BUILDINGS NOW THAT HAD
COME OUT. THEY’RE VIRTUALLY FULLY LEASED RIGHT NOW AND
THAT’S AN EXTRAORDINARY STATEMENT. SO I’M BULLISH ON
WHAT’S HAPPENING. >>>WITH REGARD TO THAT, HOW DO
YOU SEE DEVELOPMENT SITES ON THE WEST SIDE? >>>YOU KNOW, IT’S COUNTER
INTUITIVE, ALTHOUGH FOR THE AFOREMENTIONED REASONS, MAYBE
IT’S NOT. WE CAN’T KEEP, AND DAN AND I HAD SPOKEN ABOUT THIS SO
WE GOT TOGETHER JUST BEFORE THE CHRISTMAS BREAK, YOU CAN’T KEEP
LAND ON THE SHELF IN THIS CITY. AND THAT’S NOT BLUSTER. IF YOU
ASKED TWO SALES BROKERS IF WE CAN CHOOSE ANY TYPE OF
ASSIGNMENT IN ANY NEIGHBORHOOD, I WOULD TELL YOU, GIVE ME ANY
PIECE OF LAND FOR CONSTRUCTION AND NOT JUST COMMERCIAL AND
OFFICE, EVEN RETAIL, PEOPLE STILL BELIEVE IN IT, AND EVEN
RESIDENTIAL. AND MAYBE IT’S BECAUSE WE HAVE SOME OF THESE
LAWS WHERE THE UNINTENDED CONSEQUENCE WAS TO HALT THE
CONVERSIONS, BUT I CAN’T KEEP LAND ON THE SHELVES. AND WHAT’S
STARTING TO HAPPEN IS THE DEMAND FOR RETAIL STARTED OFF WITH THE
REAL RETAIL OF BIS, WHICH WE WERE IN IN 2018. WE’VE CLIMBED
OUT OF IT. LANDLORDS RECOGNIZE THAT THE $400 A FOOT THAT THEY
WERE GOING TO GET ON SIDE STREETS IN SOHO IS CLOSER TO
$200 OR $225 A FOOT. WELL, THEY’RE LEASING THEM UP. YOU’RE
GOING TO SEE A LOT OF LEASING ACTIVITY THIS YEAR BECAUSE
LANDLORDS AND THEIR LENDERS, AS IMPORTANTLY, WHO MANY TIMES HAVE
THE RIGHT TO REJECT OR ACCEPT THE LEASE WHEN THERE IS A
PROJECTION, A LOT OF THOSE LENDERS ARE SAYING, GO AHEAD.
WE’D RATHER HAVE SOME INCOME. SO I THINK YOU’RE GOING TO SEE A
NEW YORK, AND KENT SPOKE ABOUT IT EARLIER, I THINK YOU’RE GOING
TO SEE A RETURN TO A VERY BIG, SMALL CITY. YOU’RE GOING TO GET
ALL OF THE FOOD AND BEVERAGE, ALL OF THE THINGS, AND I’M GOING
TO CONTINUE TO QUOTE KEN, WHAT PARIS LOOKS LIKE. A LOT OF MOM
AND POP SHOPS. WELL, THE GOOD NEWS IS, EVEN IF IT WAS THE
UNINTENDED CONSEQUENCES OF LEGISLATION AND THE RETAIL
DOWNTURN, YOU’RE GOING TO SEE A LOT OF NEW TENANTS IN NEW YORK.
>>>DAN, I KNOW A COUPLE OF YEARS AGO YOU WERE VERY ACTIVE
IN THE BOROUGHS ON RETAIL. WHERE HAS THAT HAPPENED? I MEAN, YOU
HAD THE RETAIL COMPONENT OF APARTMENT BUILDINGS, A LOT OF
THAT. >>>SO WE HAD A FEW RETAIL
CONDOS, AND I DON’T THINK THE MARKET HAS CHANGED DRAMATICALLY.
THOSE WERE DIFFICULT TO SELL THREE YEARS AGO. THEY REMAIN
DIFFICULT. YOU CALL AN INVESTOR AND TELL THEM THAT, YOU KNOW,
THAT THEY ARE THE WINNING BID AND SUDDENLY THEY START TO
QUESTION IF THEY HAVE BID TOO MUCH. AND SO THEY’RE NOT EASY
DEALS TO GET DONE BECAUSE IT’S THE ONE VALUE ADD DEAL. SO
VACANT RETAIL, FOR EXAMPLE IS JUST A DIFFICULT ASSET CLASS TO
CONVINCE INVESTORS. AND IT’S NOT BECAUSE A LOT OF PEOPLE HAVE A
POSITIVE OUTLOOK ON IT. THEY WILL EXPRESS A BULLISH NATURE
ON, YES, I DO BELIEVE IN THIS LOCATION. YES, I DO BELIEVE IN
THAT RENT. YOU’RE REALISTIC ABOUT THINGS, BUT OUR INVESTORS
HAVE JUST HAD TWO NEGATIVE OF AN EXPERIENCE OR WERE OVERWEIGHTED
IN RETAIL IN THE PORTFOLIO. WE JUST CAN’T MAKE ANY MORE RETAIL
INVESTMENTS. >>>YOU KNOW, THE LARGEST TENANT
OF OFFICE SPACE IN THE CITY OF NEW YORK IS WEWORK AND THE
COWORKING. HOW DO YOU SEE CO-WORKING AND CO-LIVING IN
2020? >>>IT’S BEEN FERVENT AND
FRUITFUL FOR DECADES. REGIS WAS ONE OF THE FIRST MAJOR ENTRANCE-
>>>BUT THEY NEVER HAD 4.8 MILLION SQUARE FEET OF SPACE. >>>NO, BUT THEN THEY WERE
ALWAYS VALUED AT THREE OR FOUR OR FIVE TIMES EBITDA, WHICH IS
WHERE MOST OTHER COMPANIES SHOULD HAVE BEEN VALUED. I THINK
THAT YOU’RE GOING TO SEE PEOPLE BACKFILLING A LOT OF WE WORK
SPACE. YOU KNOW, WE WORK WAS SOMETHING THAT, IT WAS ALMOST A
RUNNING JOKE THAT YOU DIDN’T EVEN NEED TO BE SOMEBODY IN THE
REAL ESTATE INDUSTRY TO SEE IT. AND IT LOOKED LIKE A ZAMBONI
VERY SLOWLY HEADING TOWARDS A COLLISION WITH A LAMBORGHINI. WE
ALL KNEW THAT THIS WAS GOING TO HAPPEN. WE ALL KNEW IT WAS GOING
TO BE UGLY. BUT I THINK THAT YOU’RE GOING TO SEE A LOT OF
THAT SPACE GETTING ABSORBED BY SMALLER NICHE COWORKING
COMPANIES. YOU HAVE THE WING. YOU HAVE A HANDFUL OF NEW ONES
THAT ARE GOING TO CATER TO WORKING PARENTS- >>>WHAT ABOUT KNOTEL? >>>I THINK THEY’RE DOING
GANGBUSTERS AT THIS POINT- >>>THE BUSINESS IS A BUSINESS.
>>>IT MAKES SENSE. >>>WHAT ABOUT CO-LIVING? >>>YOU KNOW, OFER YARDENI SAID
ON YOUR SHOW SEVERAL YEARS AGO, AND I’M HAVING A GREAT DAY
QUOTING PEOPLE SMARTER THAN I, OFER YARDENI SAID, – >>>I’M REALLY PROUD OF YOU. >>>WELL, THIS IS WHAT HAPPENS
IN YOUR MID-FORTIES, MICHAEL. YOU GROW UP A LITTLE. OFER
YARDENI SAID WHAT WAS ONE OF THE MOST COMICAL, BUT ONE OF THE
MOST PRESCIENT THINGS I’VE EVER HEARD ABOUT CO-LIVING. YOU WAIT
UNTIL YOU’RE IN YOUR EARLY TWENTIES TO MAKE ENOUGH MONEY TO
HOPEFULLY MOVE OUT OF YOUR PARENTS’ HOUSE AND GET RID OF
YOUR ROOMMATES SO YOU CAN KEEP YOUR TOOTHBRUSH OUT WITHOUT
WORRYING ABOUT IT. WHY IN MY TWENTIES AND THIRTIES AND
FORTIES AM I GOING BACK TO A ROOMMATE SITUATION IF THERE’S
OPPORTUNITY WITH THE DECLINE IN RENTS IN OTHER PLACES. I DON’T
THINK, OTHER THAN FOR MAYBE A BUNCH OF YOUTH HOSTELS AND
TOURISTS, YOU ALWAYS HAVE SHARES, YOU HAVE CRAIGSLIST ADS,
AND A LOT OF THE FOLKS IN THERE THE NEOPHYTES WHO WORK FOR
ME-SHARE APARTMENTS. BUT THE CONCEPT OF IT GROWING
TREMENDOUSLY. MAYBE IN EUROPE FOR TOURISTS. I DON’T SEE IT IN
NEW YORK. >>>I THINK THAT THE CONCEPT OF
LIVING WITH ROOMMATES IS NEVER GOING TO GO AWAY IN NEW YORK,
RIGHT? >>>IT’S BEEN AROUND FOR A
HUNDRED YEARS. >>>AND CO-LIVING IS BEING
BRANDED ALMOST AS A HIGHLY AMENITIZED ROOMMATE SITUATION,
RIGHT? SO, IT MAKES SENSE AND I THINK IT SPEAKS TO THE DESIRE
FOR MULTIFAMILY DEVELOPERS AND OWNERS TO ELEVATE THE EXPERIENCE
THAT SOMEBODY HAS IN THERE. SO RATHER THAN JUST RENTING AN
APARTMENT SIMILAR TO THE HOSPITALITY INDUSTRY, THEY START
TO OFFER THINGS LIKE, WELL WE CAN COME IN AND CLEAN YOUR
APARTMENT. WE CAN COME IN AND OFFER YOU WIFI. WE CAN OFFER YOU
ALL THE CONCIERGE SERVICES. MANY OF THESE KINDS OF AMENITIES HAVE
BEEN AVAILABLE IN LUXURY BUILDINGS. I THINK THAT OWNERS
ARE ALWAYS LOOKING TO TRY TO TAKE AND ELEVATE THE EXPERIENCE
OF THE BUILDING AND CO-LIVING TO SOME EXTENT IS JUST ANOTHER
VERSION OF THAT. >>>WE’VE HIT A PRICE POINT
WHERE IT’S TOO EXPENSIVE TO LIVE ALONE IN NEW YORK CITY FOR THESE
KIDS WHO ARE GRADUATING IN THEIR TWENTIES AND THEY DON’T WANT A
ROOMMATE IN A SPACE. LET’S SAY YOU HAVE FOUR OR FIVE PEOPLE IN
AN APARTMENT, IN A SPACE. EACH ONE HAS ITS OWN ROOM. ITS OWN
BATHROOM. NOW, THERE’S CERTAIN AMENITIES YOU COULDN’T GET ON
YOUR OWN, SUCH AS A VERY BIG, BIG KITCHEN, A WASHER, DRYER,
ALL THESE OTHER THINGS. SO THE CO-LIVING IS SOME OF THE PUBLIC
SPACE WITHIN IT, BUT YOU GO INTO YOUR OWN ROOM AND YOU HAVE YOUR
OWN BATHROOM, ET CETERA, NOW THAT KIND OF CO-LIVING, I THINK,
MAKES A LOT OF SENSE. THE OTHER THING IS THAT A LOT OF THE KIDS
COMING OUT OF COLLEGE FOR THEIR FIRST COUPLE OF YEARS WANT TO
HAVE A COUPLE FRIENDS TO KIND OF HANG OUT WITH AND LIVE. SO I
THINK FOR THAT IT WORKS OUT WELL. THE ONES WHERE THEY’RE
CO-LIVING AND YOU’RE JUST SHARING ROOMS. I DON’T THINK
THAT’S WHERE THE END ALL IS. >>>I DON’T THINK NEW YORK- SO I
RESPECTFULLY DISAGREE WITH THESE FOLKS, BUT WHAT I DO THINK IS
GOING TO GROW, AND IT MAY BE A LOGICAL OUTGROWTH OF THE
CO-LIVING CONCEPT IS WE’RE STARTING TO SEE SOME OF THE
THIRD PARTY STUDENT HOUSING PROVIDERS IN THE FIVE BOROUGHS
RELAX THEIR RULES ON THE DEFINITION OF A STUDENT. SO
EARLIER THIS YEAR WE SOLD A BUILDING IN THE 100 BLOCK OF 3RD
AVENUE FOR $212 MILLION. THIS WAS A STUDENT HOUSING BUILDING
MASTER LEASE TO THREE UNIVERSITIES AND A THIRD PARTY
STUDENT HOUSING PROVIDER. ON A GOING FORWARD BASIS, I THINK
YOU’LL SEE MORE OF THOSE CONVERSIONS AND THE DEFINITION
OF STUDENT MAY INCREASE THE AGE TO GRADUATE STUDENT AND
POSTGRADUATE, AND THERE MAY BE A WINK AND A NOD. YOU MAY HAVE
PEOPLE IN THEIR LATE TWENTIES OPTING TO BE IN THOSE SITUATIONS
BEFORE A PURELY DEFINED CO-LIVING. >>>LIKE THIRTY SECONDS LEFT, IS
THE APPLE GOING TO BE BRIGHT OR IS IT GOING TO BE DULL? >>>I THINK THE APPLE LOOKS LIKE
A MACINTOSH. IT’S NOT A GOLDEN DELICIOUS, AND IT’S NOT A ONE OF
THOSE HEAVY REDS WITH THE WAX ON IT. I THINK WE’RE GOING TO HAVE
A GREAT YEAR JUST BECAUSE NEW ENTRANCE TO THE MARKET, THE
ACCEPTANCE OF THE PARADIGM SHIFT, THE LOW, LOW, LOW
INTEREST RATES, WE HAVE TO GIVE THAT A PLUG AND I THINK SOME OF
THE MISGUIDED LEGISLATION IS GOING TO TAKE A BREAK. WE’RE
GOING TO HAVE A GOOD YEAR. >>>DAN? >>>AS LONG AS THE ECONOMY KEEPS
ROARING THE CITY’S GOING TO DO GREAT. >>>KENT? >>>I THINK IT’S A BUYING
OPPORTUNITY FOR CO-OPS, CONDOS RIGHT NOW IF YOU LOOK AND THE
MARKET WAS DOWN AND IT WASN’T DOWN BECAUSE OF ANY ECONOMIC
INDICATORS OR ANY PROBLEMS, IT WAS DOWN BECAUSE PERCEPTION
MORE, I THINK WITH THE LOW INTEREST RATES AND THE MARKET
THE WAY IT IS, ONE OF THE GREAT BUYING OPPORTUNITIES FOR CO-OP
CONDO AND THE MARKET ON THE OTHER SIDE AND THE COMMERCIAL IS
GOING TO BE GOOD. >>>SO PRETTY BRIGHT. YOU KNOW,
LET’S HOPE IT STAYS THAT WAY. I’D LIKE TO THANK DAVID, DAN,
AND KENT, AND WE’LL SEE YOU NEXT WEEK. ♪ [THEME MUSIC] ♪

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