2001: An Odyssey for Space?
Franklin Speyer: Well, I think it was kind of a rollercoaster year. Mostly up, but still a roller-coaster. We were involved in a number of situations that involved the consolidation of various industries. We had a number of deals that were close to closing that wound up being part of consolidations. Rents did go up one way but--at the same time--it caused a lot of heartache; it was very difficult to find anything for us to do business with. Some landlords felt it was their time, others recognized the future and--perhaps--felt more judiciously. But it was a very unpredictable year and I don't see that changing much this year--except we may have some sideways movement as opposed to straight up.
Robin Abrams: Everybody, particularly in the leasing industry, felt that it was--in fact--a mixed blessing. That things were very very active, that it was very tough to get the deals done. There was very little product, pricing was totally out of whack and it became very competitive within the deals. Difficult to tell your tenants and your owners whether or not the deals were going to make sense long term.
David Picket: I would, in my business, agree, although it is not really the same thing. Deals that we had on the boards or went to contract on earlier in the year or the prior year--coming to fruition--we are very pleased about them. It's very difficult to find' new sites to put into the, ground this year and next year because of growing sellers expectations in terms of what they thought their land was worth and just the shear ability to make a deal work at those type of land numbers. So, my small area of what I do, I would agree with that, just sort of shadow exactly what you are saying.
Scott Robinson: Coming off 1999's glum performance for REIT's we were kind of questioning what 2000 was going to be like and it started off a little sketchy. And then the sell-off from NASDAQ really helped investors kind of come back to a stable cash flow that real estate produces and it ended up being a pretty good year, both on the equity side and the debt side. I think the debt investors were willing to jump back in and kind of refinance REIT debt that was tripping out and it looks like 2001 will be pretty good too.
Richard Bernstein: I think in some respects it was difficult because when you find in the climate that we experience where rents were spiking and that some of our buyers of space, mainly the dot corn industry not being terribly discriminating. I think it was hard to manage everybody's expectations, hard to manage ownership's expectations, hard to manage tenants expectations--probably all components involved with the transaction. And that is why I think sometimes it had an appearance of almost being arbitrary--where pricing wasn't established with competitive product, but in fact landlords and tenants were trying to anticipate because, literally, demand was outstripping supply by at least a 3 to 1 margin.
Lawrence Smoler: Bringing up dot-coms is a nice segue into what I do. Looking at the technology and how it pertains to real estate, the beginning of the year was just crazy. You had a simple idea, "I'm going to go out and get some money," and we were all being inundated by five different web-enabled listings firms and web enabled transaction firms--and what happened at the end of the year was money dried up and people realized that there wasn't infinite growth. The money ran out--climbing up the mountain, and there is no more rope to go up the mountain, and what happened was the more experienced climbers are the ones that ended up surviving. So, there was a good weeding out at the end of the year to figure out who were the ones that were going to survive. Further on, it makes it a lot easier for everyone else to make decisions. Instead of being inundated by 20 interesting ideas, now you have 1 or 2 that are the right ideas that everyone is going to go for. Now you can implement them. 2001 is going to be a yea r where everyone who implements the right idea grows their businesses.
Nick LaPorte: I think the dot-com shakeout, that you mentioned, is having a tremendous impact on office space. I think there is going to be a lot of shifting and subletting of space that the dot-com companies took out in anticipation of growing and growing and, in fact, they fell flat. That impacts on the office more because there is such a shortage of office space in this city at this point. I don't think that it will have a tremendous impact, but it will stabilize from my member's perspective, and I'm not out in the trenches everyday doing this stuff. I only rely on their feedback, but they were very happy this year, my members. I got a sense that between 1999 and 2000 the construction industry was doing well and there weren't any big concerns about getting projects done. I think there is apprehension about what the future is going to bring. There is a certain level of uncertainty. People are waiting for the stock market, waiting for George Bush to take office, and they are waiting to see how this all shak es out. I think you will see a stabilization of everything, a leveling out right now for about a year or so. I don't think we will see another 1989. There will be a leveling out of rents and vacancies.
Robin Abrams: Everybody in the office gets this everyday, and last night I looked at my desk to see what I had to bring here today--we get a list of dot-com companies that are failing. It's updated. So it's more and more widespread and we are seeing product coming back.
Franklin Speyer: That is interesting. It is something we all notice, but the dot-coms seem to be, even with their ravenous appetites, back in early 1999-late 1998, still just a fraction of the overall market. I think we had predicted that if all the dot-com space came back you still only had a vacancy rate in the single digits, which is still in effect a landlord's market. Therefore, what we have seen in the past two years with this rollercoaster ride is rents have gone up in 2-2 1/2 years anywhere from 50% to 100%. It seems like in prime class A space, and someone please correct if you are of a different opinion, that rents are going to hold there and continue their trend which is just astonishing, mainly due to the fact that people project they still will want to have the facilities to do business in after it all shakes out. Therefore, that matched up against a limited supply of A, B, even C+ space in Manhattan will just kind of hold the rents at their current level. I don't think anybody in our business i s projecting that class A rents will head south at this point, even with the uncertainty going forward for the next 6 or 9 months.
Real Estate Weekly: We are talking a lot about dot-coms, were dot-coms the big story of the year in 2000, or were their other big issues that came up during the year?
Richard Bernstein: I think, first of all, when you talk about dot-coms, you are talking really about the supply side, not the demand side. The big story in 2000 was the space that they were disposing of. And, I would just like to ad one thought--one of the unanswered questions still remains and that is, how will the service sectors of our economy be effected by the dot-coms? I don't think that there will be material amounts of space come to the market. But I do think beyond the first traunch of let's say a million square feet or so that have surfaced into the market and much of it has already been absorbed. I think beyond that we are starting to hear businesses, a lot of law firms and advertising firms and public relation firms, that have staffed up to support these dot-com companies. And, I still agree with Franklin's position, that with a market that has a vacancy rate in midtown of under 4%, to get to equilibrium we would have to have 10 or 11 million square feet surface, just to get to equilibrium--I don 't think that is going to happen. But, on the other hand, I think we are in a period of adjustment where demand will ease because we've lost certain sectors. And also, I still don't think we have seen the full amount of the supply that our relating of the dot-com correction come to the market.
Nick LaPorte: I think you'll see a lot of that on the fringes but you won't see a lot of vacancies occurring on Park Avenue or Madison Avenue or Fifth Avenue. If the demand isn't there, you may not have ten people lined up to rent space, you may have five, or three. The fringes, the west and east parts of the city, the north and south, the outer boroughs, LIC -perhaps, parts of Brooklyn, where some of the dot-coms settled when they couldn't afford space in Manhattan, those that will fail in those areas, you will see a higher vacancy rate, or turnover. Of course, they think that people will still, if they are looking for office space, focus on Manhattan. The outer boroughs were the places that people fled to when they couldn't afford Manhattan space. I'm not saying that it is going to be a depression within those areas, I just think it will be a little more difficult to fill those spaces than it was a couple of years ago. The shakeout, like we said before, is going to just stabilize the rents. I don't think anyone will really lose anything. The market is way too strong for it to just collapse.
Robin Abrams: We kind, of welcome what is going on, because without some difficulties to get the deals done, there was' no rhyme or reason. You had tenants competing against other tenants that you represented. You had landlords arbitrarily choosing to do deals that didn't make sense, dumping leases that they already had out, if other deals came along a couple of dollars higher...
Nick LaPorte: The sky was the limit.
Robin Abrams: Security deposits for two years. Security deposits on public companies, nothing made sense. It became an issue of this whole business, wanting to position oneself or tenant in high profile key areas and having to kind of play the game if you wanted to win. It really was tough.
Scott Robinson: On the supply side it was pretty interesting that the technology companies kind of took capital away from the real estate sector in '99 and early 2000, kind of put the kibosh the development and rents really were driven up, but then the capital markets took the capital away from the technology companies and so I think, in a way, the technology companies kind of instilled some discipline in the real estate guides as far as development is concerned. I think, longer term, that is probably one of the healthier things to come out of it.
David Picket: Further that, I think maybe one of the real stories of 2000 was, again on the supply side, the discipline that we've seen from the construction lenders despite a lot of euphoria, part of which was driven by the dot-coms, you saw that the construction lenders really stick to their guns. Really, there is no spec development -- I don't see that happening. They really placed a degree of discipline on the market. The loan-to values have not gone up appreciably, if at all. The few deals that do get done, by sources other than the mainstream construction lenders, those are complex debt and equity transactions where the debt equity providers are, for lack of a better word, "big boys" and they are in equity positions and they understand the risk involved with doing that. In fact, if there were retrenchment and that type of activity I don't think it would affect the market in any substantial way. The construction lenders really held the line this time as opposed to last time around where you actually cou ld oversubscribe debt in terms of project cost. So, I think that was a big difference and I think it is a big story.
Lawrence Smoler: It was a big double-edged sword all through the year. On the one hand we all loved the fact that there was, no ceiling -- it could just keep going forever and ever, it's a great feeling to have and I wish that we could always have it. But realism sets in and you realize: that it has to end one time and it can't just keep going on for ever. So that fact is, just to agree with you, the fact that there was a correction was actually probably a sigh of relief for a lot of us because (there was a question about '89 happening all over again) and we were definitely getting there, we were getting to the point where we could see that fundamentals were really going to be thrown out the window and lending happening just on performance again like it used to happen. But, because of the correction, it is not going to happen. We didn't get out of hand.
Nick LaPorte: People were smarter, too. The firms and businesses that supported the dot-coms -- I don't think that they expanded to the same extent that people expanded in 1989. I think they took a harder look at what they were doing and you don't have the same kind of retrenchment.
Franklin Speyer: You also have a macro event going on nationally and world-wide which is an underlying consumer confidence that relies on the micro management of the economy by Greenspan, by Clinton, by Bush who are watching this thing second to second. Therefore, while we all seek consumer confidence dropping momentarily or temporarily there is a sense that the federal government will not let our economy concern out of control as occurred in the late eighties/early nineties. I think everyone expects the bump in the road to be smoothed out through some kind of oversight that we didn't expect in the late eighties. So, I think that is why you are seeing this kind of "wait and see." This "wait and see" doesn't mean that rents are dropping 10%. "Wait and see" is that we think everything is going to come out all right because we are fundamentally strong. We like the fact that Alan Greenspan and his troops are watching every report, second to second -- and therefore this plane should land safely.
Lawrence Smoler: Right now there is no panic, because even with the correction we're all taking paper losses personally and our business over the year. Overall, we are still all up. My personal portfolio in '99 was up 180%. Last year it was down 35%, so overall we are still up 70%--things are good over a two-year period, that's good. But, my consumer confidence is down a little in the short term. The correction, as I said before, was good to get our heads back straight and focus on growing the right way.
Robin Abrams: I would say the same thing. I think for many retailers Christmas is always a telltale sign. Everyone is talking about what was Christmas week like. In fact, we were being told that it was quite bad. I think it had everybody in the industry nervous about what was going to be in 2001. The week after Christmas, sales picked up and it is supposed to be a very good January, which is traditionally slow. So, what is comforting is that retailers are back on track.
Real Estate Weekly: Do you think its because of this bump in consumer confidence that this Christmas season wasn't as strong as some people might have hoped?
Robin Abrams: Yes, but I also think that Christmas wasn't that bad. If you compared this year's sales to last year, they were phenomenal.
Scott Robinson: The expectations were that they would be better because of the expansion and the mode that the retailers were in all of 2000. They are cutting off their own internal growth just to beat out their competitors for new market share. So, the expectation was there that it would continue to grow like that.
Real Estate Weekly: We will talk about some of these macro factors that have been impacting real estate -- consumer confidence, the Bush Administration coming in and the uncertainty of that, the stock market and the volatility that we have seen in the last few months -- fall in that category. Maybe you can tell me how the stock market impacts what you do, what your sector of business has been doing and how you foresee the future months.
Nick LaPorte: I could talk to you from the residential side. Rents for one bedrooms are coming down in Manhattan, which is kind of an indicator although it's not representative of the whole city. One bedrooms are coming down from about a high of $3300-3500 a month to about $2700 a month. That is a little more realistic with the stock market correcting itself a little bit and people not getting the same kind of bonuses or the same kind of salary that they would normally be getting. It is adjusting realistically on those properties that aren't in the greatest demand. There is more of a supply of one bedroom and studio apartments rather than two or three bedroom apartments in Manhattan. So, I think you are going to see, on the residential side, not a big drop in value because of the stabilization and leveling out of the market value on the rental sides. In other words, we will once again just adjust to the demands. They are not going to leave properties vacant if they don't have to. They will just adjust the rat es accordingly.
Scott Robinson: What does that mean to the new properties being built on the fringe markets?
Nick LaPorte: I think that is where a lot of people are going. And I think those markets will do well because with the Manhattan markets--the larger apartments--there is still a shortage and the rents are high and the costs are high and people will be going to those outer borough areas--those fringe areas--for the better deals. They will come to the realization that Manhattan is the place where you really want to live, but not everyone can live in Manhattan. And you will see a resurgence of some areas in Brooklyn, under the Manhattan Bridge--DUMBO, parts of Long Island City (the rents are almost as high as Manhattan), and parts of downtown Brooklyn and Staten Island. With the building of a stadium in Saint George on Staten Island, there are old warehouses that are being converted into condos and the rest are moving for the first time in fifteen years -- those properties will be converted into residential properties. So, you see people moving away from Manhattan, but within striking distance.
David Picket: We have all been a like minded group so far, so I am glad I get to step in and sort of completely disagree. I do not think you are going to see rents in Manhattan go down. Last year, I think, we did 7,000 units of new housing. The year before was less and this year REBNY statistics have it at about 6,500. That is just pathetic for a city of 7 million people. New housing supply--it is extremely difficult to put new product into the market. I think rents are going to flatten, and maybe some locations would go down one or two percent. Basically speaking, since 1930 this city has seen one drop in residential rents for a three-year period. That was 1990-1992. The confluence of events that came about to cause that are monumental--you had the '86 tax reform act, the sunset of the 421A provisions (which had everyone in a frenzy putting their foundations in the ground before that program phased out), you had ill conceived condo projects driven by absurd financing parameters that put bad condo product whi ch then became rental product on the market, you had two significant drops in the stock market--put all of them together and it only added up to, depending to where your building was, an 8% to 12% drop in rents. So, we will not see any drops in rental rents in Manhattan. However, what I think you will see is a ripple effect to the products that are on the fringes. I think the products on the fringes are going to have some serious issues because everything ripples out of Manhattan, starting with the upper east side and move your way out. I think a great thing that has happened over the past five to six years is that almost any neighborhood in Manhattan now, south of 96th street and moving north, is a good neighborhood. We have done a lot of work in Hell's Kitchen or Clinton, whatever you want to call it euphemistically, and the rents we are getting over there are staggering.
Nick LaPorte: Are they at the same pace as the rest of Manhattan? I was led to believe that that is the best place to go to if you were going to buy or rent because--although it was growing--it hadn't grown to the same level as the rest of Manhattan yet.
David Picket: You better bring your checkbook. We leased up a building on 43rd between 10th and 11th, we started leasing a little over 3 years ago and the initial rents were low to mid-thirties. We are now getting, depending on the size of the unit an average of $50 a square foot, some of them are close to $60. We have a new building opening in about a month or two. Most brokers we have taken to look at the product have priced it out to somewhere in the low fifties. I'm not holding my breath, it will be in the bank at $43 or $44, so I will be more than happy to be in the high forties. I don't see anything but the very fringe areas of Manhattan taking a hit in this market, but I do see issues for projects underwritten at $35 out in Queens west, for example, I would be a little bit nervous at this point.
Lawrence Smoler: The difference is that there shouldn't be as much panic as there was in '89 because homeowners should have the wherewithal to withstand this. Projects, like you were saying just now, in '89 were probably just being written-if the rates weren't 30 they were written to 35, because they were expecting the $5 jump. Today, projects--even though you could think of rents being at 35--the banks are still underwriting at 32 or 30.
David Picket: I think that's right. And they are at 70% loans of values instead of 100%.
Lawrence Smoler: So, my apartment that I leased 5 years ago on 35th Street, was $1,300 at the time is now $3900 dollars. If it goes down from $3,900-$3,500...
Nick LaPorte: You may have a little shakedown in some areas, not a depression.
David Picket: My point is that you are not going to see that low, $3,900-$3,500 is significant. You had that, of course, every unit. Could it go from $3,900-$3,800, especially in sort of a seasonal basis? Sure. Go to $3,750, maybe. Is it going to $3,500? No.
Nick LaPorte: Certain types of property are going to drop by $200-$300 a month if the supply is out there. The apartments will always be rented in a short time. It is just a question of the landlords getting nervous about not seeing the same demand and they will adjust themselves to accommodate that. I think the same thing that is happening in the retail market is going to happen on the residential side. I think you are going to see a slight adjustment on one bedroom and studios where there is not as demand as the two, three or four bedroom.
David Picket: There is no supply. It is impossible to put a deal in the ground right now in Manhattan. It's not going to get any easier. Right now there is a huge disconnect between sellers expectations and buyers demands or buyers reasonable expectations. And I say reasonable because I'm on the buy side. You've seen a tremendous rise in construction costs which continue to rise. They have been more than compensated by a rise in rents, but that dynamic is changing. Construction costs continue to go up and rents are flattening -- I don't see them coming down, but yes, they are flattening. There is no question on an anecdotal basis. I am not boosting rents the way I was boosting them before. I'm not lowering them, but I'm not boosting them.
Richard Bernstein: I think, in part what your saying is that a seller, whether it be a seller of a residential property or a commercial property, unlike the last cycle is a willingness to take a relaxed attitude, be cautious about potential variables to the market. The attitude I think stems from the fact that in the last cycle businesses had to be here, they had to have a toe-hold in this economy. The financial markets, other sectors. In this cycle, businesses and residential apartment owners want to be in the city. I think that is a credit to the administration. I think it has permeated all walks of life in Manhattan and I think that will fundamentally support the floor to our markets because it's not so long ago where fortune 100 companies were still looking for strategic ways to leave Manhattan. I think that the reverse is true today, people must be here. There is that outside influence, if you will, from businesses and the residential sector (I don't know about retail) that need to be in Manhattan. If y ou take Times Square, we used to develop marketing strategies for landlords, not as long as 15 years ago, it was an art in developing a brochure. For example, if you were trying to market a property in Times Square, the art was not to call it Times Square, to try to characterize the building and bring out all the benefits that the building and sub-market might have. And today, that is the first thing you are going to promote.) It is a Mecca for all energy. Whether it is a residential building or a commercial building it really has become a large magnet for all commerce.
David Picket: t's a very good point. In fact, we are about to open a building on 54th and 10th. What are we advertising? We're advertising the neighborhood. The strength and authenticity and New York flavor of the neighborhood--that may be a little bit of wishful thinking, but I don't think so. Ninth Avenue is much like Columbus Avenue was before it went bad. The Coca Cola store and other sorts of over-the-top commercial uses for some of its more charming space. That's exactly the tack we've taken with our campaign, is to talk more about the neighborhood than the building. One of the questions you had was what happens when Giuliani leaves? In my business, Giuliani has cared little or nothing about housing. He has done a little bit of an about face with his new budget proposal for this year and hopefully that is going to put the charge into the housing market at least under lower or middle income areas. He really has had very little direct influence on housing, except that he has had a lot of indirect influen ce. By stabilizing the city, by making it safer, by making it more attractive, by solidifying a lot of the fringe areas, the city has become a more vibrant interesting place and hopefully whoever follows will look after what he started.
Real Estate Weekly: Are their any other thoughts on that issue? I think it is an important one.
Franklin Speyer: I wanted to raise that issue and David raised it in a very timely fashion. I think if there is one wildcard outside of the economy it is who succeeds Giuliani. Certainly, what I have seen in the commercial side of New York real estate business is the quality of life he has created--by eliminating the squeegee men, getting rid of most graffiti, cleaning up the subways--those are underpinnings that we are starting to take for granted. I remember not very long ago that you get on a train and it was really very unattractive and discomforting, and you walk down the street and you would see a bunch of people sleeping out there and people don't want to bring their employees here if that is how the quality of life will be, they could do it many other places. I am concerned--outside of the economic issues--as to who succeeds Giuliani. I'm politically independent, but I think Giuliani has made the environment here for residential and commercial certainly more conducive to people wanting to congregate and energize and create together. And, if someone comes in here, and decides it is going to be a free-for-all you are going to see that energy, outside of the economic energy just come to a grinding halt. I think it has to be on the top of his successor's list to make sure that the quality of life here is maintained.
Nick LaPorte: He set the benchmark for that. I think whoever comes into office will use his administration as the model of how the administration should be run. He has set the pattern of the way the city is going to be governed in the future, no matter who the mayor is. Unless it is someone with a totally perverse view of the way the people expect the city to be managed and operated. I don't see any of the candidates that are running now as people that would undo what Rudy Giuliani did in terms of the quality of life. I think that's all right up there on their radar screen. Housing, believe it or not, isn't a number one priority to the citizens of this city. I tried to raise this as a political issue in the mayoral race but the polls that they are taking are showing that housing is not the number one priority. On the list its not even two or three, its like five or six. It just doesn't register with people. The two top issues are education and crime. Whoever wins will not attempt to deviate from the way Giul iani ran this city. They will use it as a model. I think the biggest problem with our industry is not who is going to be mayor, but who is going to be city council, because we had a complete turnover, for the most part, say 13 people, who are going to be elected as first time councilmen who don't have a clue as to what the issues are. These are the ones that pass the legislation that make our lives a little easier, or more difficult. That, I think, is the biggest problem. I think that someone coming in as mayor has a model and going into the city council does not.
Scott Robinson: Not to diminish the importance of what Giuliani is doing, but I think it is more of a nationwide phenomena, people want to come back to the downtown's. As a result, I think there has been so much energy created here that people are going to continue to try to keep their neighbors and support BID's and maybe make the new council people understand all this and kind of keep it going. So, I don't know what impact would be necessarily, to someone else coming in, but I kind of think there is enough energy there to kind of keep the momentum going.
Nick LaPorte: Every year I think it has been a nationwide phenomena, not just here. Giuliani just stands as a symbol of that.
Robin Abrams: He has done a lot to change, not only the quality of life, but the perception of NYC. I think that, as you say, he was also lucky that he was in the right place at the right time and he caught a stronger comet.
David Picket: I hope everyone is right about the next year. I know two of the candidates will have possible issues in terms of quality of life. I don't know if they are going to be all quite so strong on some of the issues that they are more on First Amendment rights where Giuliani was less tolerant. Giuliani was sort of fearless in terms of the way he dealt with the homeless, the way he dealt with squeegee men--politically, he did not seem to care about whatever fallout there would seem to be from that. This is saying it without taking a stand myself about how I feel about that, but I think you have two candidates that are going to have a much more difficult time pulling homeless people out of Grand Central Station and the like.
Scott Robinson: Particularly if the economy doesn't hold up.
David Picket: Now, I don't see any of them winning. That is the good or the bad news, depending on your position on the issue. I think if they did we would have some issues.
Real Estate Weekly: Are there other issues that city hall is tackling or about to tackle? What is going on with the Building Department, specifically? How important are these issues?
Nick LaPorte: The outcome of what Giuliani does with the Department of Building is very very important to the real estate industry. Right now construction is a morass of bureaucracy. I participate in REBNY and the Buildings Trade Employers Association that puts forth several suggestions that handles this both in the short term and in the long term. I believe that, and I stated this to the commission that is looking at this, that you have to look at the agency and treat it the same way you would treat your class A agencies. Those agencies being the law department, the budget department. They can get very special treatment in the budget process and the personnel process and how they hire and fire people and how they pay them. You have to do that, it has to be done. You have to provide the agency with the resources to meet the demand that is going on in this city right now with construction. A single family, the multi-family, the commercial properties, you just can't have people making their own decisions depar tment by department. You need to put a very strong manager in there as commissioner, who has statutory responsibilities, requirements I should say, as in architecture or an engineer, and that doesn't make sense if they haven't got the management background. So, you really need a strong chief of staff to work underneath the commissioner.
David Picket: I think that is a good point. A lot of countries have a ministry of building and we need to treat that department more seriously in terms of staff and capabilities. We need to fuse money into housing, was also going to try and cut back on some of the expenditures by reducing construction costs by focusing on the building department. I think more importantly than the department itself is the code that they are dealing with. The code itself is a morass and it has things in it which are just ridiculously onerous--the EBA requirements, the new sprinkler (I don't think we've seen the fallout yet from the new sprinkler requirements. Buildings that are more than three stories now, all multi-residential buildings, are required to be sprinkled.
Nick LaPorte: This is new construction?
David Picket: Right. I don't think we have seen the fall from the first sprinkler system that goes bad, and the insurance claims that come up as a result of every sprinkler in every hall going off and the water damage that en sues. Because, frankly, this city has one of the best fire protection records in the country. Why we had to go now and add sprinklers on every floor and every unit is, I think, overkill. As well as the ADA, a lot of the seismic law that the city has and the city hasn't had an earthquake in, I don't know how long. There is just a bunch of things that have made building in NY, unnecessarily, $l0-20/sq foot more expensive than it needs to be.
Nick LaPorte: There are problems with the building code. The fire sprinkler law, for example. They impose this in the new construction, but they didn't change any of the standards in construction materials that were used as fireproofing materials. So, if you didn't have sprinklers in there then maybe you need to relax because other standards and additional costs to build things which are no longer necessary, because if there is a fire we now have sprinkler systems. I'm waiting for the first weekend when parents go away and leave their 16 year old home alone, they will have a party and some kid will put a cigarette lighter to the head of a fire sprinkler just to see if it works and it will be set off. Who is going to pay for that?
Lawrence Smoler: Something that is interesting and encouraging about the Building Department in the city as a whole-
Nick LaPorte: There's something encouraging about them?
Lawrence Smoler: is how they seem to have embraced technology. They are doing it because the city moves so slowly. They are doing it at the right speed, because they are not buying technology that is going to be obsolete. So, they are taking such a long time to make decisions. I had to look up a zoning regulation for a particular property, you can just go online, in a PDF format and find the area that I was looking for and I found the zoning graph and it was fantastic that I was able to do that. There are other examples within the building departments which I won't go into right now. But, the fact that they are embracing technology which will help with the bureaucracy over a longer period of time.
Nick LaPorte: The problem is that they do the department unit by unit and the outer boroughs all operate different. So, you can go from one borough to the next and there is no uniform way of operating. It is like a pile of clay that you try to mold--it needs to be put back into a ball and you must start all over again. You literally need to throw a lot of money into it. You almost need to reinvent the wheel. It is a big problem.
Real Estate Weekly: Wrapping things up. Who would you like to see as the next mayor of New York City? And what are your predictions for 2001?
Lawrence Smoler: I'm the first person to answer? (laughing) If Carl Weissbrod was thinking about running, I'd possibly be behind him. He did a great job with the Downtown Alliance. In terms of what is going to happen in 2001, the key words are going to be stabilization and integration. Businesses are going to stabilize and are going to integrate products into their businesses and it is going to reduce costs.
Richard Bernstein: I'll pass on the Mayoral question: I think 2001 is going to be pretty interesting for us. For the past couple of years we have really seen public companies, the management teams grow and mature and learn how to be a little more disciplined in the capital markets and the property markets--I think we are going to see that kind of pay off in 2001 as we have a continuance of stabilization rather than a downturn. I think office will probably do pretty well. I think retail is going to be a little challenging.
Richard Bernstein: I think that the candidates that have emerged, I think the platforms are in the process of being firmed and I think much of what has been said here earlier today I am in agreement with...which is ...the current administration has done a terrific job and I think you set the path. And I think, therefore, some will do better, some will not do as well, but fundamentally its moving up on the list. The quality of life has to be maintained throughout all different phases of city life and I think that will be a priority for every candidate. I think it is still too early to tell. I think as far as the economy for 2001, I think we are in an adjustment period. I think there will be less demand, but I think--as somebody said earlier--compared to what? So that, while in the commercial real estate sector we eclipsed, I think, $18 million square feet this year which shattered records, we still will have a very healthy year, but I think we are adjusting to less demand and a little bit more supply. Fundame ntally, we are still very healthy.
Robin Abrams: I agree, I think in terms of retail, the cycles may change, but they continue and they are strong. You see the luxury brands being very active now, 57th Street is stronger than ever. The trend is changing. Theme retailing is going out and the Chanel's are taking more space. The chains, I think, are continuing to grow and are pleased to see that some sanity is, in fact, returning. It is still very aggressive and competitive and they have to be more pragmatic in doing deals. But they are looking at the market and they are doing deals both in Manhattan and in the boroughs. You'll see more and more of them, as they come into Manhattan, they either saturate the market or can not afford to grow in the market, going into Queens and Brooklyn and uptown and 125th Street and other different areas. So, we are very pleased and we believe that it is, in fact, going to continue on a good trend upwards.
Nick LaPorte: I'll pass on the Mayoral question -- too many friends in that area. I agree with what the folks have said here so far about 2001. I think it will be slow growth, but you will still see growth. On the residential market, I think you will see a little more being built in this year and coming years. There is an equated demand for luxury housing right here, throughout the city, not just Manhattan. And I see a slight leveling off of the market values of your co-op's and condo's and other family homes. I don't think that you will see the tremendous growth that you have seen in the last couple of years. But I think that it will be a slow steady growth, a little leveling off, but you won't see a retrenchment like we saw in 1989. On the rental side, a leveling off at a minimum. The be some drops, but for the most part the market will stay strong.
Franklin Speyer: In terms of politics, I would support a candidate that will work to ensure that New York remains the place where our financial markets want to work. The media and the service organizations and the law that support our economy are encouraged to work here, do business here, and thrive here. So, I would go back to that as an offshoot of quality of life. In terms of going forward in the year 2001, NY remains, in my perspective, still the place to do business in the US, if not the world. And I would tie that with the careful management of our economy, the management of our city infrastructure by the Giuliani administration. So I see a stable year, perhaps uncertainty here and there, but overall a moment of time to gather all our input, so to speak, and look forward. At some point during this year I expect to see the economy and NY feeling it's oats again.
David Picket: I will also pass on the mayoral issue, although I do think that there are some candidates that will do a perfectly adequate job in following up what Giuliani has started. In terms of this year, I would have to agree, I don't see residential markets crumbling. The supply side will continue to be really marginal, very little new product in terms of the size of the city and the obsolescence of the units that we have every year. Demand, I think, is slackening. I don't think droves of people are leaving the market, but I do think there are less people on line for units. However, again, on the supply side I think that there is just so many barriers to entry, at least in the housing market. I see that
AT THE ROUNDTABLE
ROBIN ABRAMS, executive vice president, Lansco Retail Services Group
RICHARD BERNSTEIN, senior managing director, Insignia/ESG Inc.
NICHOLAS LAPORTE, JR., executive director, Associated Builders and Owners of Greater New York Inc.
DAVID PICKET, president, Gotham Organization Inc.
SCOTT ROBINSON, associate director structured finance ratings, Standard & Poor's
LAWRENCE SMOLER, sales executive Realm cash division, the Realm
FRANKLIN SPEYER,. executive director, Cushman & Wakefield
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|Publication:||Real Estate Weekly|
|Date:||Jan 24, 2001|
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