Real Estate & Business Leaders View of the Market: Summer 2021 | The Stoler Report

Real Estate & Business Leaders View of the Market: Summer 2021 | The Stoler Report

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♪ [Theme Music] ♪ ♪ [Theme Music] ♪ >>> Michael: Somebody said to me that happy days are here again. This is like the roaring twenties. I don't know. We're in the summer of 2021. You know, the COVID of many people have

been vaccinated, but unfortunately there's a, there's a variant right taking place today. So, people aren't sure what's really going on. So today I've assembled a group of business and real estate leaders to provide their insight on how they see the market today. My guests include Norman Bobrow,

who's the president of Norman Bobrow & Co. Greg Kalikow, who is the vice president of the Kalikow Group and Kaled Management. And last but not least, my buddy Abe Schlisselfeld, who's the managing partner of the prominent accounting and ordering firm Marks Paneth LLP. So Norman, you know, you're in the trenches, we'll call it. You, you from just reasonably lent -- leased some property at city lumber, you're active representative tenants. Is it a tenant market? Are we happy days again? How do you see the office market? >>> Norman: So, so first we work on the two names. First New York

Realty brokers, and Norman Bobrow. We are seeing a very, very busy market. But it is a bloodbath out there. And it is really tough on the land. And we're seeing people leasing space, some are going the short-term route and some are going the long-term route. We just finished a lease at 320 Park Avenue for two floors to renew a tenant, high numbers, 10-year lease. We just finished another lease for Vornado 888 7th Avenue, high numbers, 10-year lease. And then on the

other hand, we did another deal with Vornado, at 110 Plaza, a two-year renewal for a law firm, that's been there for 35 years. But as everyone, if you're, if your senior partners are getting older, sometimes they're looking at shorter term leases. But, but we are actually really very busy from Queens to Brooklyn. We finished the lease in -- -- building, moving a real estate firm to 15,000 feet on the top floor. You know, I can

say that number was a 40 bucks a foot, but again, you don't get the same work letter as New York City. But I mean, it's a, it is a bargain compared to -- >>> Michael: So, what you're basically saying is that people are returning to the market. They're looking for space. There's an interest out there for space. There's no question. So, I have a question for Greg. You know, Greg, you're involved

with the residential market. How do you see the residential market in two ways, in light of the current market and in light of two years ago, when the act was changed on the rent ramifications? >>> Greg: You know, as far as the market now, we're seeing more vacancies than we have in probably 30 plus years. More so in the outer boroughs, more Queens and Brooklyn than Manhattan. But I think right now you're seeing a very tenant friendly market. I think now, you know, we're offering a concession, whereas, you know, like you said, a few years ago, we might not have been offering a concession. ‘Cause I think what happened with COVID is a lot of people who lived -- well Manhattan and the outer boroughs -- you know, moved elsewhere, whether it was with family or to a separate house. And they're

slowly returning. The interest is definitely, you know, making it a tenant friendly market where tenants now with whether it's street easy, you know, they have the ability to shop online and look at concessions. Whereas 20, 30 years ago, you didn't have an online mechanism to see, you know, what deals were being offered. You would have to really be grass roots and go to various buildings and look at deals and analyze yourself. Now, you know, technology it's great, but it does create, I believe, a tenant friendly market at this time. You know, it enables these tenants to really shop and see which buildings are offering, which concessions. As far as two years ago, with the, you know,

with the rent laws, some of the unintended consequences of that were, although the market, you know, may have been a little bit stronger than it is now, you had a lot of landlords that were looking at leaving apartments vacant. Because with the 2019 rent laws that were passed, you were no longer able to increase the legal rent. So, if you had a one bedroom in Manhattan, hypothetically in a nice neighborhood or anywhere, with a legal rent of a suppressed value, call it of a rent stabilized tenant that was living there 14, $1,500 a month. What used to happen before the 2019 rent laws is that tenant would leave, you'd get a 20% vacancy bump. You would be able to renovate the apartment and through the dollars renovated in the apartment, you'd be able to increase the legal rent that you would charge for the next tenant. The housing law, the legislation of 2019, took that away, or it allowed it up to only $15,000, and increasing the legal rental limited amount. But

it was short-sighted, because it didn't distinguish a studio versus a two or three bedroom. Now, obviously three bedrooms going to have more bathrooms, more appliances, you know, more needed to be renovated. So, what landlords were doing was, if you had an apartment with a legal rent of $1,500 a month, and you could only increase it, say without the vacancy increase, or being able to increase your legal rent to $1,600 a month, landlords are going to opt to leave that apartment vacant as opposed to leasing it at a very sub market rate and give someone almost like a life estate. So, you're going to artificially suppress your rent, have someone in there, and you know, you have a lot of landlords in the market two years ago that were just keeping apartments empty, because they didn't want to have a very suppressed rent for an apartment. And they were just hoping that the legislation would change.

>>> Abe: The rent regulations, was it June of ‘19 if I recall correctly, that changed the landscape of the residential market in the city, it was really very hard that pre -- recently bought buildings, to be able to, to get the returns that they were expecting when they bought it. Then COVID hit and it made a bad situation worse. And, you know, a lot of, of these landlords that had people, you know, running out of New York, and it was just became harder and harder to increase the rents. And a lot of times it was better for them to, to leave it empty. So that being said, I, I have heard that, you know, over the last two months and you know, who knows what's going to be with the Delta variant, but over the last two months, there's been a significant uptick of a lot of our clients leasing, really becoming very active, people coming back to New York and, you know, many of us see it every day, the influx of people on the streets in New York. So, the, the, the rental

market is, is definitely picking up, especially considering to what was a year, a year and a half ago. So as far as the general business market -- and first of all, I'll just remind everyone that the hospitality and tourism hasn't restarted. So, until that restart, it's really gonna be hard to get a lot of those -- industries up and running. The,

you know, the, the hotels, theater, hopefully opening up shortly after labor day, we'll, you know, really get a jumpstart on that. You know, in the, in the commercial space, you know, I've been joking that a year ago, everyone thought Manhattan was gonna be a big playground. And, you know, you fast forward to, to, to now, as we head towards Labor Day of 2021, it's quite evident that Manhattan is, I think you start off the show today, the roaring twenties and that it really is it's, it -- Manhattan is a buzz and anyone that takes the time to walk through the streets of Manhattan sees that it's a different Manhattan of a year ago. It's, it's quite vibrant. And, you

know, leasing, there was a lot of talk about subleasing. And a lot of people got very good deals in the subleasing. But as we move forward and there are new industries moving into New York City, and you know, when people build out spaces now the way the landlords are going to be attracting tenants with amenities. So, while they may be, people might not be coming to the office as many days as in the past, and maybe a little less need for sitting space, there's still need for, you know, other footprint areas. So, you know, over time, the leasing

footprint should not be significantly affected by whatever the new normal might be. >>> Michael: Each and every day you hear another CEO of a major banking organization saying that if you, if you want to get paid New York salaries, you gotta work like New York people. What about the return to work? Any thoughts about that, Norman? >>> Norman: I've seen a lot of, like one law firm, 2 Penn Plaza, the managing partner went from Florida to the -- And we renewed their lease about 16,000 square feet, they gave back 2,500. Another law firm on 3rd Avenue 805 that I'm negotiating is giving back 30% of their space. Also, the

managing partner has actually is now working at a floor. So, I'm finding a lot of people have, are working very unique situations. A lot of them are working remotely and have cut back on the space. And then I'm seeing -- we just were finishing a lease on 60th street with a tenant is doubling this space, because they're therapists. They're going from 12 to 24,000 >>> Michael: [chuckles] There's a big need for the therapy.

>>> Norman: Exactly. Exactly. Right. So, it is, it is really strange. But my prediction was always that we were going to -- I never saw most vacancies in commercial over 8%, in my 40 years in this business, never saw something more than like 8% vacancy. And now I'm seeing on, on direct space, we're getting close to where 18 something and I think we're getting to 20% by the end of the year. I'm hoping that's, that's the end. But the concessions that the landlords are, are really bleeding very badly, the commercial landlords are really getting hurt.

>>> Michael: Greg, you've gone, you and your family have gone out of state. Are you continuing to be interested in developing and owning properties out of New York? >>> Greg: The answer is yes, absolutely we are. You know, we've even ramped up our efforts to, you know, invest in, develop out of state, you know, during COVID. You know, as we know, and again, unfortunately it turned into a political issue. But you did see a natural migration to the southern states during, you know, the shutdowns and, you know, when the pandemic, you know, really started to unfortunately wreak havoc. You know, you saw a decline in population in places like Chicago, New York, California. You saw an influx of people

moving to places like Texas, North Carolina, Alabama, Florida. And I think it's a combination of the restrictions, which, you know, again, obviously now have been eliminated, but the benefit that we see to being in the southeast is it's, you know, less restrictive, there is very little to no regulation as far as what you can charge on rents. You know, there's less bureaucracy and dealing with the government agencies down there. You know, I think there's just like a misconception of, you know, landlords in New York City being these evil, greedy, you know, you know, people. And I don't really think that's the case. I think that, you know,

there are, there may be some bad apples, but there are bad apples in every industry. I do, you know, I do believe that, you know, with the, the housing rent laws of 2019, in the ability to increase rents one and a half to 2% a year, maybe is not sustainable when insurance is going up 10% a year, water and sewer costs, property taxes. You're limiting the increase in rent, but year over year at this point, you know, landlords are making less money. And I think that, you know, you're seeing it now as opposed to trying to fight the -- fight where it's an uphill battle, because there are more tenants that land than landlords that vote in the city. We are looking to the south and,

you know, we do enjoy working down there with, you know, less regulation, less bureaucracy, and you know, a more welcoming environment. We love New York City. We're finishing up a project here now, but it's kinda difficult, you know, when you seem to be having a tough time with the legislator. So, we prefer to just sit at a different lunch table and try to make our money elsewhere. And, you know, we do enjoy the travel and, you know, do believe that cap rates in the southeast are going to continue to stay compressed. I mean, we're selling properties in the southeast now sub four cap rates. >>> Michael: Norman, you're involved with quick service food business. Let's talk about how you see the quick service food

business today. >>> Norman: The fast food restaurants are doing fantastic. The problem is, is the employees. When the government has given the bonus unemployment money, it is really made it extremely high to, to get employees, to retain the employees, to the, to the point where I saw one, someone sent me where the, there was a sign on the drive-through windows said -- we quit, sorry. [laughs] And the problem is, is that, you know, when you're giving so much -- throwing so much money to people, that they there's no incentive to work, you know, they're getting a bonus of $300 on top of -- their unemployment check. So, but the stores are actually, are actually doing the

best they've ever done, as the best they've done. >>> Michael: Now you own -- what Burger King and Wendy's? >>> Norman: Wendy's. 200. I'm involved with that 250. >>> Michael: With regard to retail, Greg, do you believe it's also a opportunity time for retailers, you know, to negotiate percentage rents and so on? >>> Abe: I'm less worried about the retails and the cook service and the restaurant places, you know, than, you know, last year again, depending where you are. But a lot of people were trying to work that out and the landlords that, that did it, and work with them are coming out and backing -- now, you know, in, in, in a good relationship with their, with their tenants. Retail has this ebbs and flows that, you know, 10 years ago, everyone thought with Amazon and the web coming along, that, you know, there would be no more need for malls anymore. I was just in a mall the other day. And it was a Sunday in New Jersey and all the stores were closed, but there are thousands of people in the mall, because there's so much to do in the malls nowadays, other than just shopping for clothing.

So, you know, retail has its work cut out for them. And, you know, landlords should be working with them and are working with them. But to the extent that there are somewhat creative, there's a lot of upside in the retail sector. >>> Michael: With, with regard to the Biden tax bill, how do you see its effect on the real estate market? Abe? >>> Abe: Well, you know, there's so much uncertainty there now. And it's so hard in all honesty to, to fully plan around it.

But, you know, obviously with what we've been hearing coming out of Washington is very unfavorable to the real estate industry. Arguably the worst thing coming out is the removal of step up, you know, -- You know, like the 1031s is obviously a big issue. That being said, one thing I've found is the private sector has a lot more brain power than DC does. And, but with, you know, a lot of laws that get passed there, you know, a lot of creative ways that are figured out to circumvent it. But the removal of a step up at that is going to be a hard one. That being said, there's already people working out ways around it. Obviously, the increase in tax rate is not

going to be good. You know, in general, for the real estate industry, whether it be at the federal level and in all honesty, it's what's partially hurting New York also is, you know, you know, when you start taxing everyone, that's, that's not necessarily the, you know, the best way to stimulate, you know, transactions and now, you know, keep, keep, keep the industry moving ahead. >>> Michael: Another phenomenon that took place prior to COVID was the coworking and co leasing -- co-living. Norman, how do you see the coworking, the, WeWorks, the re-- Regis and so on? Greg, have you thought of ever doing co-living and so on? >>> Norman: The co-living I can't address, but working has really dropped down to 20%, just, you know, need, I mean, I don't see maybe 30% or even, but, but it's a, it's a bloodbath out there. I mean, the, WeWork debacle where they, you know, they took a 10 floors in the building up the block from me I don't want to say I, you know, I just see all these, all these spaces going back to the landlord. I don't see them coming back to, to, to refill all these floors. And I just

know a number of landlords that are sitting with so many empty floors that are, are coworking. So, I just think it's a disaster. But landlords really need to rent their spaces. They, they, they have high tax bills. The taxes have gone up tremendous on the buildings, their operating costs of construction costs to build out the spaces. So, I mean, they,

they've got to try to, try and look at every way, how to, how to try to not have to rebuild these spaces. So, the problem is, is that there, there are a lot of these spaces that are out there available. >>> Michael: A question, Abe, a number of accounting and professional firms have used a hoteling. Have you and your firm thought of hoteling, or, you know, also maybe coworking in certain other facilities, you know, around the country, as opposed to the in New York City? >>> Abe: So, first of all, as far so telling, so, so our office, although we've been open for over a year now, we're actually having everyone come back starting August 9th. I guess by the time that show -- -- after that already. And we are starting hoteling in one of our suburban offices, in conjunction with our return to the office. And we will be rolling -- We are rolling out

hoteling to all of our offices. And -- >>> Michael: Would you explain what hoteling is to the audience? >>> Abe: We can probably do a whole separate show on it. [laughs] But in a very short synopsis, it is basically where the staff aren't assigned their own seats. And we have, there's some complicated software to this technology involved and you can reserve seats, you know, X amount of time ahead. And

basically, and through the technology, you know, who's sitting where, it allows you to go from, you can go to our New York City office one day, our Woodbury office another day, and -- -- New Jersey office another day. So, it really is -- is allowing a lot more flexibility, allows us to maximize the footprint that we have in all of our existing offices. And in addition to that, that will allow us over time as we hopefully do more acquisitions to take on, you know, less footprint and less real estate. As for -- as far as

using it more around the country, I'll say, we actually have a lot of staff that have gone fully remote af-- during COVID, after COVID. I have one staff member that lives in Hawaii. And she's, you know, a member of the firm, works for us. So, you know, a lot of this, whether it be hoteling and co-working, or some of the remote work really allows us to be a lot more flexible with our employees. Because talent,

talent, talent is what it's all about. >>> Michael: Greg? Co-living? >>> Greg: Yeah. I mean, as far as the co-living, I know we were going to do a deal with one of the larger co-living groups and it didn't come to pass. I mean, as far as co-living, it's, I don't, you know, I feel like now with COVID, there's kind of been a, you know, it's almost in the past to try to live with, you know, dormitory style living. And I say that because again, from our perspective, the, the developments that we've been working on, we've been seeing the studios rent the fastest.

So, what that means to me is people are, you know, would like their own space at this point. I think, you know, the co-living, again, people may be a little bit hesitant at this time to live with people that they don't know, especially with the increase of the Delta variant. You know, if you're living with three or four people, you don't know where they're going, what they're doing, what restaurants bar -- So, I think there is a little bit of hesitancy. And I think until we see, you know, numbers, you know, with Coronavirus and the Delta variant, you know, subsides substantially, I think people are going to really want their own space. And, you know, the shares in the larger units now, to me, I think that may be more occupied by families. So, I don't know what's going to be

for the future of co-living. I think eventually, you know, it can be successful, but at this time I think that, you know, based on what we've been seeing in the apartments that we've been leasing, because of COVID people really want their own space. They don't necessarily want to share a bathroom or, you know, common area. They want that -- even if it's smaller,

they want their own space. >>> Michael: So, here's a quick question for Norman and Abe. We only have a couple minutes left. Where are the opportunities today? Where we -- how can you grow your business today? Where are those opportunities? Abe? >>> Abe: New York City is alive and strong and again, politics, you know, hopefully we'll clean up some issues in New York. But having a presence in both suburban areas, as well as New York City really gives the right footprint to be able to maximize. A lot of businesses that are doing extremely well

and growing in both New York City, with suburban presence. I think that's really the model that a lot of companies will be doing going forward and something that we're trying to focus on where it's not just New York City or just the suburbs it's it's combination of all. >>> Michael: I think it's a good point. Norman? >>> Norman: We brought in 14 interns for the summers, which we were on the edge of doing or not doing, but we brought them, 14 and actually one of them has said, I want to continue on. I think this is a great opportunity for a lot of people that want to work. The question is you, you have to get people that want to come to an office, want to work, want to pick up the phone and want to make calls and draw-- have drive, have drive tenacity, all the things that you need in my industry to be a sales person. I've come in almost all through the COVID

until-- unless we've really a big lockdown and you know, we're training and we're still, you know, so I think you have to have the company drive also from the other side of the company drive as well as the employee drive. But I think there are lots of opportunities with people out there. The market is really very busy out there, even though, you know, the concessions are bigger and the landlords are hurting, there is, there's opportunities. So, New York is coming back. It's going

to take time, but, there's, you know, concessions are huge, but I think there's a lot of opportunities for, for work. And Queens and Brooklyn, just so you know, we're, we're doing a lot of work in Brooklyn. It's it is a lot of people live there and they want to work there. >>> Greg: You know, like Norman and Abe said, you know, New York City is definitely coming back. And I think really to, you know, grow your business during the pandemic, I'm a believer at this point, in order to grow outward, you have to grow inward. You know, like Norman said, we don't know what's gonna be with the Delta variant. We don't know what's going to be with future

variants. Shutdowns, you know, mask mandates. I think culture and loyalty and in with a company right now is incredibly important. I think that, you know, throughout, you know, COVID, post-COVID, you know, to grow your business, I think you really need a good internal structure. Our company had, you know, throughout COVID or even post-COVID, saw a lot of turnover with our staff, then, you know, I would have to look inward and see if there was something that we were doing wrong. But as you know, there's a lot of opportunity for good work. I think, in order to grow your business, you have to make sure that you have a culture and loyalty that is very catering and amenable to the employees, whether that means some work from home, whatever it may be, you know, you, you want to show the employees that during difficult times you take care of them.

>>> Michael: As all of you said, you know, you may not be in the studio, but I do have the crystal apple. >>> Greg: Yes. >>> Michael: Okay? And the crystal apple, I just shined it a little bit, you know, with the rag. And it looks to me that it's getting brighter. And I hope that, you know, the future is bright. Hope to have you back on the new season. Like -- I'd like to thank Norman, Abe and Greg, and see you next week.

>>> Norman: Thank you, Michael. >>> Greg: Thank you, Michael. >>> Abe: Thank you. ♪ [Theme Music] ♪

2021-08-18 19:17

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