Real Estate Professionals Outlook for 2022 | The Stoler Report-New York's Business Report
♪ [Theme Music] ♪ ♪ [Theme Music] ♪ >>> Michael: Oooh, crystal apple. Ooh. Are ya shiny? Are you a bright? What it's going to look like in 2022? I don't really have the answers. So instead of myself answer it, trying to predict the future of real estate in 2022, I've assembled this group of leaders to talk about it. My guests include Remy Raisner, who is the founder and CEO of the Raisner Group. Neil Sonenberg, who is the co-partner in charge of the real estate department, a tax expert also, at Marks Paneth. And last but not least, Craig --
>>> Craig: Deitelzweig. [laughs] >>> Michael: Deitelzweig, who is the president and CEO of Marx Realty. So, what we have over here is, we have an individual who likes investing in Brooklyn, who is more of a financial plan. We have our tax and real estate guru over here. And then we have a guy who's into everything. Okay? Converting offices, converting retail, and who really has a feeling of the market. So, Craig, where do you see the
market in the different real estate asset classes for 2022? >>> Craig: So, in the office class, you know, in terms of leasing, we continue to see really strong activity now and we think that will continue in '22. However, there's haves and have-nots. So, if you're building, that's what I call a commodity office building, you're in real trouble.
>>> Michael: Yeah. When you talk about a commodity office building, and I also want Neil to chime in because they have many clients in this situation, are we talking commodity being a C and a D building? >>> Craig: Not necessarily. It could be an A building, but it has no soul. It has no amenities. It's sort of blah, you know, white marble, so many buildings like that. And what
today's tenants want is the opposite of that. They want buildings that are highly amenitized, with club floors and lounges and terraces and cafes and boardrooms, all of those types of features that you would see in a hotel or in a residential building, they want them in an office building now. And it's the number one driver of leasing. And so, what I believe will happen is, if you're a commodity building, you've sort of not done much leasing during this time, maybe none and your leasing rates are going down. And you're going to be in trouble. And --
>>> Michael: Now, what's interesting is, even before COVID hit, you basically took that type of white brick building. Okay? You know, a 3rd avenue type of property on the corner of 3rd avenue and you did a major conversion. So, let's talk about that and what you're planning to do, let's say in 2022, with some of the properties that you have on Madison avenue and Park avenue. >>> Craig: Sure. So, the building you're referring to is
10 Grand Central. So, 10 Grand Central is the first building to actually infuse hospitality into office, in a meaningful way. The building was built in 1931 by Elijah Khan, who was one of the finer architects of that time. And what we did was we brought back the heritage to that building. And we also brought in lots of hospitality features. So, we have a doorman
outside. We have a signature scent. We have music. We now are about to implement a house car called the Marx Mobile that will drive folks to their meetings and to restaurants through an app. You know, all those types of features that you would see in a hotel, we bring to the office space. So, seventh floor, we have a club floor. That's where we do have a lounge and a terrace. And, and our whole goal was to bring-- inspire -- make people inspire it to come into the office. It was pre-COVID, but post-COVID, you know, it helps
employers bringing their employees back to the office. >>> Michael: Now, what's interesting is, your office is, you know, basically near Grand Central. You're only two blocks away from him over there, but people look at your property and they say it's 3rd avenue. What do you see for 2022? >>> Neil: That's a fair question. So just to speak
about and taking a little bit what Craig says, you know, my clients love just as talk about B, C, D buildings, because that gives them a golden opportunity. And it goes hand in hand with your 3rd avenue question, because 3rd avenue properties, especially with the new tax bill, New York is going to get approximately $50 billion. Today, they talked about rolling back MTA, not raising rates as far as that's concerned. So, heart and soul and Grand Central is also now going to be opened up to the Long Island Railroad. Our trustworthy new governor is now bringing in expansion and really riding the railroad into Grand Central. Grand Central and the environment thereabouts, including 3rd avenue, which is frankly only a hub skipping the jump from Grand Central will-- I predict -- will be booming. There's a
lot of empty space on 3rd avenue. I think it gives the opportunity with all this new money being shackled in by our federal government to New York and the expansion of Grand Central with the Long Island Railroad will be bringing in tremendous amounts of population, even in spite of the COVID. But I think landlords have to do things correctly. They have to target appropriately. Just as Craig said, they have to make a building exciting. And buildings get basically taken over in their lobby renovation. They have to make that attractive along with the floors that he spoke about. So, our 3rd avenue building, of
course will need some work. Our space, we plan on doing some work as well. And I think if done properly, landlords can really score in the major kind of way in the 3rd avenue pavilion area, even on 2nd avenue, if you want to stretch some far down. Because there's certain areas, you have to be smart and you have to be targeted and you have to, as you were trying to read the crystal ball, read that crystal ball properly. >>> Craig: So pre-COVID, our building, pre and post renovation, rents were up a little over 40%. So --
>>> Neil: I have clients very similar, when they expanded and made those proper renovations to the lobby and the environment per se, putting special types of innovations in the tenant improvement area, which incidentally you can ride off directly. There are specific ways in the tax law that allow you if done properly and done under 25% of the building's real estate square footage, you could actually expense a lot of the tenant improvements. And we specialize in that area. You call me as a tax person. So, we really try to be ahead. So, the government helps pay for that type of
renovation. And again, you have to be smart in how you approach these types of things and get the appropriate help. >>> Michael: Nuveen has made the same commitment, TIA craft in their property, not too far away. Because the Grand Central
neighborhood is a safer neighborhood ironically than the Hudson Yards, in reality. Because Penn station, there's many homeless, there's a lot of -- the neighborhood is different and people feel safer by being in the Grand Central neighborhood, as opposed to being, you know, into the far west side and so on. >>> Craig: If, if you look at the difference between ridership in Metro-North and Long -- Long Island Railroad, you know, so, Metro north is only down 20% now. Whereas Long Island Railroad road is still down 30%. And I think the
reason for that is safety. >>> Michael: Right. Now let's go to Brooklyn. How did the, our Frenchman decide that Brooklyn was the place and why do you still feel bullish on multifamily in Brooklyn? >>> Remy: Look, you know, it's very different story. Brooklyn's generally done well with COVID, to some degree, it's improved with COVID. In our areas, which are Bed-Stuy,
Bushwick, Prospect Lefferts Garden, you know, early 2020, let's say, early into the virus with the lockdown, we saw a lot of population leave and rents went down 25%, up to 25%, but they snapped back really quickly, faster than Manhattan. And, and what we've, what we've seen a lot in Brooklyn is, is a resurgence of retail, specifically in under retailed areas, in which we're involved in. Many restaurants saw the people stay in the borough, in the neighborhood and therefore they developed a big delivery business, which Uber Eats, all the, all the services that, that grew during the pandemic, Grubhub and things like that. And what we're seeing right now is these restaurants had their best year ever in 2020, and now opening sometimes in our portfolio, their second location, third location. So, so --
>>> Michael: Are they, they full service restaurants? Are they quick service type of restaurants? What, what are the majority? >>> Remy: A lot of hybrids. I want to say a lot of cafe types restaurants that are, that are somewhat less expensive to set up for an entrepreneur, you just come in, maybe with an electric kitchen, not a full equipment, and just hire a couple people. Make it cute, make it nice, and deliver a lot to people's doors with, with, with takeout. >>> Michael: What about -- and this is a question for all three of you, but specifically to you, when 2019 law came out, you know, on the apartments over there, many people were worried about taking rent stabilized or, you know, unless they're market rate apartments. How do you, how do you look at that? Will you buy a building? Do you see too-- because of the demand which has now taken change on COVID over there, that people want apartments will take the risk over there. And maybe with a new governor and the new mayor, certain things might happen, which will favor a landlord's for improvements as, as it was before.
>>> Remy: You know, we focused historically on free market apartments, and we continue doing that. Free market apartments and mixed use buildings. And on that point, before COVID, you had a retail unit and you had four walls to lease, and that's it. And after COVID, you have four walls and a sidewalk to lease. So, there's a big back into the rent. But to your point, we -- we're careful with rent-stabilized apartments. Here and there, you know, we,
we could look into some of them, maybe there would be hybrids, maybe with the majority of free market units. And, and, and I, at some point I do think, I, I tend to believe that the laws will maybe reverse or, or, or, or just go back to something that will be helping urbanism -- put it this way. >>> Neil: A lot of real estate clients are pretty bold and they value. And so, the time to buy is when there's blood in the street -- rent stabilized apartments, there's some blood in the street. They feel it's a good risk because of the new governments coming into play right now. I do many, many co-ops, I represent as well. And I actually have several
clients that specialize in buying these apartment buildings that house some elderly people in these apartment units. And they're very hopeful that as rentals they'll be able to really raise the rents. People should live a long time, but when they either leave and go to Florida, which there is an exodus to a certain extent, or unfortunately they pass away, that's when they really frankly make a killing. And they're able to really step up as far as going around the laws, if you will, of rent stabilization. So again, it's reading the tea leaves, having a little bonus and, you know, getting around that.
>>> Michael: So, here's a question -- to two pointed question. One is on co-living and then coworking. And I'd like to address the co-living first because that's your business. Have you -- >>> Remy: We've done one project, but -- >>> Michael: Okay. But what's your thoughts about the continuation of co-living with COVID and other rules and so on, and people working from home? >>> Remy: I think it's a business that's here to stay and I think it makes sense if you're large enough. If you're large enough co-living company and have -- I want to say tens of thousands of units, you can essentially offer people a lifestyle that is more flexible, which is what with working from home and other trends and flexibility in, in, in every aspect of life, it's what we're going towards, I think generally as a society, especially for young people. So, if you're large enough, you can offer a tenant a deal, in which the tenant does not necessarily do sign a one year lease. Or can sign a one year lease, but be flexible and pay
$250 just to move across the country and have the same type of building apartment amenities. So, I think the one-year lease concept, as we move forward in time is, is something that will develop in a different way. And co-living, I think is spearheading that change. So -- >>> Michael: Let's talk -- because you're in the office business. How do you look at co-living as a landlord and as
yourself, maybe even you're running your own type of co-living? >>> Craig: Coworking. >>> Michael: Coworking. >>> Craig: Yeah, so we, we don't believe in coworking. We never have. We just don't think that business model works. So, we we've stayed away from it. And even if you look at some of the coworking companies that are more established, you know, they, they constantly go into bankruptcy during every market downturn. So, we're, we're not interested in that business.
And also, you know, we want to create an environment where people care about the community in the environment. And I think when you have some of these coworking tenants in the building, they don't really care about the space that they're a part of. I mean, it really doesn't work with our model. >>> Remy: To your point, I believe co-living works best if you own the walls, you know. And eventually a lot of these companies will be integrated and it will be real estate developers or investors focused on co-living but the own the real estate.
>>> Michael: Neil, any thoughts on coworking and co-living? >>> Neil: So, I, I have to say I'm more with Craig as far as the coworking environment. And actually, even on the co-living environment, these one-year leases, they may gain traction down the road. I-- our clients are not bold enough to take these one yet. We think there's, or they think there's too much risk involved in those types of things. You may be onto something in Brooklyn, may be. I mean, even though we do many clients in Brooklyn as well, but not as hot and outstanding idea from our real estate prospective clientele.
They think that it's just not -- you know, there's a lot of effort that goes in when you're leasing up space and there's this fees that go involved. And when you go to these leases, too much is that the large types of a feeling and the same way what Craig was referring to on co-living, they don't really belong. You know, we want people, as, as he said, to identify with the space, to live it, to be enthused about it and to be really proud of the space. And you don't build
up that, as you said earlier, before we taped the tenacity, you don't build that up in the, in, in that type of model. >>> Craig: And also, just during COVID, despite what you're hearing in the news, I think the, what I'm talking to the users of these coworking spaces, they want out. You know, it's, it's, they don't know who that person is. >>> Michael: You have no-- you have no idea who's next door. You have no idea, you know, the sanitizing. Here's the
question, as a landlord, with all the COVID rules and everything over there that you may have more cleaning, you may have more environmental work. Who's, who's paying or is the tenant paying or is it both the tenants and the landlord sharing that type of expense? >>> Craig: Ultimately, it's a tenant through through our -- So, but you know, some of the things that we're doing, whether it's -- sanitation systems, UV lights, all the, you know, purell and things like that. I mean, those are things that, that are really good for the longterm. So, I think it's,
I think of all the things that you have to pay for, it's not as much as you actually think it is. >>> Neil: I'll tell you on, on that area. You know, you have to be smart -- when you're negotiating leases, through CPIs through-- so, you make sure that you're covering and many of our clients that we consult with and we go over our leases before they get those signed, so it's inclusive in those things. We try to be very general and a lot of tenants sign those leases, not knowing, so we're able to bring in such cost as you refer to as janitorial supplies, which frankly we've seen a huge increase in that area, we've seen, and we've done studies and we've actually consulted with our landlords and tell them to really give some pushback, because many of these maintenance companies like to-- and it's not all maintenance companies, but they, they, they seizing the moment and they're increasing by large amounts of money, the sprays that they put down on floors and they're really charging huge premiums on that so if you're not smart, you don't have pushback, you really, you, you feel the pain and it does affect gross margins as far as -- >>> Michael: Let's talk about retail. Especially you have one large retail, the Cross County Shopping Center. How's that
doin'? >>> Craig: Couldn't be better. It's almost like being in a twilight zone by saying that, but, you know, we're 98% leased. We just signed a large Target lease for 130,000 square feet. I'll tell you, today, we just signed Westchester Community College, for 40,000 square feet, a quadrupled in size. And we're talking to some of the best retailers out there who want to be at the Center. So, we-- it's, you know, what it is, is, you know, it goes back again to the community and that community is thriving. People were, you know, they're,
they're going there in days that they weren't going there in the past. So, we're seeing a lot more traffic throughout the time period. And people have money and they want to spend it and they've been home and they-- you know, so sales are up 37% from 2019, not ‘20.
>>> Michael: Now how about your retail in your office buildings? >>> Craig: So, we were fortunate in that. We, we worked with our retailers who were struggling, you know, during COVID. We had some who opened up during COVID, some restaurants and we worked with them and now there are long lines to get in. We're so happy to see that. Some of them, we actually did percentage rent with during this interim time and, and they're paying more than they would have paid if it was under the regular rent schedule. So, I think, you know, you know, also it's interesting the tenants that were open during COVID, the restaurants are open during COVID are now doing much better than the ones that were not. Like you could really see a difference in that. And so, it
just becomes part of the routine of their customers, you know, and, and they believed in New York and I think their customers believe in them and want to help them. So, it's nice to say. >>> Michael: You're a, you're a retail, it's mostly restaurants? >>> Remy: It's a mix. It's, it's actually a minority of restaurants. We have a lot of neighborhood retail. You know, beauty businesses, some hair salons, some art-- artsy types of tenants. And, and, and the funny thing is, in 2020, I want
to say we lost a lot of, of, of legacy, so to speak, retail tenants that just, you know, shoot us an email -- hey, listen, there's the keys we're done. And I want to say basically, as of today, we're, we're pretty full, fully leased, and we replaced pretty much everybody. If I had to pick a number, I would say around 25% above the the, the, the, the prior rent we had. Which was pretty market. So -- >>> Craig: 25%. Wow. >>> Remy: In, in Brooklyn. Yeah.
>>> Neil: Great deal of loyalty built up by the landlord and tenants who couldn't afford during COVID, restaurants and other retail space, and by yielding that bond together, I-- the restaurants have really come back and this retail space has come back, and they really formed a real bondship with, with the landlord. And it's worked out, seems to work out very, very well. So -- >>> Remy: You know, the funny part -- >>> Neil: I just want to say one other thing -- there's a lot more foot traffic I think because of COVID, people work at their own times, they don't work the same nine to five or eight to four. And because of that, you're experiencing a great deal more foot traffic in malls. And I've also seen the tremendous upsurge. We represent a lot of mall owners,
some big ones, and we've seen tremendous retail rental come back in that area. So, I think that's a primary and that's something for landlords to look at in the future. ‘Cause I think that's going to continue to boom, especially with the new way of working. >>> Craig: Well, our concern is, you know, with people perhaps working four days a week indefinitely from, in the office and one day at home, you know, on that fifth day, you know, retailers, restaurants are feeling it in the city, especially in Midtown. And so, I think that is a concern and I don't know how you overcome that.
>>> Michael: Continue on asset classes. Any thoughts about the hospitality, the hotel business? Because I recently did a panel on the hotel business with the chief development officer of Marriott and another major hotel owner. And they say, look, business is getting better. The ADRs are even increasing and their profitability this year is more than before because they're doing less employees, less cleaning of the property because the rooms, they don't change the linen all the time. They don't do all this. So, there's, you know, there's a boom slightly in certain phases of the hospitality industry. What's your thoughts about that? >>> Craig: Well, I think it depends. I think if you're in
the conference business, you're in trouble, you know, I think that won't come back for a couple of years and that's a long time to wait. I think the normal hospitality, the leisure market will be strong in New York again. And you're starting to see that already and now with international travel coming and -- you know, New York is the best city in the world. And, and I think whichever asset class you are,
you know, people want to be here. And I believe in New York in all the different segments. >>> Michael: What about different neighborhoods? We were talking before about Brooklyn. I grew up in
Brooklyn, you know, and there, you're seeing certain things take place in Coney Island. You know, John Catsimatidis, built this luxury building over there, the Conex building a building, you know, L & M are building some buildings. Where do you see opportunities in different places, in different areas of Brooklyn, in Queens? Because you live in Queens, you grew up in Queens. >>> Craig: I grew up in Queens too. >>> Michael: Okay. So, are we talking -- I mean, I mean, Flushing, Flushing is a goldmine, you know, but you have to make sure it's thing who that it's the right location over there, but Flushing is doing continuing to do well. Where, where do you see the opportunities?
>>> Remy: You know, the funny part about Brooklyn and the good thing and the bad thing is, Brooklyn is next to Manhattan. And so, because Brooklyn is next to Manhattan, sometimes it can be overlooked a little bit. But the good thing is it's next to Manhattan. It's New York City.
And it's two and a half million persons and growing. It's the part of the city -- >>> Michael: So, that's why it's difficult to go to Staten Island because you got to go over a bridge, you know. >>> Neil: You know, in Brooklyn and Queens and into the other boroughs, stations, warehouses, for these facilitating type of sites, I've seen a lot of conversions to that, to try to make the billions, because there's a lot of the warehouse space. They -- we convert the, the ceilings. Believe it or not, there is some life science, which is a really big industry that's going to be booming. In fact, we're doing a
special kind of a program coming up for our firm, ‘cause it's really a hot area, in Long Island City. People are reconverting and, and using the space differently. You have to be smart and sharp to be ahead of the curve as far as that's concerned. Because those are going to be the booming areas.
And we're starting to see that type of thing. Even in the hotel hospitality industry, we're seeing people spruce up lobbies on the, on the outer boroughs. And one of the key things just to go back to that is this employee retention credit. Even though the government is not allowing that, if Biden's law passes in the fourth quarter, these hospitality places, these hotels have been taking large event, it's just the employee retention credit getting back $7,500 per employee per quarter. This is huge in 2021, and it's really a shot in the arm. You have to look at the
whole plateau to try to bring it all back and help the client as much as we can. And we see all these things happening, which is going to help real estate now and in the future. >>> Craig: So, I'm a little bit more negative than these guys on the office side in, in Brooklyn and Queens. You know, I think people prefer to be in Manhattan and, you know, until Manhattan leases up, you know, Midtown, then Downtown, then Brooklyn, then Queens. So --
>>> Michael: I'm in concur with you on the Brooklyn office market, specifically the conversions that a number of landowners did a couple of years ago, converting the industrial space to office space. Those properties are doing very poorly. Okay? You know, even like on Kent avenue in Brooklyn, they really can't, okay, they really can't get anything over there. And then if you take the Rudin Boston property over there, which WeWork was the major tenant, they have one tenant over there. So, they haven't been able to -- the boroughs haven't been that well for the office market, unless you get the government contracts.
>>> Craig: Right. It's either government, and also, you know, you're not seeing folks from Manhattan moving to Brooklyn. Those tenants either there are more organic and they're just not a big -- >>> Michael: You, you mean the -- >>> Craig: The, the office tenants. >>> Michael: The, the office tenants. Right. >>> Neil: You know, one thing that's interesting, I, so now Eric Adams is the, he's going to be a mayor. And he's a Brooklynite, former Brooklyn board president. And, you know,
he put out a hundred proposals that, that we looked at very carefully, especially the real estate parts, because you know, that's going to drive the city, but also, he's from Brooklyn. What's he going to do for Brooklyn? >>> Craig: The same about de Blaiso. So, I dunno. [laughs] >>> Michael: Stoler Report, we don't talk politics. [someone mimicking a laugh] Unfortunately, 26 minutes has come and gone and I would like to really thank everybody, because I think we've given an insight for what we project for 2022. I'd like to thank Remy, Neil and Craig and I'll see you
next week. ♪ [Theme Music] ♪