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♪ [Theme Music] ♪
MICHAEL STOLER: So you walk around New York City
and all you see are cranes. You see construction.
You can't miss it. There's another crane. There's another
crane. There's everything. So what's happening?
There is an enormous amount of residential development
taking place in New York. People want to come to New York City.
So today I've assembled three individuals who are extensively
involved in the residential construction and also the
man who has the money so you can build this type of
property. My guests today include Eran *** who is the
CEO of HAP, H-A-P.
ERAN ***: Hi.
MICHAELSTOLER: Melissa Pianko who is the executive vice
president for development for the Gotham Organization.
Kevin Davis, who is the chief investment officer for
Taconic Investment Partners, and as I said last but not
least the man with the money, Ben Stacks who is the market
manager for Greater New York for Capital One Bank.
As opposed to asking the developers, I want to ask the
banker in your career have you seen this amount of
construction? Have you seen this euphoria to date?
BENJAMIN STACKS: I suppose one could look back to '06, '07
maybe and draw some comparisons.
MICHAEL STOLER: would you say we're doing- I'd say I
see more construction today than I saw in
'06 and '07 for residential.
BENJAMIN STACKS: You know it's possible. Look, I think the
city is doing phenomenally well. We were just talking about it
a few minutes ago. People want to live here and the folks here
on the show are delivering product to the people that want
to live in the city. So I think the city is in a great
position and there's a lot of demand to live here.
MICHAEL STOLER: Melissa, Gotham over the last couple of years,
you had the corner on 72nd Street and Broadway.
You've have Gotham West right now which is on 44th,
45th Street off Tenth Avenue. You're breaking ground on
Ashland and you've done all of this developments throughout
the city in Harlem and everywhere.
I mean how do you look at it?
MELISSA PIANKO: In terms of the rental market? The rental
market is very strong and it's getting particularly strong in
the Borough. If you look at where Brooklyn is and
where Queens is getting, the rents there have been going up
consistently over the last couple of years and they're
going to continue to go up.
MICHAEL STOLER: So where are the opportunities because I'm
going to get to that offering from Tel Aviv in a second and
how he came here. But where do you see the opportunities?
MELISSA PIANKO: Opportunities are hard honestly because you
cannot pay nearly as much for land to do a rental as you
could to do a condo. And since there are many developers out
there right now who are willing to do condos, it creates a real
scarcity of sites which have to be rentals. Usually those are
specific circumstances like ground leases or somebody who
wants to keep their land in the deal. So it's tough and our
deals often take years and years and years in terms
of pre-development and entitlements before they
become realities.
MICHAEL STOLER: I mean with regard to that, if we take the
West Side deal, that was 10 years in
the development at least?
MELISSA PIANKO: We started working on it in 2005 and
it's in the market now, so it's nine years later.
MICHAEL STOLER: It's nine years. So Eran, you come here from
Tel Aviv. You take a small little site. Your first
development is in an area that Gotham has always been involved
with Harlem and that section of town. And now you have
10 developments. What are the opportunities for Israeli
investors and Israeli developers in New York City today?
ERAN ***: So the opportunity was in two different places.
It was here and it was in Israel. It was here because we
came in 2010 and land prices were low.
We bought in 2010, 2011, 2012.
MICHAEL STOLER: And you just bought in 2013.
ERAN ***: And also in 2013 and I think we did well and
the other opportunity was in equity in Tel Aviv because the
Tel Aviv market was very high. People have money to
invest and they wanted to invest in someplace else.
And the opportunity was that even Stanley Fisher was pushing
the banks in Israel to make loans for project here in
New York and not in Tel Aviv. So that was another opportunity
to take construction loans from banks like Bank Leumi that
is very active here in New York and that doesn't want-
MICHAEL STOLER: Now it's very interesting because bank
Leumi who are good friends of mine, they have been
known and Ben would acknowledge this also as being a
relatively conservative lender over here. And even if it was-
they would not make loans to new developers in town.
They would look- experience which you may have in Israel
and Europe and other places they would look but they like
the capital stack and they like the relationship, the
same way with you are.
ERAN ***: Yes, so first of course we have the
relationship with that bank from Israel but yeah they are
conservative. They are doing like 65 percent loan to cost.
So they are conservative.
BENJAMIN STACKS: Very similar to the way we are.
MICHAEL STOLER: So now you guys, I mean you have a
variety of things. You have this fantastic condominium down
in Tribeca which Ben happens to be your lender over there.
You have this new 80/20-
KEVIN DAVIS: On 52nd Street.
MICHAEL STOLER: On 52nd Street. Not too far from your
development over there. And then you have this major
development on the lower east side. So how do you look at
the market today and where are the opportunities? We didn't
get to Coney Island but I'll bring that up in a sec.
KEVIN DAVIS: The three projects that we have underway each
have their own story. So 52nd Street we are in the process
of taking that through a rezoning. So we have a
controlled land basis. On the Sterling Mason in Tribeca
we bought the land almost two years ago, went into
contract almost two years ago. There's been a dramatic
run up in land prices over that period of time.
So if you're able to buy something like Eran bought a
number of sites over the years, if you're able to develop
them and make economic sense of them. Buying land today
is very difficult. The Seward Park Urban Renewal Area that
we're redeveloping with L&M and BFC was a response
to a city issued RFP, which prescribed the affordability
factor of that and prescribed rentals and basically the
components of that project were taken into account in
our valuation. So in essence we're able to go into that
project at a price that made sense because we knew exactly
what we were going into. Now if the city put that on land
and said you could go and build- put it out to any developer
and said pay market price can all be luxury condominiums,
it would have traded at a much higher price.
MICHAEL STOLER: Speaking of a condo market, Eran's going into
let's say Upper Manhattan to develop a condo which there
haven't been any real comps over there but I believe there's a
true need and an affordable condo of like $600, $700
a square foot I think will do great not too far from the
subway and so on. I guess Gotham has been in Harlem over
there but mostly rentals and also some condos.
MELISSA PIANKO: Condos too.
MICHAEL STOLER: Over there. Where do you see an opportunity
today and both as a banker when you look at them, are there
that many opportunities or are there very few today based on
what people are paying for land and so on?
MELISSA PIANKO: So you're saying is it possible to buy land to
do a condo today on the open market?
MICHAEL STOLER: Yes.
MELISSA PIANKO: I think depends how you underwrite.
I mean if you believe that a rising tide is going to lift
all boats and that the market is going to continue to go up
then you're able to pay based on what you expect prices to
be in the future and that's how land is trading right now.
Land is not necessarily trading on today's anticipated prices.
It's trading on what people think the prices are going to be
when they deliver and people are assuming that
the curve is going up.
MICHAEL STOLER: But here's the question that comes up.
People are assuming they're going to go up. There are X
number of people who can afford certain prices. If you take
the 57th Street properties, that's going to one category.
If you go into the other properties that we're talking
about, that's an affordable or working class middle class
person or Eran's properties. There's a number that you have
to say ouch because part of the situation is especially in a
condo you don't have tax abatements anymore.
And I remember, and Kevin and Ben will remember,
people used to say oh the ads in the Times used to say 421 A's.
Everyone saw this thing about 421 A's. Now they forgot
there's a term of tax abatement. The taxes over there.
Even the apartment that you bought in Chelsea.
When you moved in there, your taxes were what?
KEVIN DAVIS: Lower than they are today. Yeah there was a
tax abatement so they're next to nothing.
MICHAEL STOLER: Right, they were next to nothing and now
you're up to most of its phased in by now so all the taxes.
How do you as a bank because-
BENJAMIN STACKS: There's no doubt that affordability is a
big concern for us. I mean not just on condos but rentals
as well. I mean the rental rates are going up to very high
levels and they seem to be growing unabated on both sides
and we just at some point- I don't know when that would
be- but at some point we're not going to continue to underwrite
those higher numbers, and we are concerned about the
number of condo units that are coming on the market
at these high prices and how many people can afford them.
Same is true with the rental market. The rental market is
getting very expensive and that's why a lot of people are
moving to the Burroughs. So it's definitely an ongoing
concern for us.
MELISSA PIANKO: One thing that I think is an interesting hedge
against the- because we're also fearful about what happens
to the rental market particularly in Manhattan
because rents are going up faster than incomes. And so
people for the most part can't afford- you graduate from
law school. You're earning $160,000 a year. It's hard for
you to afford a one bedroom. You may not even be earning that
much. You may be earning $150,000, $140,000.
MICHAEL STOLER: Yeah but when you're talking about
somebody earning that, we're talking about somebody
graduating in the top of their class.
MELISSA PIANKO: Right.
MICHAEL STOLER: If you take the situation-
ERAN ***: And not even.
MELISSA PIANKO: That is where I was going.
MICHAEL STOLER: -of 80 percent of the law school graduates
taking a drop for 50 to 60 thousand,
that's a big difference.
MELISSA PIANKO: Right.
MICHAEL STOLER: So if you take the situation, it's very hard
to afford. That's why a number of people are taking the
low cost alternative and going to Jersey City where you can
rent an apartment for $42 a foot, where you can buy an
apartment maybe for $700 a foot which now relates to something
why yours are an affordable situation there are certain
other opportunities but because of the lack of transportation or
some amenities they're not doing well, for example,
Coney Island. It has great waterfront. It has situation but
it's an hour by train just to get-
KEVIN DAVIS: You might as well move into the suburbs.
MICHAEL STOLER: That's right. And then Staten Island has the
same situation. People are thinking about Staten Island
but there's a bridge and it takes
time to get over that bridge.
KEVIN DAVIS: Or ferry.
MICHAEL STOLER: And the ferry and the cost of the bridge or
the ferry. The bigger problem that happens, and we were
talking the other day, you have four children. Four children to
go to school. You have three children. The cost of sending a
person to private school is prohibitive in New York City.
That's why many people move to the suburbs or to the other
areas over there.
KEVIN DAVIS: But you're seeing more and more people-
ERAN ***: Coming back.
KEVIN DAVIS: -coming back, either coming
back when they're Esther's.
BENJAMIN STACKS: But they're older people, right?
ERAN ***: Not just, people with kids coming back.
Transportation is very expensive. Bridges are
expensive. Roads are expensive. Gas is expensive. Cars are
expensive. Everything is expensive and at the end of the
day lifestyle in the suburbs is expensive. It's not cheap.
So you can see a lot of people-
MICHAEL STOLER: So I won't see you developing in
White Plains yet.
ERAN ***: Maybe, yeah. I don't know.
KEVIN DAVIS: But there's a huge premium that people put
on convenience, on being able to walk out of their door,
walk to a restaurant across the street, to be able to walk
their kids to school, to be able to walk to work like I do.
That's- my time is becoming one of the most valuable
commodities and-
MICHAEL STOLER: You know fortunately you left
Time Warner Center to go to 111 8th Avenue, you didn't
realize you'd have a six minute walk maybe to work?
KEVIN DAVIS: Right.
BENJAMIN STACKS: That's quality of life.
ERAN ***: That's true quality of life.
KEVIN DAVIS: I think it's four minutes.
BENJAMIN STACKS: Who's counting.
MICHAEL STOLER: Midtown West zoning was a big item.
The opportunities over there of- if land prices are high
and you can build higher, then your costs can go down
lower in certain cases. So you're able to maybe build the
more affordable situation and our biggest problem
that we have in the city is the lack of affordable housing.
And I mean fortunately on yoru development on the
West Side there is a significant amount of affordable housing.
And what you're going to be building in Seward Park is
going to be a larger portion of affordable. How do we take care
of meeting the demands of the city, the people of the city of
New York and also you're a for profit business.
You have to- you're here to make a profit. We're not
going back to the kibbutz.
ERAN ***: I guess not. No.
KEVIN DAVIS: Well I think Mayor DeBlasio's made it very
clear that one of his main goals is to dramatically increase the
number of affordable housing units. I think his goal is
200,000 during his four year period. It's necessary.
New York City has become a city of the wealthy. And it seems
to become more so every year. And reading about 20, 30,
40, 50 million, 100 million dollar apartments seems to
be something that we do every single day in the newspaper.
There's absolutely demand for it. From a social standpoint
it's necessary. But we're all economically driven as
developers, and I think what's necessary, the reason why
people are- developers are building affordable today is
because of a tax abatement or because of zoning bonuses.
If you increase zoning bonuses, if you allow for sites that are
not zone residential to be built as residential. Let's say you
build 50 percent affordable, something like that, to offer
incentives to the developers affordable housing will happen.
But again we're all economically driven. We're not going to do
it unless it makes financial sense.
ERAN ***: But there's also a big shortage in the
700 to 1000 to 2000 per square foot which is
not really affordable-
MICHAEL STOLER: But it's more affordable for a
middle class person.
ERAN ***: For middle class.
MICHAEL STOLER: To go into something-
ERAN ***: And there's a huge shortage in this.
MICHAEL STOLER: And I think if you look at this place, if you
can have an apartment, a 1000 square foot apartment at $500
a foot, you're a half a million dollars. And if you have 20
percent down or 25 percent down based on the mortgage
rates and the taxes you're probably- it's the point that
something that everybody always wanted was to own your
own home. And if you can get something at an affordable rate,
we're not talking about those 20, 30 million dollar homes that
you read about over here. Look, I know a lot of people.
I don't know anybody who's buying any of these mega homes.
It's not in my stratosphere and I don't know. But I know people
who are looking for affordable and we were talking about on
the Manhattan's East Side you can buy affordable apartments in
older buildings because it's not hip. It's not-
BENJAMIN STACKS: The Upper East Side is
becoming the value play.
MICHAEL STOLER: That's right. The Upper East Side or
Sutton Place or Midtown West is the value place. And I think
where you're looking in, going into certain parts of Harlem,
certain parts of Washington Heights and the Inwood market
where you happen to have pretty good transportation and I
mean you probably have the best healthcare in the city.
Cornell New York Presbyterian Healthcare is
a very important thing.
ERAN ***: Columbia.
MICHAEL STOLER: Columbia, those are great amenities.
And if you take what's happening with the Columbia expansion,
just look at that as a situation, that's really
valuable. Now do you see- and I'm not picking on you-
because I still- there is so much space in two parts
of the city which really haven't had development. One being the
Coney Island section and the other section being the
Rockaway section. If there could be a form of light rail or
another means of transportation, these areas which have
lots of vacant space could maybe be developed.
Has the Gotham Organization ever looked up in that market?
MELISSA PIANKO: We haven't because there is no
transportation that's great. So I mean when we look
for what- where we think there's long term value we look at
a bunch of different factors and transportation is
very high on the list.
KEVIN DAVIS: Well if you think about Coney Island and
the Rockaways, it has an unbelievably unique asset that
very few locations, in fact maybe no other location in the
city, has which is a beach and access to the ocean.
The issue with it is the lack of transportation. So yeah
if you ran a light rail, if you ran an extra express train to
Coney Island or to the Rockaways and you cut down the amount of
time it takes to get from here to there, I think you'd see a
dramatic increase in demand.
MICHAEL STOLER: And this happened in the last recession.
We'd say Eran comes here with substantial amount of equity,
good players back from Israel banking the thing and
experienced people who have been in the business. Once again
I'm seeing a number of people say I want to be a developer.
It's like something- forget I want to be a physician.
I want to be a developer. Have you seen the new kid on
the block saying to you I want to be a developer and
some of those people who I remember who nearly failed
in the 2008's are back again and saying I am a developer?
BENJAMIN STACKS: Look, for us it's about experience and
capitalization. And the ability to build in a real tough market.
I mean New York is one of the toughest markets in the
country to build in. And so if it's a large scale development
we would look very hard at somebody's experience and
their capabilities to do that.
MICHAEL STOLER: So how's your view about somebody
who's new and the new kid on the block?
BENJAMIN STACKS: Quite frankly, if they do not have any
Manhattan development experience it would be tough.
I think it's a very tough business. You have to have cost
controls. You have to know the zoning. You have to know
the right players to get something done and so I don't
think this is a business for-
MICHAEL STOLER: For novices.
BENJAMIN STACKS: -novices. I mean it's a
very tough business.
MICHAEL STOLER: How are we seeing- and this always happens
when there are too many cranes up in the air- how are we seeing
costs of construction? Have they gone up substantially over
the last year, year and a half?
MELISSA PIANKO: Yes.
MICHAEL STOLER: How much would you say they've gone up?
MELISSA PIANKO: I don't know on a percentage basis but I
can certainly tell you they are going up and they're going
to continue to go up. If you look at the world of the union
world, there's only a few union subcontractors for certain
trades. So that gives them a huge ability to drive pricing.
So if you look at super structure contractors or
foundation contractors there are only a couple out there.
So that means they can really drive pricing when there's a
lot of competing work for their services.
MICHAEL STOLER: How are you as a new player seeing
construction costs?
ERAN ***: Construction costs is going up and I definitely see
companies that- construction companies that cannot take
work for the next two years. They are booked up.
They have work and they cannot take more work.
So yeah it's driving prices up definitely.
MICHAEL STOLER: Since you're pricing jobs right now,
how much have you- when you develop a project as
Melissa was saying before, the other one took nine years
from the beginning to the end. From your budgets that you
originally work, let's say on 52nd Street right now,
and also originally on the Tribeca situation, how much
higher have the construction costs been than the initial
planned or projected?
KEVIN DAVIS: Sure. We didn't see a dramatic run up in Tribeca
based on the actual cost. We changed-
BENJAMIN STACKS: But you were in early there.
KEVIN DAVIS: Right. We were in early. We were able to buy
our trades basically at a point in time when there wasn't a
lot of demand for it. So we had pricing power. Right now
the contractors have pricing power. On 52nd Street
we're pricing that right now and I would say over the last
year or so we've probably seen hard costs go up
about 10 percent.
MICHAEL STOLER: So here's another question with regard to
residential development. How many of these developments
that you're building happen to have ground floor retail
and how important is it?
MELISSA PIANKO: So all of our projects have ground floor
retail and it's I think retail and residential projects used
to be an afterthought. It used to be that you'd finish a
project and then you'd stick something in the bottom at
the end. We actually approach Gotham West in a very different
way. We tried to activate the street and activate the
building and the neighborhood with our ground floor retail.
So we put in something called Gotham West Market which
is a collection of eight small restaurants with really
nationally renowned chefs in each of the different places.
So we've got Blue Bottle Coffee. We've got El Colmado,
which is Seamus Mullen's new restaurant. We've got the
Cannibal and what that's been able to do for us is an amenity
for the residents and frankly I think everybody else in the
neighborhood should be kissing us because we really improved
the whole street scape.
MICHAEL STOLER: No, because you brought something to a
neighborhood that didn't have restaurants. This was something
I remember saying this to TF Cornerstone a couple years
ago when they went to the Far West Side, 37, 38 Street
and 10th and 11th. There were no amenities, okay. And if you
didn't have a Duane Reade with a little supermarket in it,
you'd have that. Are you going to put retail in your
property on 10th Avenue?
KEVIN DAVIS: Yeah we do have a retail space. I think it's
about 14,000 square feet.
MICHAEL STOLER: And what type of tenants do you think will
be there? More of-
KEVIN DAVIS: I think in an ideal world it would be a food
service, something along the lines of a Trader Joe's, just to
name a name, or a high end gym, something like that.
MICHAEL STOLER: Eran, what about you and all your developments?
ERAN ***: We have retail in most of our developments.
We have big component in Broadway and 190. We have
28th Street. We have also 15,000 square foot of retail.
And yeah I agree. I think if you're bringing interesting
things, if you're willing to give something free,
if you're willing to chase something interesting or create
yourself, it's great and it's bringing a lot of added value
to the neighborhood and to the people that
live in the building.
MICHAEL STOLER: Two amenities which- and I remember going
back a number of years ago- one of the amenities that people
like was the food amenity for the food that's delivered.
KEVIN DAVIS: Fresh Direct.
MICHAEL STOLER: Fresh Direct.
MELISSA PIANKO: Cold storage.
MICHAEL STOLER: The cold storage for Fresh Direct and the
second thing was the health club. Okay, the health
club has always been-
KEVIN DAVIS: Absolutely necessary.
MICHAEL STOLER: Do you see another amenity which I think
will be there, I know it's been a great amenity for my wife and
I, is like the storage rooms where you can put your luggage
and you can have other things, storage rooms and bike racks.
MELISSA PIANKO: First of all, bike racks are in every project
now. They're required by zoning.
MICHAEL STOLER: Right but what about the storage?
MELISSA PIANKO: Storage is a great amenity and if your
project can figure out a space for it that makes sense,
it's always great to put it in. It really just depends on the
actual program of your specific building and whether you
have extra room to be able to put in storage.
MICHAEL STOLER: But I think the storage is over there.
ERAN ***: We're doing storage in any building.
MICHAEL STOLER: I think we have cautious optimism here.
The world is over there and there's a question of how high
you can go and if you have the right product with the right
market and we're talking about a reasonable price market I
think it will work out well and let's just hope that the Mayor
and the administration follows the past history of the past
20 years and I think they will and we'll have a good situation
and I'd like to thank Eran, Melissa, Kevin and our banker
Ben and I'll see you next week.
♪ [Theme Music] ♪