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MICHAEL STOLER: So everyone is so happy!
The economy, the stock market's the highest level,
the real estate is doing great, you know, the economy seems
fine, retail is doing well, hotels, but I don't know.
I have this pessimistic feeling that it's really not that great,
but it's good. So as opposed to having the pessimist provide
his insight, I put together these individuals who will
provide their outlook on where they see New York City
today. My guests include Mike Slocum, who is the President
of Capital One Commercial Bank, Dennis Russo, who's the
chairman of the real estate practice from New York
BakerHofsteader, Fred Berk, who is the co-chair of the
real estate practice at Friedman LLP, and last but definitely
not least, my friend, Josh Muss, who's the chairman and
CEO of Muss Development. So I have a banker, I have an
attorney, I have an accountant, and I have a
builder/owner/deveoper. I'm going to start with you,
because you deserve to be picked on. How do you look at it?
You and I have discussed this all the time, especially since
we were also working together for this nonprofit to give
some advice to them. We've seen ups and downs over the
years. How do you see it? Are we getting frothy? How do you
see that? The prices and everything, we've never seen
rents like this and all the other situation.
JOSHUA MUSS: I certainly think that it seems to be in high
speed. I don't think we've seen real estate as frothy,
as you put it, in many years. I'm also cognizant of the fact
that we have 7 years of good, 7 years of bad, 7 years of good,
7 years of bad, it's almost biblical in the way they do it,
and we're starting to get a little nervous. I mean,
one doesn't want to admit it. One wants to think that it's
going to keep on getting better. I would prefer to be
a seller today than a buyer, but it's all in the eyes
of the beholder.
MICHAEL STOLER: You know, it's very interesting. One of your
clients who just built a new building in Lincoln Center,
Gary, Jake, and I were at breakfast about a week ago,
and we're sitting there, and I said, okay, you opened up
the rental office, and what are you getting for rents?
I said, I'll bet you what you're getting. He said to me,
I'm getting $95 a square foot in rent. I said, it's $95?
I mean, you're Amsterdam Avenue, we're at the end of
Lincoln Center. Nothing's wrong with Amsterdam Avenue.
$95 a square foot is enormous! I mean, as a banker, how do
you look at this? Because when we were talking prior to the
show, with these high prices, banks have been reducing --
not you, other banks, maybe the ones who have other cups
over here, but other banks have been changing.
What do you see, how do you look at the world today?
MICHAEL SLOCUM: You know, it's like you say, it's not
great, but it's not bad. It's probably still pretty good,
but we see a lot of competition in the loan market for quality
assets, and I think our concern is eventually, interest rates
are going to go back up, so there's a lot of stuff getting
financed today at really low interest rates, and what
happens 5 or 7 years from now?
MICHAEL STOLER: So let's look at that, because Fred and Dennis,
representing companies in this way, you know,
they're buying the property, they're saying, hey,
I'm buying the property, I'm paying 3% on a loan,
you know, or 3? for this apartment, and, you know,
they're saying, I'll take a couple years interest only,
and then 4-5 years from now, nobody has a crystal ball,
no one knew that the fed was going to maintain these
rates for such a long time, something, as Josh brought up,
7 good, 7 bad, over there, we don't know what the timing is.
And we have a crisis in Iran and Iraq. When you're underwriting,
how do you look at deals today? I mean, I know you guys look at,
it's relationship, relationship, and establish, but you know,
these other banks are coming out here, Fifth and Third came,
and U.S. Bank, and all these other places, this has an
effect on everybody.
MICHAEL SLOCUM: It does. But I think that, I oversee our
business across the country, and interestingly,
New York still offers probably more attractive opportunities
than markets that have less restrictions on what happens
there, so there's still a constrained market here,
there's still great demand, and for rental properties,
I think the occupancy rate's around 99%.
You can't find that in Houston or Atlanta or Dallas --
JOSHUA MUSS: Because everybody wants to live in New York.
DENNIS RUSSO: Right, from wherever you're from,
these people buying, there's a woman the other day that
bought her two-year-old a $56 million apartment.
MICHAEL STOLER: So wait a second. You're the kid who grew
up in the New York market, you're chairman of a New York
real estate practice of a Cleveland, and if I said
anything about Cleveland, people, one comment is,
nobody really wants to finance Cleveland. Even Bank of,
Ohio Savings Bank, which is a New York Community Bank
subsidiary, they prefer not to finance Cleveland. So what
do you see the market -- you've been on the market, you do
a lot of hospitality, you do a variety of things, you
represent banks, how do you see the world today?
DENNIS RUSSO: Well, look. Mike is -- we represent a lot of
lenders, we also represent a lot of developers. Mike is right.
Interest rates, as everybody knows, are keeping things
down and cap rates where they are. Reality is that most,
if you talk to most of your developer clients, and like,
they still have a gung ho attitude in respect to New York,
because it is still the best market. It is the most
attractive hospitality market by far, we're still building
hotels, not as fast as we were a few years ago, I can tell
you that, but we're still building hotels, people look
to put their money, here is the place. Foreigners, I have
a Chinese client that just came in, a developer, they overpaid
for a property, which I won't name, by probably 15-20%.
And they knew it. And they're happy to put their money
here just to have it here. It's a bank.
MICHAEL STOLER: People look at New York as a safe haven.
DENNIS RUSSO: It's a safe deposit box.
MICHAEL STOLER: It's a safe deposit box, there's security,
but we have certain other things. We don't have the same
mayor that we've had for the last 12 years, we have a
different, we have a variety of situations. You represent
a number of foreign investors. I know the firm does that.
FREDERICK BERK: As long as interest rates stay low,
Manhattan, everybody loves Manhattan, especially young
kids. And Brooklyn, I'm sorry, the tri-state area.
I apologize. I do apologize!
JOSHUA MUSS: The Mecca of Brooklyn!
Mohammed of Brooklyn!
MICHAEL SLOCUM: No, no, no.
JOSHUA MUSS: No, no, he's right.
FREDERICK BERK: And the kids love the Tri-State area.
This is where they want to be. Interest rates are low.
Foreign money, as you mentioned, is unbelievable.
We have money coming in from China, from India,
from Russia, from Brazil, from Ireland, I just had a
client who sold a 51% interest in a significant building at
a 2% cap rate to a foreign investor. And when you have
people like that coming in, the prices are going to just
keep escalating. I agree with you, it is frothy. But with
interest rates low and the desire to be in Manhattan,
I personally don't see it ending in the near future.
DENNIS RUSSO: I think it's going to be stable for a
little bit of a time, put it that way. You're going to
see places like Bushwick and the like, which, my father was
a fireman, it was burning down during the time when
I was a kid. Now people are saying, oh, we're doing a
beautiful project in Bushwick. Since this stretch of time
for our expansion has kept going a little bit more,
I think, than before, now you start working your way out
right to Bushwick and the like, I think that it's going to
stay relatively steady. It is frothy to a certain extent,
but what you're talking about, too, remember, are really core
assets. So whenever you're dealing with a real core asset,
the foreigner always comes in, not always,
but always comes in --
FREDERICK BERK: And hospitality.
DENNIS RUSSO: - and hospitality.
FREDERICK BERK: Hospitality is booking because the foreigners.
DENNIS RUSSO: I just did it.
MICHAEL STOLER: But Josh has the finest hotel in Brooklyn.
He was the first one, he was a visionary over there,
he has the Marriott at the Brooklyn Bridge, which,
in addition to having the space and everything else,
it has the largest catering facility, and it's a meeting
place and everything over there. I, a couple months ago,
took a walk over the 59th Street Bridge, went to Long Island
City, specifically to look around what was happening.
It was a Sunday. And I went to the left section,
which was really more close to Astoria, and I saw
approximately 25 hotels. I didn't hear one U.S. citizen
speak. Everything was a foreign language.
But all of these hotels are being built there. Brooklyn,
who has, as we were saying, the buzz that people want to
be there, they don't have 27 hotels in Long Island City.
There's a question of saturation at a point. When people,
you grew up in Bushwick. You knew it. Is Bushwick the
next place for the new Wythe Hotel? I mean --
DENNIS RUSSO: My father grew up in Bushwick, but anyway --
MICHAEL STOLER: No, no, but what I'm saying to you
is, there are neighborhoods. Whenever I discuss Brooklyn,
and we get to, Josh was the creator of Oceana,
which is this luxury condominium. You still have
one tower being built there?
JOSHUA MUSS: Yeah, we're finishing up the last one.
MICHAEL STOLER: Now, when I talk about Brighton Beach or
Coney Island, I always have the same comment from all the
people here. It's too far. It takes too long to get into
the city. It takes, no problem, because everybody wants
to be, it's a 45 minute ride to Brighton Beach.
Brighton Beach, at least you can get off the train and walk
to housing. Coney Island is a difference. You get off
the train, and then you have a distance. So is every section,
I mean, we're talking that everything is good, but, you
know, does this pass on? You operate, as we said, in many
states. But you also operate in New Jersey and Long Island.
How do you look at the world in those markets today?
MICHAEL SLOCUM: New Jersey, I think, is spotty.
I think there are areas that are okay, we do a lot of stuff on
the Hudson, Hoboken, Jersey City, and when you get more
into the state, we've done some office that has been a little
challenged. It's kind of spotty. And Long Island is
still sort of a self-contained area too. So we don't do as
much out there. Everybody wants to kind of be, if they're not
in Manhattan or Brooklyn, they want to be pretty close because
of all the commute.
DENNIS RUSSO: That's the difference, because when you
look at the things out in Long Island or New Jersey, and you
look at the effective rents, you always look at the effective
rents, they haven't moved in years. I mean, you're talking
$27 to 32 a square foot. I mean, I do tons of leases.
In New York, you move from $50 to $70.
FREDERICK BERK: But isn't what happening, New York City
companies, like ours, are taking office space in the suburbs
because you don't want to pay $50, 60, 70, 80 a foot.
Therefore, you're opening locations, and people are moving
there because they want to work near their office.
JOSHUA MUSS: Sure. We're seeing a real ripple effect.
I mean, let's face it. New York City is going to be relatively
recession proof, because when times get bad, people want to
be in New York City. When times get good, they want to
be in New York City. So we're seeing that in the boroughs,
and we're doing, thank god, work in Manhattan, too,
but we see in the boroughs, there's, all of the sudden,
we're getting better rents, and we're getting better occupancy,
and the better retail areas, we're getting filled up.
In fact, vacancies in the last few years have been almost a
thing of the past. It's just a matter of price, and if you
price it right, you're going to rent it out. So I think
New York City is doing very well, is doing probably better
than anywhere else, and I think it will continue that way.
It's just a matter of how high one expects it to go.
MICHAEL STOLER: But you know, as Mike was saying,
and Dennis was also alluding, you know, the office market in
New Jersey, the office market in Long Island and
Westchester really hasn't gone up in years. It's the same
rent, and the expenses are higher. And that's why the
Westchester market, the real estate taxes kill you, and so
do Nassau County over there. Those are the different
situations. You have an office in Long Island. It's a
different business. Your client business that you deal with --
FREDERICK BERK: Different business. But with today's
technology, we're doing work out of Manhattan utilizing
people in Long Island. We have an office --
MICHAEL STOLER: - but he's doing that in the law profession with
Manhattan doing work out of Cleveland!
DENNIS RUSSO: Cleveland, Florida, 14 offices.
I use associates at half the number.
FREDERICK BERK: We'll get there.
DENNIS RUSSO: Yeah. Feel free to use our people, too,
by the way. Yeah, no. We're utilizing, let's face it.
It's a cheaper space, you pay people less, they're just
as effective at certain things, and utilize them,
and so it's going to work.
FREDERICK BERK: As long as you can manage them properly,
it's a fantastic thing.
DENNIS RUSSO: It's a great thing. Keeps everybody happy.
FREDERICK BERK: Fantastic thing.
MICHAEL SLOCUM: We have a big presence in Melville.
We had 700 associates in a building there, and we plan to
stay there for the very reason-- most of them live out there,
they like being there, it's not that bad a commute if you need
to come in to our office in the city, but you don't want to have
your primary office in Melville and try to attract people from
New Jersey or Westchester County. So that's why you end
up in Manhattan, because then you can draw from
New Jersey, Westchester, and Long Island.
DENNIS RUSSO: Well, you need to be here. You need to have,
just like retail, I'm not going to shift the conversation,
but retail, we've been buying retail now, oh my lord,
in New York City, it's gotten insane!
MICHAEL STOLER: Well, let's talk about retail.
Let's talk about retail let's talk about hospitality.
You know, there was an article, and I think Steve Causo
brought it out very well. The article said, "Poor Danny Meyer.
30 years, he can't afford the rent at Union Square Café."
And Steve Causo said, you know what? Look at his revenue
30 years ago, and look at his revenue today.
What's the rent? Bobby Flay is complaining that you can't
afford to open up a restaurant, and he just opened up a
restaurant. So the story that the landlords are gouging, okay,
maybe in certain markets, in the Meatpacking District and
other areas, in Chelsea or Midtown South, it's over there,
but there is a lot of vacant space. Time is leaving,
6th Avenue is a very reasonable neighborhood.
JOSHUA MUSS: Gouging is a pejorative word. What they're
doing is, the landlords --
MICHAEL STOLER: That's what happens --
JOSHUA MUSS: - if you recall --
MICHAEL STOLER: - Harvard, you know, I forgot about that!
FREDERICK BERK: I'm with Josh!
JOSHUA MUSS: - if you recall what I said before, we're able
to get everything filled up as long as we ask for the right
rents. So if you're asking for the right rents, you'll lease it
up. If you're asking for the wrong rents, you won't lease it
up, and if you're getting $500 a square foot on some side street,
then you're getting the right rent. It's a matter of
everything floating to the top.
MICHAEL STOLER: Look, Unqlo is planning to open up more
stores. Everyone's coming to this market here, retail is very
strong over here, Trader Joe's would love to have more stores,
Aldi, this is the market. This is where we're looking at it.
Are there any areas, when you go down to headquarters,
and they ask you, where are the best opportunities?
Where do you look besides Manhattan? I mean, in one areas,
are you positive on retail, are you, what's your feelings
in the hospitality market --
MICHAEL SLOCUM: Yeah, we don't do much hotel, because it
is a more volatile asset class, and we like to do not only
sort of the interim loan, but we like to do permanent loans.
Permanent loans on hotels is a little dicey, so we don't do
too much of that. But we look at some retail around the city,
and we see good opportunities there with a lot of very quality
developers, and we do a lot of office in Manhattan, but not a
lot of office outside.
MICHAEL STOLER: You know, here's something. The Trade Center is
coming on board, they just approved Larry's, he's getting
Liberty Bonds to build the additional over there.
Fortunately, Brookfield has done exceptionally well.
They're nearly fully leased, even with the loss of Lehman
and everyone else downtown. But do you, are we worried about
some of the office space in Midtown? Or as I said recently
on a show, where can that, not the Friedmans, where can
that smaller non-profit or that smaller law firm or the smaller
accounting firm, they're getting priced out?
JOSHUA MUSS: Nonprofits don't belong in Midtown. They belong
where the office rent is cheap. Wherever that might be.
And actually, there's a lot of self-help going on, a lot of the
vacant office space is being converted to apartments.
I'm concerned that you convert too many to apartments,
and you lose the central office district. That could be a
problem, because the greatness of New York is that you have
a transportation that comes into the heart of
New York City.
MICHAEL STOLER: And any thoughts about this potential
JOSHUA MUSS: It won't be built while I'm alive!
MICHAEL STOLER: You don't think it's going to?
DENNIS RUSSO: It may happen. The question is, will it happen
under de Blasio? I tend to doubt it. It may happen. That'll add
space. Fine. But it'll only add as much space as we can take.
I mean, we do overbuild every once in a while. But in
answer to your question, where is a spot for the tenant that
needs $40 a square foot, or $45, or even $50, as it may go,
the answer to that is, in Lower Manhattan.
Class B space. If you're smart,
you're buying Class B space there, because what you're
talking about, Michael, is the top. You're talking
about $95 a square foot, $90 a square foot. There's been a
lot of tenants looking to be in Manhattan, and they can't
afford it. That Class B space, just like Park Avenue
South did, that will fill up.
MICHAEL STOLER: What about, where do you see this?
When people come to you, the funds and other people asking
for your advice in looking at a market, how do you look at,
how do you tell them, and they ask you about Lower Manhattan,
and people are now looking at the Hudson Yards?
I mean, this is, you have a lot of property that recently has
traded at very high prices in the Hudson Yards.
One of your clients sold --
DENNIS RUSSO: We just did the biggest deal on 34th Street.
MICHAEL STOLER: Right.
DENNIS RUSSO: That was a second sale for them, too.
MICHAEL STOLER: Right. So what's happened is, the Hudson
Yards are very nice, but at least Related is doing it with
Oxford in a very systematic approach. They're not building
in the Spec Office Building over there. But there's a spec
office building on 40th Street. I was walking today,
Gary Barnett's Gem Tower, the other side of the building,
it was spec, and it's empty today. There are a couple
buildings that are, and 3rd Avenue, you can still probably
get rent at $40 a foot, $45 --
MICHAEL SLOCUM: I think you can. But back to what Jeff said.
If these folks would price this at a little lower level,
I think it would lease pretty easily.
FREDERICK BERK: I think so. People are always looking for-
MICHAEL SLOCUM: - for the top dollar.
FREDERICK BERK: People are always looking for new Class A
space. So it'll shift over, and you get conversion-
JOSHUA MUSS: The trouble is, with the internet,
every day, you're reading, this guy's renting out for $50,
this guy renting out for $90, this guy's selling for $3,000
a square foot, and everybody thinks they can do the
same thing. The information is too free flowing,
too exaggerated, the brokers are exaggerating what they're
able to get, and before you know, people are overpricing,
and there is space --
MICHAEL STOLER: I'll give you a great example. When Capital One
was looking for space, Mike and I were talking, 280 Park
Avenue, which is owned by two REITs, Vornado and S.O.
Greene, they've spent millions of dollars renovating the
property, and they have not signed one tenant
to that property.
JOSHUA MUSS: You don't read about those.
MICHAEL STOLER: Okay, we're talking about close
to 1.1 million, 1.2, 3 million square feet of space!
And nobody's biting right now for that. And Park Avenue
is still a prime location.
MICHAEL SLOCUM: I think they're not biting it, but they're
asking. I think there's --
MICHAEL STOLER: Which is what Josh --
MICHAEL SLOCUM: - plenty of interest. It's a nice building,
I think they've done a great job. We were very close, but we-
JOSHUA MUSS: I personally don't see how convenient the
West Side is for access. You're trying to interact with the
lawyers, with the accountants, with the customers, you can't
get to the West Side. And even when they get that one
subway stop, and it's going to be very difficult to access.
MICHAEL SLOCUM: You know, it's one subway stop. It's like,
I went to Williamsburg a couple months ago with my wife.
We took the L train, it was a Saturday. It was packed!
We took the first stop, you can't get off! So we're going
to have the one subway stop at 34th Street and 11th Avenue,
10th Avenue, and that's supposed to take care of everything,
including all the apartments and everything else.
JOSHUA MUSS: I think it's going to be a disaster.
DENNIS RUSSO: That's impossible. That's impossible.
MICHAEL SLOCUM: What about traffic?
It's just gotten worse --
JOSHUA MUSS: Oh, it's terrible.
MICHAEL SLOCUM: - in just the last 10 years I've been here,
seems like there's construction on every cross street,
trying to get across town is a nightmare these days.
I thought it might be a little better this summer.
I spent some time yesterday and today trying to get across
town, and they keep closing lanes on the avenues to create
bicycle lanes and parking, and it's a challenge.
So I think one thing they've got to do is try to work a little
bit on the traffic, because you can't create
subway stops overnight.
MICHAEL STOLER: But part of the traffic difficulties,
besides the new construction, everything else, was partially
created by Bloomberg in certain markets with the areas
stopping, like in Times Square, you have streets,
the pedestrian markets over there. They've cut that down,
and that's had a major effect. I mean, have the pedestrian
markets been affecting Downtown Brooklyn, also?
JOSHUA MUSS: No, it hasn't really impacted yet. I mean,
there's still plenty of pedestrian traffic.
I actually just walked in from the other side of the street to
come here, and near the Empire State Building, you can't pass.
I mean, you just can't walk.
DENNIS RUSSO: Well that's tourists!
JOSHUA MUSS: Yeah, well, tourists have taken over a great
deal of the sidewalk space, a great deal of the traffic
space, you have the buses going along, they're good for us,
they're bad for us, and if they stop traffic, it's not good
for us, but may be good for the hotels.
DENNIS RUSSO: Well, 54 million people or so,
I think the number is --
JOSHUA MUSS: God bless 'em!
DENNIS RUSSO: - Rock Center up by me, it's packed.
42nd Street, it's packed. 34th Street by the Empire State
Building, it's packed. You know, I look at it and I complain,
then I say, god bless that they're here, because they keep
putting people, 35 million room nights --
JOSHUA MUSS: And New York City's reinvented itself. They have
hospitality like never happened before, the tech seems to be
catching on, and by the way, that's one of the reasons why
New York City is so popular, because you don't have,
you have a different type of people coming in here that
don't want to commute. That's why there's so many people
looking for housing. You have people coming in from all over
the country, the smarter people, the tech people, the creative
people, people want to get married, all the people,
they come here.
FREDERICK BERK: Kids love it, and they do not
want to commute.
JOSHUA MUSS: That's right.
FREDERICK BERK: They will pay whatever it takes to be here.
JOSHUA MUSS: I got an email from my cousin whose kid is
in New Jersey looking for an apartment. He says, do you
have an apartment? He wants $1,500 a month, I said --
MICHAEL SLOCUM: With three roommates!
JOSHUA MUSS: It doesn't exist!
MICHAEL STOLER: But you know what? You bring up something,
which Mike was saying before on what they do with some
financing on the Jersey side over there. You can go to
Jersey City in a brand new building with all these
amenities right on Journal Square, and you pay, as I was
saying, Gary Jacobs said 92 at Lincoln Center,
we're talking 42, okay, and in a couple months, my friend,
Alan Goldman at SJP is opening up in Fort Lee, which is going
to be a test of what's going on, and they're planning to
get about $38 to 40 a foot right at the George Washington
Bridge. So these are convenient situations, and I think part of
that, even though, as somebody said, they want to be in
Manhattan, but they also have to be realistic that you don't
have that much availability of space and everything else.
JOSHUA MUSS: Young people aren't realistic.
DENNIS RUSSO: Young people want to be there.
They want to walk out their door. You say, what's the
difference? It's a huge difference! It's a commute!
Even if it's 20 minutes, there's a difference between walking
out your door and living in Union Square and being in
Union Square Park and seeing, it's so vibrant --
FREDERICK BERK: So when you leave work, you want to
walk to happy hour. As a kid. That's what you want.
MICHAEL SLOCUM: Well, and you don't want to try to figure
out how to get back to Jersey at 12:00 at night.
FREDERICK BERK: That's true too.
DENNIS RUSSO: So therefore, they'll live four in a room if
they have to and spend, do that.
MICHAEL STOLER: So in summation, how do you see the next year,
year and a half?
DENNIS RUSSO: The next year, year and a half, New York City,
I think that the de Blasio administration won't have,
in that period of time, a tremendous impact with the
affordable housing. It will hurt us a bit. But the reality is,
I think things are going to stay kind of the same.
I don't think things are going to, I don't think things are
going to blow out of the water and get even tremendously
more expensive, but you look at Hong Kong, you look at
London, you say, can't get more expensive. Yes it can.
But I don't think it's going to get more expensive.
I think we're going to be stable.
MICHAEL STOLER: So in a couple months, we'll come
back, and we'll see if our ideas and predictions come
through. I'd like to thank Mike, Dennis, Fred, and
Josh. See you next week.