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

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


♪ [Theme Music] ♪ ♪ [Theme Music] ♪ 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 Midtown zoning? 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.

Leave a Reply

Your email address will not be published. Required fields are marked *