If one of the conventional stories about Midtown South is the wave of tech tenants, what’s the big story about Midtown right now?
It’s an interesting moment in Midtown. Just thinking about vertical industries: banking and finance has gone, and continues to go, through a fairly tumultuous time, although I would say it’s muted at this point relative to three or four years ago.
But fundamentally, the financial services industry may be finding its way to a bifurcated industry, with commercial banks separated from investment banks. The worrisome news about that is … you can look at the list of the top 20 banks and the top 10 foreign banks and say, well, they’re probably not likely to grow in their occupancy because their businesses are splintering. They’re being regulated in a different way, and they’re figuring out what they want to be and how they’re going to make money. And that equals uncertainty—and that’s not what usually drives big, long-term decisions about real estate.
But we may find that this mid-level investment banking business may be a new form of occupier. If you look at the largest hedge funds and other speculative private equity firms, those are elements of the financial services industry, the largest of which occupy real space in Midtown. And there are many of them, so what we may find is a concentration of huge bank deals, with the square footage of these leases smaller because the industry has restructured itself. That’s what I perceive as happening.
What’s your take on the real estate industry’s response to the Midtown zoning proposal?
I was on a panel the other day with some other executives in services firms and owners, and that question came up. And the moderator decided to call on me first, and it was very interesting because I sensed real tension in the panel, and I can understand how owners may not have an interest in certain sections of the city … being aggressively developed. It adds more potential competition for occupiers.
So I answered the question this way, the way that I think I would always answer it: There are many components to the real estate industry—owners versus service companies—and then each entity individually has an interest. But if you step back from all that and say, ‘what do we want for the city?’ What I perceive is that there are a few fundamental things.
One is, we’re a city built on industries that are almost completely dependent on humans. So you’re going to have to have an affordable way—and a way to allow a lifestyle that those humans want—because those humans tend to be highly talented.
So if you’re going to attract and retain that intellectual capital, you have to have a place to live, not just work. At the macro level, everyone can generally agree that we need to build our infrastructure, because we have to support the economy.
The second thing is, you have to have a balance between where people live and where they work. At any moment in time there will be an argument for, you know, ‘we have 15 percent availability at the worst point of the last down cycle,’ to ‘we don’t have enough office space, we’re down to 4 to 5 percent from the top of the last boom.’ The answer is that those boom periods, that’s a part of the American economy, the cycle of capitalism.
The city is in partnership with our industry, because our industry does a lot of the living and the dying and the paying of the taxes. And the individual interests have to be put aside for the longer term, because this is a city, a great city, and a city at a peak moment. But if you want to stay there, you’re going to have to earn it, and you’re going to have to invest back into the city.
From a personnel point of view, do you commit more resources to Midtown?
Midtown is by far the largest of [the] three submarkets. It’s an extremely large market, and it has the highest rents, so it’s the most lucrative market by that measure of the moment.
I would just put in a plug for downtown, however, to say that in a month or so there will be a flood of available space released out into the market as the major firms recognize now that 1 World Trade Center is available. There’s even more World Trade Center available in 3 and 4 to come, and then the World Financial Center will have availability, hitting the statistics. You’re going to have a moment in time where rents and availability will rise dramatically at the same time. And what does that tell you? That the stock has gone up in quality. So I think anyone watching this activity and not watching downtown is missing a huge story.
Mary Ann Tighe served as chairwoman of the Real Estate Board of New York, and Rob Speyer will be taking her place beginning in January. Was there any benefit to having one of your own as the head of REBNY?
Not a benefit in a purely commercial way, but for me, yes, the benefit was that it’s an honor and it’s a recognition by some of the most powerful people in the industry, to serve in that role. I think Rob is going to be awesome in that role, by the way, but that role is not a simple ceremonial role. That role is a real operational role, and it has a real impact on this city.
So from the perspective that a leader in a service company—a woman in the real estate industry, and one of our own—would actually be selected and then serve with real distinction in that role, that only helps the CBRE brand. There’s no doubt. To me that was the benefit—that it’s yet another thing that this firm does well.