On Development and Related Things
Eliot Brown Oct. 12, 2009, 3:04 p.m.
The Commercial Observer: Tell me about this building you’re building at 42nd and 10th.
Mr. Beal: At the end of ’07—it was a $900 million deal, we got $700 million of financing. That was all put together prior. … We built the foundation and I think then we woke up in the middle of ’08, and we said, ‘The market’s changing drastically, the cost structure doesn’t work anymore.’ Rather than just putting the blinders on, and saying it’s going to be what it’s going to be, we basically shut the job down. … We went to a nine-month process where we did everything from look at the design of the building—how do we make it more efficient to the materials—and then working with all the contractors and our design team to try to make it much more efficient, and then at the same time, obviously, we were very, I think, thoughtful and also diligent about the way we thought about the unions and the labor and the way the job was going to be built.
How much do you think you said you’ve reduced costs by?
Does it depend on the market picking up in order for it to be successful?
It’s a question of building for the future. It’s still a long construction period, like two-plus-year construction period; it’s a big building. And every single day we have to continue to work to deliver that business plan, and if things change again we’re going to have to adjust that business plan accordingly.
You’ve started a new bank. First, with the name of it: It’s SJB Bank?
So is that Stephen, Jeff and Bruce? [Stephen Ross is Related’s chairman and CEO, and Jeff Blau is its president.]
Yeah. It’s a placeholder.
What’s the purpose? That’s to buy new assets?
We’re working with the F.D.I.C., and we’re not allowed to comment on what we’re going to do. But there are opportunities that we think exist. And we’re excited to work with the F.D.I.C. We have a bank charter, and we think there’s a good business there. That’s about all we can say. … We’re principals in the bank outside of Related. … We have a separate management team that would be completely independent of Related.
At Related, is anyone else a partner? It’s just you and Jeff, and Stephen is the chairman?
Are you two the heirs apparent?
You have to ask Stephen. … I’ve been with Stephen and Jeff for 14 years. We all work great together. Stephen’s not going anywhere. We have a great team; we have a lot of great professionals up and down. We have a good plan to allow for the company to continue, and I think that was what was most important for Stephen, that the company have a legacy going forward that survived—that it could continue, it wasn’t something that was just going to end.
How’s your role differentiated from Stephen and Jeff?
I think the easier way to think of it is, all the sorts of nuts and bolts that go into getting these projects built, running sort of the day-to-day operations on the development side is really my responsibility. … I also work with the affordable-development group.
The city’s housing plan has taken a pretty big cut in terms of the budget.
We think that one of the things that has to happen is the city needs to be very aggressive, with the state, at the federal level. We have to ask and push the administration in Washington at the federal level to provide capital. The way you produce affordable housing is having capital. Without continued federal support, it’s not going to happen.
With Stuyvesant Town, you guys bid for it [in 2006].
We did. We were not in the same atmosphere as the winning bidders.
Even with a lower bid, do you think you would be regretting it or wincing if you had won?
The business plan that we had was very different than the one the current owners have. And, look, there’s a big element of this that’s just the market. … Obviously, you’re seeing the results of a lot of leverage in this case, and ultimately, I think if you look at this, there’s an opportunity here to potentially restructure the overall deal to create something that will be better maybe in the long run for everybody.
I think you can restructure and allow for certain units to be recycled and used for workforce housing and affordable, and you can have a community that’s diverse. That’s a good thing. … But at this point, it’s a private deal; it’s in private hands.
Would you consider it if it went on the market again?
We look at a lot of deals. We looked at it the first time; I’m sure we would look at it.
Why didn’t you guys look at Williamsburg or downtown Brooklyn after the city rezoned them in 2005? A lot of the city’s developers flocked there.
We looked at certain places like Williamsburg, and we said that the land prices, the escalation, the value increase over a very short period of time just didn’t make sense. … We were worried about oversupply. And at the cost basis where land was trading, we didn’t think the numbers made sense.
Was that a good decision?
It looks like it was. … When things are priced correctly in Manhattan and the five boroughs, a product gets absorbed. We have a vibrant community and people want to live here, and things will get reset and the product will get absorbed, and I think there are a lot of markets in the country you can’t say that about.
With that said, you invested in another emerging market in the city—the West Side.
It’s hard to be super-optimistic about what’s going on, but at the same time, we believe long term in New York, and you have to have a long-term view with projects like that.
Are you actually ready to sign on the dotted line [to develop over the West Side rail yards]?
Stephen’s taken issue with real estate taxes being too high. Is that really the case in New York?
We believe that the real estate tax system has to be overhauled. It has to be studied. … The increase in real estate taxes for commercial properties has been significant, … and believe it or not, the burden is being passed on to the renter. The renter is paying, at this point, one-third of their rent is going to real estate taxes.
The commercial renter?
The residential tenant.
What’s the solution?
The overall system has to be looked at. A renter is paying one-third of their rent in taxes, yet the owner is not paying the same amount of taxes, and we actually don’t really understand why that exists. We’ve asked the question, and we hope the city continues to not only study it but look at making some changes.
It’s probably a difficult time politically to get a change through, given that the city has a lot of budget gaps coming up.
Politically, I would think that the city and the state would care about the renter, and would not want a system that was unfair … and didn’t really deal with a rental building any different than homeownership.
If it were that easy, why wouldn’t REBNY be able to partner with tenant groups, who definitely are loud and have political sway?
That’s not really what REBNY does. I think it’s important that we make sure the issues are brought up, and studied and hopefully dealt with by the administration. REBNY’s not looking to go on a campaign with tenant groups.