REBNY’s James Whelan Weighs in on Eric Adams, Work From Home and Inflation
Given the sheer disruptiveness of the past two years of COVID-19, it might be easier to wonder which issues the Real Estate Board of New York didn’t have to deal with rather than which issues it did.
Work from home devastating the office market, retailers already hurt by online shopping further pained by the pandemic, a dire need for more affordable housing — James Whelan, REBNY’s president, has been trying to find ways around all of this and more to help bring New York City back to its prelapsarian glory.
Whelan has been leading REBNY since mid-2019, which means he’d only been president for nine months or so of normalcy before being plunged into the country’s twilight zone. But he has been remarkably clear-eyed throughout.
Commercial Observer spoke to Whelan about how REBNY is working to help solve the city’s issues, and what he foresees in 2022.
Commercial Observer: What are REBNY’s main priorities this year?
James Whelan: The single most important thing is to help ensure that the city remains on a road to economic recovery. It’s become something of a mantra that what’s good for New York City is good for real estate and vice versa, and that’s reflected in the fact that on an annual basis, the city collects more than half its tax revenue from real estate-related taxes. If the city’s doing well, real estate’s doing well, and if real estate’s doing well, it’s a good indication that the city’s doing well. And sometimes the inverse is true. So, we need to continue the effort to beat the virus — we are still in this pandemic. There needs to be a continued focus on vaccinations, boosters and mass guidance.
Second, we need to get back to showing that New York City is governable. There needs to be a sharper focus on quality of life and public safety issues. By all accounts, that’s probably the biggest reason Eric Adams was elected mayor. There needs to be a better delivery of services, including being able to start and create a new, small business here in New York City.
And then we need to increase housing production. Data shows that from 2010 to 2020, the population of New York City grew at a much faster rate than was projected. We built housing, but we didn’t build enough. That’s one of the key components to the housing crisis. We need to do a better job of providing supportive services to those New Yorkers who need them, particularly those who are homeless.
And, finally, it would be an omission if I didn’t flag economic development and job creation. The city is at twice the unemployment rate of the nation as a whole. Getting that number down will be a sign of how much progress we make in our economic recovery.
Where do you think return to office stands these days? How concerned are you about the impact of work from home and other flexible work policies on the New York office market for 2022?
We were headed in the right direction until the omicron variant hit. We need to keep things in perspective. We’re still in the pandemic, and haven’t gotten to the endemic phase yet. It’s gonna take time. There are encouraging signs. When you look at how quickly residential rebounded, that’s terrific. On the commercial side, there are encouraging signs in terms of the velocity of leasing picking up in the city, and also in terms of investment sales, and how big companies like Facebook and Amazon are investing in the city by purchasing property.
But there’s work to be done, and one has to assume that we’re not simply going to go back to the way things were pre-pandemic. For example, in the commercial sector, the most activity is happening in your higher-end commercial space, what everybody refers to as the flight to quality.
It’s likely there will be some portion of the commercial office and hotel markets that would be better repurposed over time to residential use. There are a few reasons for that. New York City has an insatiable need for housing. But, also, that would benefit retail because it would provide a larger universe of potential customers. Instead of retail that’s open 9 to 5 to cater to an office crowd, you’d have a more 24/7 environment. We think that greater sense of dynamism would strengthen commercial office markets over time.
Given this, what is your overall take on the current state of New York City retail right now?
If you go back to the 1990s, it was claimed that New York City was under-retailed. What developed after that was a set of zoning and policy changes that created a lot more retail. At the same time, e-commerce was becoming much more popular, and the property tax put upon retail properties, particularly during the de Blasio administration, was significant. So even prior to the pandemic, retail was a challenging market in certain parts of the city. The pandemic has caused greater stress, particularly in areas that cater to office workers and tourists.
To draw a contrast, I’m a Queens guy. If you go down Northern Boulevard, retail’s quite healthy. But if you walk down Lexington Avenue [in Manhattan], the retail is really stressed. In terms of moving forward, we gotta get folks back in offices and get tourists back. We’re confident that as this variant appears to be abating, more folks will be coming back to work, and more tourists will be coming back to the city. But this is probably the area of the market that’s going to require the most ingenuity and creativity on the part of owners, and cooperation from government in terms of rethinking how ground-floor spaces should be used.
These spaces can encourage workers to come back to offices, and encourage people to come to these areas in off hours. They could provide childcare and educational opportunities, so that workers are closer to their kids. They could provide a ground-floor retail experience to encourage folks to come to these areas on the weekend. And, if we’re successful in converting older office and hotel space to residential use, that will help the retail in these areas as well.
REBNY is strongly in favor of the SoHo/NoHo rezoning. Why do you think this is beneficial for the city?
Over the last 40 years, SoHo has been one of New York City’s great retail success stories. What’s striking is, much of that retail was operating under antiquated zoning rules that either did not permit those uses, or required such uses to go to extraordinary lengths to get permitted. The rezoning is an effort to reset those rules and make it easier for that retail to succeed in SoHo and NoHo without having to jump through extraordinary hoops.
Then, as we discussed, we have an insatiable need for housing in New York City. We’re not producing enough. SoHo provided an opportunity to create more rental housing, which is the most important housing New York City needs. We are unique compared to other American cities in that two-thirds of our housing stock is rental. We need to produce more rental housing. In SoHo, there’s an opportunity to create that housing proximate to very good mass transit, and pretty close to other commercial sectors.
Gov. Hochul has proposed a replacement for 421a, and a repeal on the density cap for apartment buildings. What is your take on these, and what effect do you think they’ll have on New York City if they pass?
We’re pleased that Gov. Hochul is taking important steps to boost housing production here in the city. With the new program, while in some respects it may be more difficult to build under than 421a, it is very important in recognizing the role the private sector needs to play to produce rental housing in New York City. Since 2014, under 421a, the private sector accounted for 50 percent of the rental production here in New York City and over 30 percent of our below-market-rate housing production.
The governor recognizes that, and, by lifting the residential cap, she’s permitting the city to rezone areas that are closest to mass transit, to engage smart development, and to create residential rental development in those areas. It strikes us as a really smart and long overdue move.
How confident are you, then, that the city will have the housing it needs by 2030?
If it’s laser-focused and gets cooperation from state government — and, ideally, additional assistance from the federal government — we can get a long way there. But it’s not going to be easy, because there seems to be an ingrained NIMBYism on the part of a number of communities not wanting to see new housing created in their neighborhood. But, ideally, working together, the city, the state and the industry, with other partners, can go a long way in addressing the city’s housing crisis over the next few years.
REBNY is launching a new website later this year called Citysnap, which will make residential listing service (RLS) data available to consumers. What was the impetus for this, and how do you see it affecting the city’s rental apartment landscape?
The RLS has been a very important feature, but you do want to get to the end user. So Citysnap will try to ensure that the listings get in front of the consumer so that both consumers and brokers have another option. We believe it’ll be another powerful option to seek opportunities to live and invest in New York City.
When will that be available to consumers?
First half of 2022.
What are your greatest hopes and concerns for the administration of Mayor Adams?
I’ve known Eric for about 15 or 16 years. Throughout the city’s history, we’ve benefited from having the right person show up at the right time, and I think we have that again. Eric brings great energy and optimism to the role, and he’s committed to working together to advance a strong recovery. His “Get Stuff Done” slogan is a results-oriented message that the city needs right now, and his choices to help run government are folks who are quite experienced. They’re going to bring a good understanding about how the public and private sectors can work together to get things done. And we think Eric’s sending the right message when it comes to taking on the virus.
What are your greatest hopes, then, for what he will accomplish?
Showing that the city is governable, addressing quality of life and public safety issues, and ensuring that government services can be provided effectively and efficiently. Particularly, as we’re in this period of economic recovery, getting city agencies to work together, getting those agencies to work with the private sector, getting businesses open and people employed, generating additional tax revenue and getting housing units open. This is all going to be important — sending a message that New York is open for investment and growth.
What do you think will happen to the Brooklyn-Queens Expressway as far as either repairs or replacement, and what would you most like to see happen there?
The idea has been to make it a subterranean road. That should be given greater consideration. If you go to the Big Dig in Boston, the negative was that it took a lot of time. So if you’re going to try a similar idea with the BQE, it really needs to be well planned out. But the positive is that the Big Dig has had terrific positive impact in knitting together different neighborhoods of the city that previously were seen as disparate areas.
What are your thoughts on Local Law 97?
We don’t think the law as designed is going to achieve its goals. When you look at a typical office building, most of the energy usage is generated by tenants. There’s nothing in the law to address trying to help owners and tenants negotiate that aspect of it. Also, the way the law is designed, it essentially penalizes density. Buildings that have a lot of employees who might work on a 24-hour basis, larger financial firms and the like, are essentially penalized under Local Law 97.
Given the nature of New York City, and that a dense environment is actually more environmentally sustainable, the law seems to run counter to achieving that. And, it’s not an energy-efficiency bill. It’s based on carbon. Whether buildings will be able to satisfy the law will depend on the power grid, and whether that’s supplied with renewable energy. That’s outside the control of a typical property owner.
What effect do you think rising inflation will have on commercial real estate investing?
It can be very problematic in terms of predicting the future, in the affordability of getting projects done, and on the cost of living. It’s going to be important to address it, because as we saw in the late 1970s and early 1980s, it can really be a burden economically for the city and its residents.