New York Commercial Real Estate’s Future a Battle Against Uncertainty: Forum
Efforts on both a citywide scale and on a company-to-company basis will draw commercial real estate forward. During Commercial Observer’s latest forum — “The State of CRE: A Forward-Looking Industry Outlook & Vision for Market Growth” — industry experts highlighted the importance of collective improvements, like political-development alignment, and more subjective adjustments, like modern office amenities, for spurring growth in New York City.
Both degrees of collaboration will yield success — and already have.
Held in-person at 605 Third Avenue’s Ease Hospitality, the event opened with remarks from CO’s Max Gross and Robyn Reiss, as well as Crystal Fisher, Ease Hospitality’s co-founder and the managing director of commercial portfolio at developer and landlord Fisher Brothers. Lamenting the solitude brought on by COVID-19, Fisher suggested that the theme of connection will drive the design, creation and use of future spaces.
Echoes of connectivity resurfaced throughout the event.
Michael Zetlin, senior partner at law firm Zetlin & De Chiara, moderated a conversation with Andrew Kimball, CEO of city development nonprofit New York City Economic Development Corporation. In “Top Priorities for Executing the Mayor’s Economic Blueprint,” both men pointed to the ways in which Mayor Eric Adams has embraced the private sector, paving the way for market growth in places like the Brooklyn Navy Yard.
Yet working in conjunction with the city is only one factor for success in commercial real estate. Scouting a diverse ecosystem of talent, as well as engaging with academic resources, will not only yield results, but also reflect the city’s population at large.
“Our diversity is one of our greatest strengths,” Kimball said. “We’ve gotta embrace it.”
Embracing diverse talent will incorporate the interests of NYC’s population into future projects. Likewise, listening to the varying voices of the workforce will allow for offices to accommodate real, tangible needs.
Jennifer Yasher, real estate partner at law firm Fried Frank, moderated the first panel: “Optimizing Your Square Footage in a Hybrid World.” She spoke with Ken Fisher, partner at Fisher Brothers; Callie Haines, executive vice president and head of the New York region at Brookfield Properties; Tiffany Mizen, head of real estate at technology company IBM; Bruce Mosler, chairman of global brokerage at Cushman & Wakefield (CWK); and Tess Jones, enterprise customer success manager at proptech company HqO.
Touching upon the longevity of physical office space, the panelists agreed that hybridity is the future, though there are strategies for landlords and employers to draw employees back long term. Getting tenants inside the office—and keeping them there—requires the quick integration of modern amenities into the built environment. Such amenities may include collaboration space and curated dining facilities, as well as physical changes like improved air filtration and elevated natural lighting. Buildings that account for ESG standards and carbon neutral futures are also on tenant want-lists.
“You’re creating spaces that allow people to socialize and work together and still feel safe,” Mizen said.
“What the workforce wants, the workforce gets,” Fisher agreed. “The ones that haven’t done the work are the ones that are suffering.”
Indeed, now may be the best time to be a tenant. Some landlords are rapidly adapting to tenant needs, while others are just getting started. Many buildings under construction used the pandemic’s lull to execute and complete projects. Now they are prepared to welcome an eager workforce—widely animated by younger employees.
This trend makes sense. Early careerists haven’t had sufficient networking opportunities nor are they likely to live in environments ideal for remote working, thanks to roommates and cramped apartments. Meanwhile, established employees, who have already built their careers and learned the intricacies of the industry, may be more inclined—and prepared—to stay put.
Accounting for inequalities and varying wants within any given company is therefore necessary for creating a productive and happy workforce, panelists said. No one metric is going to work for everyone.
Nor will any one metric work for any given building. In “Adaptive Reuse & Recapitalization Projects Giving CRE A Future-Forward Competitive Edge,” moderator Jay A. Neveloff, partner and chair of real estate at law firm Kramer Levin Naftalis & Frankel, spoke with Bill Edwards, executive vice president of core holdings at Rockefeller Group; Robert T. Lapidus, president and chief investment officer of real estate developer L&L Holding Company; Jonathan Schwartz, senior managing director of finance firm Walker & Dunlop; and Colleen Wenke, president and COO of developer Taconic Partners.
Adaptive reuse—the idea of converting old buildings to modern, more marketable uses—has become a popular tactic for repurposing COVID-shuttered spaces. While not confined to New York, this concept has resulted in the modification of buildings across the city, diversifying NYC’s economy. In particular, life sciences buildings have begun to crop up—though not every building should be a life sciences conversion, Wenke warned.
Life sciences buildings require hyper-specific resources that NYC’s older buildings may not be able to accommodate. Prior to changing a building’s intent, developers and investors must assess the attributes of that building, as well as the cost of capital for conversion.
Beyond life sciences, residential spaces have widely taken over shuttered offices. Drawing in tenants isn’t just a matter of reconverting spatial uses, however; rather, it’s about the flight to quality, said Schwartz.
Yet whether an office or an apartment, all buildings must incentivize tenants. COVID-19—widely cited as the “great accelerator”—has forced real estate to evolve. Offices must now invest in attributes like improved air control and safety systems, as well as collaboration spaces if they want to stay relevant.
The next panel—“Investment Sales on the Rise: Multifamily & Hot Markets Driving Deal Activity”—took a financial approach to real estate’s future. Panelists included Steve Coutts, chief commercial officer of software company Cherre; Helen Hwang, senior executive managing director of real estate agency Meridian Capital Group; Bob Knakal, chairman of New York investment sales at brokerage JLL; and Miki Naftali, chairman and CEO of development and investment firm Naftali Group. Fred Berk, co-managing partner at accounting firm Friedman LLP, moderated the discussion.
Just as offices must incentivize tenants to return, the city must incentivize the private sector to invest. Whie New York has largely bounced back from the pandemic, more growth is always possible. If policy works hand in hand with industry—via incentives like tax breaks—both sides serve to benefit. As such, the panelists agreed that voting is pivotal for market growth.
“Voter apathy is a killer,” Knakal said.
In addition to political alignment, foresight is pivotal for deciding whether to invest in a project. Real estate is known to be resistant to change, said Hwang, and as the industry is now forced to evolve, data can be a useful tool for determining its extent. There is no universal truth for success, yet as technology, the political landscape and the city’s demographics ebb and flow, nimble, but informed, decisions will allow for investors to evolve with the market, rather than against it.
Demand and product are equally pivotal for success, though external factors may come into play. Knakal pointed to timing and luck as illogical and unpredictable inputs that may skew or sway a project’s output.
Keeping in theme with the rest of the event, the final discussion centered around the subjectivity of predictions and the inaccuracy of one-size-fits-all foresight.
David Szeker, partner at law firm Kasowitz Benson Torres, moderated the final panel: “A Deep Dive into CRE Projections: Financing Major Developments & Future Growth.” Szeker spoke with Marty Burger, CEO of real estate owner and operator Silverstein Properties, and Michael Cohen, tri-state president at brokerage services and investment management firm Colliers (CIGI) International, about COVID-19’s industry impact.
“Some industries are more inclined to accept people working from home,” Szeker said.
The success of a hybrid model therefore depends on both sector and company.
“The dirty little secret in the legal industry is that the pandemic hasn’t been so bad for law firms or PNLS,” Cohen said. “They’ve been thriving. These guys are able to conduct their business from anywhere and the world hasn’t stopped turning.”
Cohen then concluded the event with a caveat.
“There is no way to generalize,” he said, alluding to an array of factors—burgeoning amenities, hybrid work models and the like—that have yet to fully play out. The industry’s direction is still taking shape, and until it develops, predictions are only guesswork. Cohen also reminded the audience just how much the vacancy rate had shot up since 2019, adding, “This is not something we can lease our way out of.”
At an event centered around commercial real estate’s outlook, perhaps uncertainty is one generalization we can all agree on.
Anna Staropoli can be reached at firstname.lastname@example.org.