Sunday Summary: WeWork’s Not Very Good Week
Last week might have felt somewhat deflating given the news coming from the tech sector.
Google (GOOGL) parent Alphabet is the latest tech giant to make its employees walk the plank, announcing plans to cull 12,000 workers from the company globally, which is about 6 percent of its workforce. (There is also enough of a freakout around Google offices about Google’s new A.I. rival ChatGPT that founders Sergey Brin and Larry Page had to be brought in for emergency meetings.)
But tech has had it rough on all sides recently. And that includes some companies that should probably only tangentially be described as tech. For instance, we always had tongue fixed in cheek whenever we repeated WeWork (WE)’s self-description as a “tech company.” The flex operator announced last week plans to cut 300 employees.
Aside from this latest blow to its workforce, WeWork has been hit with a stream of bad luck since the fall. According to the Wall Street Journal, its cash reserves have dwindled to $300 million, a third of what it was a year ago, and the company had negative cash flow of $4.3 billion from July 2020 to September of 2022.
In November, WeWork announced it was closing 40 underperforming locations, and in December Fitch downgraded them to a CCC rating. Woof.
Of course, given the changing economic environment, Commercial Observer recently made the case that a lot of fledgling proptech firms would (if they were good) get sucked up into bigger companies or (if they were bad) fold.
But as far as the good proptech companies and opportunities are concerned, multifamily proptech companies — the ones that are focused on technology that collects rents, vets applications, coordinates repairs — are actually doing fine.
“It’s not necessarily that rental is doing any better than the rest,” Ryan Waliany, co-founder and CEO of Doorstead, told CO. “It’s more that it’s not falling. It’s very, very stable.”
And, in the last analysis, whatever rough patches proptech is currently experiencing, it’s not as though these things are going to become less important in real estate as time goes on.
Companies like VTS have made it possible to take 10 tours of buildings digitally in the same time it used to take five tours IRL. Data about foot traffic and demographics, automation of building systems, access and security are hardly luxuries any more, they’re a standard part of any broker’s digital tool box.
And while commercial real estate hasn’t gone full millennial/Gen Z when it comes to social media in the same way that, say, residential real estate has, this, too, is beginning to change.
Adorable case in point: Kyle Inserra of Zelnik & Company has turned his French bulldog Taco into his own distinct personality on his Instagram page — and it’s shown results.
“I’m just reaching out to you because I see you have a French bulldog and I also have a restaurant I want to sell,” a follower of Inserra told him. Inserra took the listing and made the sale. Other brokers are reporting similar results.
Speaking of multifamily
Almost two weeks after Gov. Kathy Hochul’s State of the State address, housing is very much on New York’s mind and understandably so.
The governor put forward a plan to create 800,000 units over the next decade, a seriously ambitious proposal but one that is scant on details and a legislative path to success. And, as one might expect in Empire State politics, it drew immediate fire from the opposition.
Lee Zeldin, the governor’s Republican opponent last November, called it, “Hochul’s vindictive declaration of war on New York’s suburbs masked as a housing plan.” Zeldin continued: “She doesn’t understand New Yorkers don’t want to be ruled by an emperor governor. People want to be in charge of the government, not the other way around.”
Still, housing advocates and the Real Estate Board of New York applauded the first step.
“New York City’s housing supply crisis has gone from bad to worse,” said REBNY’s Zachary Steinberg. “There’s no light at the end of this tunnel unless the public sector works quickly to advance policies to facilitate the new housing and below-market-rate housing production that New Yorkers desperately need.”
Cost is probably the biggest looming question in all this. JLL (JLL)’s Robert Knakal found at least some evidence to suggest that this massive roadblock to new construction might actually be coming down.
“In two recent conversations I had with developers — on the same day — they both told me that they priced construction jobs recently that they had priced about a year ago and the new quotes were 15 percent and 20 percent lower than the quotes received 12 months ago,” Knakal wrote in his latest column for CO last week.
This might be the exception, not the rule. Knakal went on to survey New York developers and found out from the 87 responses he received that (a) the supply chain issues that kept prices on materials high has abated in some cases (like lumber) but not in others; (b) because of a construction slowdown contractors are charging less on jobs in some cases… but not others. (Nevertheless, we’ll take all the data we can get our hands on.)
In other markets, we saw more housing mania. In South Florida’s North Village Bay, Jesta Group just got approval for a 30-story project that will include 345 rental units, 18 of which will be workforce housing (they’re also throwing in a restaurant, 677 parking spots and a 273-key hotel.)
Also in Florida, Kushner Companies’ even bigger 1900 Biscayne (two towers, 1,300 units and 435 parking spots) in Edgewater just got the greenlight for the second phase of the project. (Disclosure: Kushner principal Nicole Meyer is married to CO Chairman Joseph Meyer.)
In New Jersey, New York Life just ponied up $146.6 million in construction money for The District at 15Fifteen, a mixed-use development in Parsippany that is being built by Claremont Development, Stanbery Development Group and PCCP.
And in Los Angeles HFH picked up the South Hills Apartments from NextGen Properties Group for $38.3 million, which works out to the rather large sum of $450,588 per apartment.
The lease you can do
It was an interesting week in leasing. There were decent office deals like the Canadian wealth management firm CI US Holdings nailing down 50,000 square feet at 101 Park Avenue.
But there were some out-of-the-box tenants who were also lease-happy: The Consulate General of Morocco (along with the fertility clinic Yang Medical) took space at 369 Lexington Avenue; MediaCo Holding, which owns HOT 97 and WBLS, took 25,000 square feet at 48 West 25th Street; Fyllo, a cannabis software company, took 5,371 square feet at 27 West 24th Street (what’s a cannabis software company? Apparently they provide marketing and compliance software).
The thing that we were most excited about was when we learned that the famed Delmonico’s had signed a 15-year lease and is reopening after being shuttered for almost three years. (And, if an old school steakhouse isn’t really your thing, we heard that Rajesh Bhardwaj, the owner of the Michelin-starred Indian restaurant Junoon, is planning a new spot in the East Village called Jazba.)
It looks like real estate titan and friend of CO, Hines’ Tommy Craig, stepped down from his post running the New York office after 41 years, handing the reins over to Jason Alderman, with whom Craig had been sharing responsibilities since 2021. (Although he’s still going to be advising Hines on projects.)
“It has been a supreme privilege to be a part of the Hines New York office for the last 41 years, including 26 years of running the office, working hard on work worth doing, and contributing to the built environment in New York City with so many wonderful projects,” Craig said.
Given how Craig has helped mold Hines into the New York goliath it currently is, nobody can say that he hasn’t earned some serious R&R.
In D.C. we heard that Roadside Development’s Richard Lake is succeeding Michele Hagans as the president of the District of Columbia Building Industry Association.
Finally, we learned that Dwight Capital and the affiliated REIT Dwight Mortgage Trust are launching a new rescue capital platform for developers with equity shortfalls on multifamily, mixed-use, office, retail and assisted living properties between $10 million and $75 million.
Your Sunday long read
Finally, rent-to-own operations used to have a deservedly nasty reputation for racist redlining and bait-and-switch schemes. A handful of startups are battling that perception — and a wobbly housing market — and succeeding. Read all about it here.
That’s all for now. See you next week!