Eastdil Secured’s Will Silverman and Gary Phillips Don’t Worry About New York
There's vast potential for investors in today's tumult, they say — and they've got receipts
From the windows of Eastdil Secured’s Midtown offices, you can make out Manhattan’s Upper East and West sides, where the firm brokered more than $1 billion in deals just last year.
But what’s far more interesting is what happens on the inside of the glass.
The real estate investment bank has been a major force in New York City’s investment sales market for decades. And, at least according to managing directors Will Silverman and Gary Phillips, the firm’s success is thanks to its focus on collaboration.
Silverman and Phillips, who both joined Eastdil in 2019, have brokered some of the company’s biggest deals. In the past two years, the duo handled Blackstone (BX) and RXR’s sale of the 40-story 1330 Avenue of the Americas for $320 million, Stonehenge NYC’s purchase of the 196-unit multifamily building at 408 East 92nd Street for $114 million, and Blackstone’s purchase of the luxury rental tower at 8 Spruce Street for around $930 million.
And, in another $930 million deal, the two brokered the sale of the final portion of the former Walt Disney Company-owned ABC campus on the Upper West Side to Extell Development Company, which represented one of the city’s top 10 investment sales of 2022.
But Silverman and Phillips insist it was Eastdil’s focus on communication across its business lines, not them, that pushed those deals over the finish line. Eastdil compensates its brokers through salary and bonuses rather than commission, which Silverman said encourages communication throughout the business and helps them score a better deal as a result.
With high interest rates, a tough financing market and a slowdown in investment sales pressuring the real estate market, the duo expected that type of teamwork to be even more essential through 2023.
Commercial Observer caught up with Silverman and Phillips at Eastdil’s offices at 40 West 57th Street to talk about their deals, the financing market, and who, if anyone, is buying office buildings these days.
This interview has been edited for length and clarity.
Commercial Observer: How did you both get into real estate?
Gary Phillips: I got into it by accident. It wasn’t something that was part of my family like many other people in New York real estate. My first job was at Deutsche Bank in investment banking. And you don’t pick which group they put you in. I was put in the economics group, and within that group I was designated with a focus on real estate.
I moved from there to Clarion. And that’s when I started on the acquisition side of the business. I was there for eight years, covering the eastern half of the U.S. — all different types of asset classes, risk profiles, etc. From there I went to Allianz where I started their North American equity real estate business, and bought about roughly $20 billion worth of real estate over my eight-year period there, and then joined Eastdil about four years ago.
One thing that is a bit unique for me was moving from the principal side to the brokerage side. Eastdil is obviously a platinum brand. I had worked with so many people here and I knew the way the firm worked. And from a culture standpoint, coming from the principal side and the team-oriented side, it was almost a seamless transition going from buy side to sell side, given the type of culture that’s unique here.
Will Silverman: I was a frustrated investment banker. Me getting hired was probably the indication that the market had peaked for investment banking.
My education in high school and college was really driven by participation in speech and debate. And so I was always looking for something that blended my love of New York with my love of trying to craft an argument, and then defend it in a public forum or a semi-public forum.
I eventually found my way into Woody Heller’s office [at Insignia/ESG]. And I had a really bizarre interview with Woody in which I walked in, he was on the phone, and he just said, “Sit down, sit down.” And then I listened to his phone call for 10 minutes. And then when he hung up, he said, “OK, what building was I talking about? What are the cross streets of that building?”
Then he started saying things like, “Did you notice when my tone shifted? What do you think I was trying to accomplish?” I thought, “This is the game above the game, this is what I want to learn.” I was ready, but he wasn’t. I was too green and had no real estate experience. So I pursued him for the next six months.
I sent him writing samples, I sent him recommendation letters, I sent him articles that I thought were interesting with commentary, and I did everything I could. I finally got an interview with somebody else at the same firm to do leasing because I just needed a job.
I emailed him and said, “I’m going to be in so-and-so’s office. Do you want to just have a cup of coffee or something?” He calls me while I’m in that interview. The person who’s interviewing, their phone rings, and he says, “Yeah, it’s for you.” It’s kind of like sending a pizza to class. And so Heller said, “Stop by when you’re done.” And I stopped by and he says, “Why don’t you work here today?”
And I said, “Well, because I’m too green, as you keep telling me.” And so he said, “Well, today’s different. We’ve gotten hired to sell these two nursing homes. We don’t know anything about the business, but it’s a good client who insists that we do it. So, today, I’m as green as you. So start calling all the neighboring nursing homes.”
That started a relationship that lasted 13 years. He was a great mentor. And we did a lot of business together. We moved to Savills Studley together. Then I joined Hodges Ward Elliott. After that, I had a conversation with Eastdil.
If you spend time in this business you sort of think of Eastdil as this mythic place. One of the things that was communicated to me was that a lot of the people who Eastdil had acquired mid-career had actually not come from other top five advisory firms, but had come from more disparate backgrounds like mine. And what was told to me was that that was usually helpful, because, effectively, if you learned to train in the jungle with a machete and then someone handed you a bazooka, you would probably figure out how to hunt.
What must it be like for young people getting started in this industry right now?
WS: For the young people who have jobs, it’s an unbelievable time. In years like this one, they may not get as many deals on their deal sheet as they would in a boom time. But the conversations that they’re involved in and the things they’re learning about underwriting and deal structures and how to read documents with an eye to things that are truly important versus what’s not important — I’m envious of people who get to start their career at a moment like this.
The market downturn impacts you a lot less when you don’t have mortgages and tuitions and you get to spend the foundational years of your career in the most action-packed moments, when you’re really seeing what the system does when it stresses. I think the experience you can get right now is invaluable.
GP: Having this experience that early on is amazing. But we also have so many people that have begun their careers over the last 15 years that haven’t gone through this. They’ve only known good times. To experience something that is a fairly drastic downturn, particularly in the office sector, as Will said, when you have tuitions and mortgages, it’s a different level of stress that people haven’t been prepared for.
Speaking of the office market, have you guys worked on any interesting office deals lately? And what are people looking for in those properties if they’re looking for them at all?
GP: There haven’t haven’t been many transactions on the office side. Much of our activity right now is talking to owners that want to know what they have and lenders that want to know what they might have. That’s where a lot of the transaction activity is likely to come going forward. It’s going to be lender driven.
To answer your question specifically: What are people looking for? They’re essentially looking for cheap bricks. And the segment of the market that’s active right now is mostly high net worth, or private buyers, that are less institutionally focused when it comes to discounted cash-flow analysis, internal rate of return, etc. They’re looking at “Can I buy this at a price per square foot that was probably a 20-year-ago price?” And that’s the only arithmetic that matters to them. And it’s suited people well over decades of experience. If you’re a basis buyer, you usually come out ahead.
WS: You can buy when the assumptions look great but the basis feels heavy. Or you can buy when the assumptions look terrible but the basis feels great. And the latter strategy over time has proven pretty successful. The only problem is to buy basis in the face of assumptions that are challenging takes quite a bit of intestinal fortitude. So I think it has been that private crowd.
I think people are trying to answer this question for themselves: Is this a building that if I were the tenant that’s prospectively looking for space, would I choose this building versus the others in its competitive set at the rent that I need to achieve? And, if the answer is yes, you should buy the building.
In the case of 1330 Avenue of the Americas, it was very easy given the location. It’s a very prestigious block — it’s on the same block as the Museum of Modern Art. It has spectacular light and air. And it was very easy to imagine a tenant looking at the fifth floor of that building and the fifth floor of half a dozen other buildings — and I’ll leave out names to protect the guilty — and saying, “This is the building that I would choose to be in.”
Have you noticed foreign investors investing in New York real estate?
GP: Many overseas buyers are the ones that are flush with cash, particularly coming out of the Middle East and in Asia. But transaction activity has been relatively slow in the first half of the year, and that’s driven by a lot of volatility in the market, particularly in the credit markets. Where they have been active has been less so in property buys, but more in thematic bets, in the credit markets and in the public markets. That said, they still want to buy the sectors that have secular tailwinds, like all forms of housing, industrial, data centers, life sciences and things like that.
WS: You’ll absolutely see an uptick in offshore investment in New York City. Where New York City is unique vis-à-vis a lot of other cities is that when New York City gets cheap, it gets discussed at dinner tables everywhere from Tokyo to St. Moritz, and wealthy people from around the world start showing up. So, [Mexican billionaire] Carlos Slim bought a building on Fifth Avenue in 2010. I remember selling a building to an Argentinian family that had never bought here before.
I think you’re going to see an influx of new market participants, both domestic and international. But you’re gonna hear from international investors who are just like, “New York sounds cheap.” They’re not as myopic. They’re not as focused on “Should I buy on this corner or that corner?” as the local investor. They’re saying “New York’s cheaper than it’s been in a really, really, really long time. People who’ve come into New York at these particular moments in history have tended to do well. And it looks pretty darn good.”
One thing New York has going for it vis-à-vis a lot of other markets that have risen up in recent years is we know how New York City responds to recessions. We know how it responds to the global financial crises. We know how it responds to 100-year storms. We know how it responds to terrorist attacks. And we know how it responds to being at the epicenter of a global pandemic. There’s really nothing New York hasn’t demonstrated the ability to come back from stronger than before. And, in this regard, it stands alone compared with other markets.
New York really has seen everything.
GP: And de Blasio.
And de Blasio. Circling back to the job market, The Real Deal reported in February that Eastdil was considering cuts of about 7 percent of its global staff. Other firms have announced cuts in the brokerage community. What is the jobs picture for commercial real estate brokering in general?
WS: We did what we did earlier this year to right-size the firm for what we were feeling like we were going to encounter. And I would say that what we felt like we’re going to encounter is what we’re encountering.
Are there any niche asset classes that have attracted a broader interest?
GP: I think data centers have been something that we’re hearing more and more about from institutional investors. And that’s not central to New York. That’s a global interest that we’re seeing.
WS: I think you’re also going to see in New York, capital A affordable is going to be more of a focus. I also think the transitional housing sector, especially with more ESG investors or ESG-oriented investors, I think is going to be a focus as well. A lot of transitional housing is going to lead it to be one of the next niche sectors that gets a lot of focus, particularly from impact and ESG investors. And nobody can accuse you of greenwashing in that sector.
GP: And life science. That has been a sector that’s been fairly accepted and explored in recent years, particularly in the major life science markets like San Francisco, San Diego and Boston. But, in terms of an emerging market, New York is certainly on that list.
On ESG, do you expect interest in ESG investment to continue, even amid a downturn?
WS: No question.
GP: It’s not becoming a nice to have, it is becoming a must-have, particularly for the overseas investors.
WS: Overseas institutional investors. The random family that’s going to buy a building cheap is less focused on whether or not it’s LEED Gold.
GP: The standards imposed on some of these foreign institutional investors — particularly on the environmental side — it is going to be a must-have for much of the investable universe here.
Do you think we’ve seen the last of the fallout of the regional banks? How do you think the lending markets are going to work out this year?
GP: They’ve tightened up because of it. What we need is the regional banks to become active again. Not only the national economy needs regional banks, but the real estate market heavily relies on it.
Is there a transaction you’ve done or worked on that you think captures the current environment?
GP: We’re selling 55 Broad Street on behalf of the Rudin family to a joint venture between Silverstein and Metro Loft. That is going to be converted into multifamily. And we’re also raising equity for that new platform called SilverLoft. We’re going to be raising roughly $1 billion of equity. And we’re actually in the market now on that. But that’s something that represents to a T today’s environment. We’re oversupplied on commodity office, and we’re woefully undersupplied on housing in Manhattan. And this is a thematic bet, where you can take advantage of both of those dynamics. The city benefits from it. Residents benefit from it. And investors benefit from it.
Who are you sourcing it from?
GP: Institutional investors. It will likely be a club of two to three institutional, large check writers.
That’s a lot of money, especially right now. Are you confident you will be able to get it?
GP: Given the strategy and given the strength of the sponsorship, there’s no one better to execute that strategy. Everyone, when they hear the pitch, they say, “OK, the strategy makes sense, and, if we’re going to do it, this is a platinum sponsorship to do it with, with a 25-year track record of doing it, particularly downtown.” So it all comes down to the numbers of the structure.
WS: It feels like the best example of the old Wayne Gretzky line of skating to where the puck is heading.
What is the market going to look like in the next year?
WS: I think you’re going to see an increase in loan sale activity. The market has been waiting and waiting and waiting. And we said the other day, “It feels like Godot is arriving.” This Godot reference has been falling flat all week on every call. But Godot is arriving.
This moment is exactly why I wanted to work here. Because the level of coordination we have between people in various markets — even just here in New York City between our equity team and our debt team, we all sit within a few feet of each other. We’re having all of these conversations where Grant Frankel hangs up the phone and says, “OK, I just learned this interesting piece of information that’ll be relevant to this transaction.” And then Gary says, “Oh, I just heard this.”
It’s really, really easy to start seeing how that flow of information is really helping. Our ability to give people more visibility on what we think is going to happen is just really strong because all the real-time feedback gets integrated immediately.
Now the reason for that is, just to be clear, we’re all greedy, right? Our compensation paradigm encourages sharing as opposed to every other major brokerage house where if you find the buyer that’s ready to do something next that’s really hot, you’re incentivized to keep them to yourself. This is the only place where that’s the opposite.
GP: Essentially, if you want to boil it down to one sentence: When you hire Eastdil, you’re not hiring one person, you’re hiring the firm.
WS: We’re structured as a real estate investment bank. And the idea is that that fosters collaboration. If I’m a client, I like hearing that everyone is incentivized to share information as widely and immediately as humanly possible as opposed to hearing that everyone in the firm is incentivized to hoard information. It also makes it a fun place to work.
Celia Young can be reached at email@example.com.