Andrew Kimball, New York City’s Economic Development Chief, On Filling Empty Offices
Just a glance at New York City tells you that skyscrapers are the key to everything. And when experts are telling you that those towers are losing value and workers are losing the compulsion to commute to them, the city has to pay attention.
The arrival of Mayor Eric Adams to City Hall coincided with the most serious crisis over the future of those skyscrapers in city history. And Andrew Kimball, Adams’s director of economic development, is his point person in that battle.
Kimball is president and CEO of New York City’s Economic Development Corporation (EDC), which guides the city’s push for ever-greater economic returns. He previously worked in similar roles at both Industry City and the Brooklyn Navy Yard, complexes that transformed what otherwise might have ended up as obsolete properties into commercial hubs.
Kimball took over EDC a little more than a year ago, and since then the city’s economic outlook may have gotten even more severe. Last month, researchers from Columbia University and New York University co-wrote a study that found New York office buildings could lose around 44 percent of their “long run value.” And, though attendance has improved quite a bit lately, about half of the city’s office workers are not populating its office buildings compared to pre-pandemic years, according to a survey from security firm Kastle Systems.
Kimball took some time in late June to answer questions from Commercial Observer.
This interview has been edited for length and clarity.
Commercial Observer: To what extent are you involved in the mayor’s efforts to fill offices and bring workers back?
Andrew Kimball: We’re very involved in that effort at EDC. The cornerstone of our efforts really comes from the New New York report, which was a joint effort of the mayor and the governor, that EDC staff came out with 40-some-odd recommendations about how to really think about commercial areas in the post-COVID era, in which some level of remote work is a reality.
So, thinking about getting ahead of the curve, in places like Midtown — to create the kind of live–work-play-learn communities — that really makes sense going forward. And all commercial hubs around the world in major cities are going through this right now. We think we can really be on the leading edge of that, and redefine New York by taking advantage of what is a very challenging moment, obviously.
While the numbers have been trending in a positive direction, the Partnership for New York City’s most recent report saw return to office getting north of 50 percent, which is a good thing. Subway ridership is up, crime is down, but there is a reset that needs to happen, particularly in Class B and C buildings that were underperforming even before COVID.
For those buildings, there are multiple strategies, a number of them were part of the mayor and the governor’s state legislative package. Unfortunately, the legislature decided not to act, but that would have given the city and landlords the flexibility to convert 20 to 30 million square feet of space from commercial to residential. We’re going to continue to push that agenda at every level, on the regulatory side, and some of that can happen through the City Council. We’re going to continue to work with folks in Albany to try to get that done.
There is another piece of the puzzle that EDC controls entirely through its Industrial Development Authority, and that’s the M-Core program, which we rolled out in recent weeks. It’s a really exciting opportunity for landlords in B and C buildings that are underperforming to do a gut renovation of the building to meet Local Law 97 requirements and for target industries that EDC is focused on, which tend to be high-growth, high-innovation, high-wage sectors. And, if they’re investing 75 percent of the assessed value in the building, through our Industrial Development Authority, we can provide them with a long-term tax break to essentially lock in their taxes at today’s rate for up to 20 years, and give additional sales and mortgage recording tax breaks.
The response to the program so far has been overwhelmingly positive. We’ve had hundreds of people show up at webinars and briefings on this. It was actually very funny: At one of the recent ones, we heard from one member of the real estate community that waiting for the pre-application release for this program was like waiting for Taylor Swift concert tickets to drop. We got that in an email.
As you know, we already have a program around life sciences, through IDA, that incentivizes conversion of buildings to life sciences buildings. So this program really builds on that. We think we will improve up to 10 to 25 buildings, with some of the first awards being made by November. The first submission deadline, just in terms of timing, is Aug. 1. So you’ll start to see real results and activity as those buildings start to get converted over the next couple of years. We’re going to do up to 10 million square feet, which we think will be 10 to 25 buildings.
Well, I’m glad you brought up M-Core. I read through the press release, and an article about the program, and I didn’t see anything about conversions. What is the city doing to effectuate those conversions?
Those are on two separate tracks. The 20 to 30 million from B and C underperforming space, it’s got to be the right building configuration to convert to residential. That requires regulatory approval at the state legislative level and at the City Council level. Unfortunately, in this last state legislative session, the legislature chose not to act on the governor’s proposals supported by the mayor that would have facilitated those regulatory changes.
That did not happen in the last legislative session. The M-Core program is a separate track that is going to convert up to 10 million square feet of underperforming B and C space to A-level commercial space anchored by the innovation sectors I was talking about. So it’s two separate tracks.
Talk to me about what is at stake here. What will it mean to the city if you are not successful at activating and monetizing the 90 million square feet you say is vacant and the 250 million that’s underperforming?
We think we will be successful because there’s evidence of how this works. Buildings that are A buildings, trophy buildings, are in demand — workers are coming back there faster. Demand for leasing is far higher, rents far higher. You think about buildings like One Vanderbilt, Hudson Yards and others — and those buildings are performing very, very well.
So we think if we can get some of these B and C buildings up to snuff, that will bring people back to the office, and it’ll increase leasing performance in those buildings. And what we find in the sectors that EDC is focused on — again, I mentioned some of them: life sciences, climate tech, cyber, AI, film, television, gaming — there continues to be an enormous demand for space and interest in companies relocating to New York City from around the world. You also see an enormous amount of venture capital investment that is still happening, despite the slowdown.
I presume you’ve seen the Columbia/NYU study that showed a 44 percent decline in New York office values by 2029. Do you dispute that? And if there is such a substantial decline in office values, how is that going to hit tax revenue? Isn’t that going to throw a wrench into the gears of the city?
There’s no doubt there’s a market reset happening. Commercial mortgages are coming due at a time when there’s lower demand for space. Simultaneously, interest rates are high.
So the value of some of those buildings is going to come down. But that’s going to create other opportunities for people to invest and access other funds — maybe institutional funds, sovereign funds — investing in New York right now. So is it a challenging moment? Yes. Is it an opportunity, though, to reset, particularly on buildings that pre-COVID were underperforming? Absolutely.
And it’s also an opportunity to rethink again — and this is where we’re going to need the City Council and the state legislature’s cooperation — converting a substantial portion to housing, because, as you well know, there is a very significant housing crisis in the city. And we have the opportunity to address some of that housing crisis in the type of older office buildings that have the types of floor plates that are suited for conversions.
How many residential units are you aiming for?
We thought about it in square footage. The mayor has called for 500,000 new units citywide. So, the Midtown piece is just a piece of that broader puzzle. It also requires new housing in other transit-oriented locations around the city. And, so, you’re seeing a focus on investment in places like Broadway Junction, in places like Jamaica, Queens, in places like Morris Park in the Bronx. We’ve got four new Metro North stops coming down in the coming years.
Kastle Systems’ estimate of people in office just popped over 50 percent in the city, and the trend has been positive. It was 47.8 percent last week, and that was up. Do you accept that as an accurate depiction of how things are going in New York?
I do. And I will add to that. Since the mayor came out with his jobs plan over a year ago, you’ve seen the city on a month-over-month basis move in a very positive direction: over 255,000 jobs created. We’re at 99.3 percent.
So in COVID, the city lost close to 1 million jobs. We have gained back 99.3 percent of all those jobs. In total, we’ve added 255,000 jobs [between May 2022 and May 2023], which is about the same amount that Dallas and Miami have created combined. So the city is trending in the right direction.
Our workforce participation rate is at its highest point since the numbers started getting tracked in 1976. And we continue to hit new record highs for labor force participation every month; that’s a very positive sign for the city.
I’ll give you another one, which is one in 12 of all businesses in the city were created in the last 12 months. Those tend to be very small businesses, but that speaks to the startup and entrepreneurial spirit of the city.