Developer Joe Moinian On His Hudson Yards Project, AI’s Impact and Land Buys

Joe Moinian is about to move up a level.

It almost sounds preposterous to make such a claim. 

Those who know New York real estate naturally know how important a place Moinian occupies in the firmament. He has unveiled massive, neighborhood-transforming projects like the Atelier on the far West Side of Manhattan. He has purchased trophy offices such as 1775 Broadway (now 3 Columbus Circle). He has dipped his toe into hospitality (the W New York Downtown) and left the confines of Gotham (he owned Willis Tower in Chicago, once the tallest building in North America, with several other boldface names).

Topping that now? Hudson Yards.

Specifically, Moinian’s behind a 1.9 million-square-foot Class A office building designed by FX Collaborative in a city that is desperate for new office space. It would make just about any veteran developer feel like they reached a new and exciting stage. 

Moinian, the founder and CEO of The Moinian Group, sat down with Commercial Observer on Sept. 25 to talk about where he’s been, where he is, and where he is going in real estate.

This interview has been edited for clarity and length.

Commercial Observer: How did you get started in commercial real estate?

Joe Moinian: I come from the fashion business originally. I was in it for 19, 20 years. As I made money — and a lot of money — I started my real estate on the side. The fashion business required a lot of traveling to different countries for production, textiles and all that. Then I got married. The fashion business did not agree with my lifestyle because I had to be away from my family and my kids. So I began to lean more toward real estate — and, at one point, it became only real estate. 

We started buying loft buildings, converting them or upgrading them to use them as office buildings, mainly in Midtown South. Those are buildings I purchased in, I don’t know, 1981, 1982. 45 years or more. 

Then Mayor Rudy Giuliani came up with a revitalization plan for Downtown Manhattan below Murray Street in 1994, which gave 10 years of real estate taxes to developers who convert obsolete old office buildings into apartment buildings. So we were probably the first people converting offices to residential — and I still own the same buildings.

Then I said, “Why don’t we try to build from the ground up?” We had some land and put up two buildings. One was called the Biltmore Tower at 271 West 47th Street, 400 apartments; and the other was the Marc on 57th and Eighth Avenue under what used to be called the 80-20 program.

At that point we said, “Hmm, maybe it’s easier to build ground up,” because there are less surprises than with the conversions.

In the meantime, I started buying land. At the time, I said that it doesn’t matter what the zoning is currently — one day, Manhattan will all be built. As long as I bought from one traffic light to the other traffic light, I didn’t care about the zoning. I bought a lot on Eighth Avenue, then Ninth and 10th, and didn’t stop until 11th Avenue when I saw the water.

How are your development plans for 3 Hudson Boulevard next to Site K shaping up?

After the rezoning by Mayor Michael Bloomberg, we had zoning for five and a half million square feet. So, several years ago we built three buildings on 42nd and 43rd. One is the Sky, which is the largest rental residential tower in New York City right now, with 1,175 apartments in one building, and 3,000 people live there. Before that, we built Atelier, which is a condo of 478 apartments. 

The Hudson Yards rezoning did us a lot of good because if you take 34th Street and Hudson Yards — that’s like the main point of the zoning — the highest floor-to-area ratio is here at 34th Street. As you go up to 40th Street and you go down to 30th Street, it reduces. At the highest point, it’s 33 times the floor-to-area ratio. And I own on 34th Street — would you look at that! 

We have plans, permits and everything for the construction of 3 Hudson Boulevard. We even dug the foundation — ready to go. We’re in discussion with a major anchor tenant, which would take half of the building. You need an anchor to get a construction mortgage. Nobody is rich enough to build this building without that. We’re putting the pieces together as we speak. At Site K, which is 1,540 apartments, we’re going to beat our own record set by the Sky. There will also be a beautiful five-plus-star hotel on Site K.

How can the state and local government assist developers? Are the current tax incentives working for you?

They have a lot to do. The numbers don’t work — the tax incentives, including the 485-x program and its labor requirements. I don’t know what the state and the city can do about high interest rates, but that’s also our guest for a while.

As for multifamily, how much rent can you ask? How could a young individual afford the freaking rent in this city? Cosigning of the lease, at some point, is going to fade away. 

How do you plan for those kinds of headwinds? 

If I was a new developer going to New York to buy a piece of land, and I’m going to design it, I’m going to build it, I’m going to rent it, the numbers just wouldn’t work. Luckily, I have the land advantage and I bought it at a lower cost from years ago.

Another thing is that the stock market is doing very, very well — all the tech companies are breaking records day after day. The interest rates are high because the Fed doesn’t want inflation, so, unless they come down, you won’t see much construction anytime soon.

The Manhattan office market is so hot right now. What is the nature of the flight to quality that is happening at such a late stage in the city’s recovery from COVID?

About two, to two and a half years ago, our previous mayor, Eric Adams, said he did not see any hope for offices, right? People were choosing to work from home, and things were not going to change anytime soon.

What has happened in the last year or two? Sixteen thousand apartments are being converted from office. Probably somewhere between 15 to 20 million square feet and about 5 percent of total office inventory downtown got converted. You had 20 to 22 percent office vacancy after COVID — anywhere between 60 to 80 million square feet. 

Would you say there’s a level of uncertainty around artificial intelligence and office leasing?

Based on our experience, yes, for sure there is uncertainty. But it’s how much of it can be tolerated. Same as how much we were able to tolerate the change in coworking or the dot-com bust. These things come and go. Some of it stays.

I would probably venture to say that we’re somewhere around 2 percent, and will never be over 3 percent, exposed to AI in our office tenant base. So we take a risk, because we don’t want to be behind the market — but, at the same time, we don’t want to put too many eggs in one basket. But I like the business of AI. The world of technology is shifting toward AI. Everybody has great ideas. The good thing about AI is you really don’t need to have much money raised. So the runway is who you are. What’s your idea? How many customers do you have that can use your product so you can build it and pay the rent?

The growth in office is nothing short of remarkable.

How are you incorporating AI?

When you build, it takes months to coordinate with the architect, the designer and the engineers. There are AI companies that take your plans and they give it to you in 45 minutes. 

Are you using any programs like that?

No. But we’re looking. My niece is working for one of those companies. Just listening to their story, I said, “Impossible.” But, honestly, they know what they are talking about. I don’t know if, after 45 minutes, I’m going to start building. I am not sure. I need to get a second opinion. But the story is very compelling because right now the architect doesn’t know where the electrical engineer puts the electrical closet. There are a lot of things involved. 

How are construction costs affecting your plans?

With the labor, obviously, people who are doing 99 units or less are laughing all the way to the bank. It’s good for a father-and-son company that does nothing but small projects. But, for us, that size is not efficient. 

On material, I think everything is sort of workable. If we are shifting to U.S.-made goods because of the tariffs, there are a few things that have to come mainly from outside. One of them is steel and a lot of facade glass. Steel is expensive. Very expensive.

I don’t think the U.S. steel makers can supply all that is needed for roads, and infrastructure, or huge construction needs once things start moving. With the current government, I don’t think they’re done. At one point, we need to stabilize. But I wouldn’t buy steel unless I really had to.

What are you seeing in the Midtown retail market in the last couple of months? Is momentum still as strong as it has been in recent years? How are asking rents shifting?

Back to brick and mortar is huge. I know Amazon’s doing well, but I also think that people are coming back, not only in New York but all over the country. The people that bought shopping malls for cheap are doing very, very well.

Retail in general is doing better. We’re doing better. I don’t have any vacant inventory. I don’t have an A or A-minus location. If you told me to empty out my retail and re-rent it today, I might get 15 to 20 percent more, but I’m not interested. 

I think the biggest growth in retail is in health and beauty and education. People are in pursuit of learning more. One of the things that people want to do other than work is learn a new language, learn photography, learn to cook. For the most part, schools need space. The other segment is tech and AI.  I would say a little more than half of our deals are in these segments.

Did you feel the same kind of passion for your work when you were in fashion?

Yes. I could be at an event and see a lady wearing a very nice dress 10 years ago, and, if you ask me what she was wearing that day, I will tell you exactly what she was wearing. I always remember a good outfit. 

I loved what I did — there was just a little too much wining and dining in that business. 

Mark Hallum can be reached at mhallum@commercialobserver.com.