Jeff Gural On Resi-to-Office Conversions: Government Has to Make The Numbers Work

In addition to serving as Chairman of GFP Real Estate and as a member of REBNY’s Executive Committee, Jeffrey Gural was appointed to chair the Public Buildings Reform Board, an agency dedicated to shrinking government spending by reducing the amount of property owned or leased by the federal government, by President Biden in November 2022.

During a recent conversation with Tad O’Connor, Partner and Co-Chair of the Real Estate Litigation practice at Kasowitz Benson Torres LLP, Gural told O’Connor he was surprised by what he discovered during his regular trips to Washington DC for the board.

“I had no idea there’d be so much excess property that the government has,” said Gural, “because the number of federal employees coming back has been very low.”

Gural spoke to O’Connor for the latest installment of an executive video series hosted by Kasowitz Benson Torres and produced with Commercial Observer.

He said that when he enters government buildings for meetings, the buildings are close to empty, reinforcing the need to consolidate space.

“Our goal is to make a report next December to the legislature with recommendations for what properties they can dispose of,” said Gural. “At the same time, the GSA (General Services Administration) is doing something similar. So we’re trying to work together.”

Given the beauracratic nature of the endeavor, Gural notes that in addition to his real estate advisory, there are deeply political considerations to his work for the board.

“If we go into a small city and tell the GSA they should move the federal government out of a building, a particular landlord [could] reach out to [their] congressman and say, ‘Do you know what they’re doing? They’re wiping me out. It’s so important to the city,’” said Gural. “So there are a lot of moving parts.”

Pivoting to Gural’s involvement in the Flatiron Building’s office-to-residential conversion, Gural notes that while the building looks great from the outside, the interior clearly needs extensive renovations.

Gural then discussed both the promise and the challenges of the city’s hoped-for conversion wave to come.

“After 9/11, a lot of Wall Street companies moved to Midtown, and that created an oversupply of older Class B office buildings,” said Gural. “The government did a smart thing and came up with a tax incentive plan which made the numbers work. It was a good move on the part of the city. Now, interest rates are double what they were back then. So with a high interest rate environment and higher construction costs, they’re going to have to make the numbers work.”

O’Connor ended the discussion by asking Gural his thoughts on the industry’s fortunes for 2024 in light of a challenging 2023.

Gural replied that he can’t foresee an easier 2024 for most due to an increased volume of loans coming due next year, but that some will, as always, make the best of it.

“You’re seeing big companies like Goldman Sachs and Blackstone putting together distressed real estate funds,” said Gural. “My guess is, they’re going to make a fortune.”