Friedman LLP's Real Estate Practice held its annual New York Real Estate Forum, featuring a look at "The Next 10 Years." Michael Stoler, President of New York Real Estate TV LLC and is a Managing Director at Madison Realty Capital moderated discussions with top industry experts.
One-on-One Industry Perspectives with Steve Witkoff
The morning began with Michael Stoler's one-on-one discussion with Steve Witkoff, Chairman and principal shareholder of The Witkoff Group, a privately held company that owns and operates real estate nationwide. 2013 was a good year for the Witkoff Group, though Steve "wishes they would have been more active. New York City is a very strong marketplace and is a safe haven for a lot of foreign capital."
2013 brought a lot of activity for The Witkoff Group in Manhattan's Downtown market, with the acquisition and development of multiple properties, including 22 Ames, 101 Murray, 150 Charles and 10 Madison Square Park West. The Witkoff Group also recently acquired the Helmsley Park Lane Hotel, located at 36 Central Park South. When looking at these properties, Steve "always buys optionality - this building could have also been a condo, office space or a rental building."
Additionally, Steve is seeing a lot of activity in the Times Square area, where his firm is currently working on 701 7th Avenue - the first new retail build in Times Square in years, and the development Marriott's new Edition Hotel. With occupancy rates at 97% for the area, Steve predicts that this hotel will be a winner for the Marriott chain.
He also predicts that the Hudson Yards area will "be incredible", Harlem and Washington Heights will continue their renaissance, and we'll start to see more movement in Midtown South, since many tech firms are looking for the type of space that area can provide.
Steve attributes a large part of his success to his relationships with bankers, making financing for the Witkoff Group's properties a much easier process. He's seen a lot of road blocks, however, with the legislation resulting from Dodd-Frank Act. "I couldn't start the business today as I did in 1986 - the transmission lines for debt are clogged." Despite this, he feels optimistic about the incoming Mayor, and the future for real estate in New York City.
Panel: The State of Real Estate and The Road Ahead
Following the one-on-one, Michael moderated a panel of six real estate experts: Peter D'Arcy, Regional President of M&T Bank; Melissa Farrell, Managing Director of Prudential Mortgage Capital Company; Scott Galin, President, Partner and CEO of Handler Real Estate Organization; Joseph A. McMillan, Jr., Chairman and CEO of DDG; Jason Muss, Principal of Muss Development; and Will Obeid, Founder, President and CEO of Gemini Real Estate Advisors, Gemini Hospitality Management and Jade Hotels.
The panel began with discussion around the industry's challenges; Peter commented that it's "definitely more challenging to make loans in the market today." Joseph agreed, "Developing is a challenging business. People underestimate what needs to be done to execute correctly. You're not just building a building - there's coordination, balance sheets and partners to consider as well."
Will experienced this first-hand during the development of his Jade Hotel at 52 West 13th Street. "We closed on the property in 2008, thinking we would go into construction in 6 months. With the recession, that didn't happen and we had to wait until 2012 to get the loan from M&T and complete the project. We made an effort to make the hotel be part of the neighborhood; the industry is evolving - there's less emphasis on major brands because people are looking for smaller, independent boutique hotels." Currently, Will is in development of another Jade Hotel in Bryant Park.
Jason has seen the office space market get stronger over the last couple of years. "People are looking for full floors, but not 30,000 square feet of space." He also has seen many business owners lock down rates while they're still low, and landlords willing not to make as much in order to lock in good renters for 10-15 years.
Brooklyn has also seen significant activity, including Muss Development's current project Marriott Brooklyn Bridge. Peter has seen a lot of requests over the last couple years for office and residential space within Brooklyn, and is looking forward to seeing where developments like the Empire Storage Development in DUMBO, the Jehovah's Witness Building and the Domino's Sugar Factory, an acquisition he financed, go and how they will impact the community.
Jason is also developing in Brooklyn; he is completing the 16th and final building for Oceana in South Brooklyn, which will have over 900 apartments. "The Brooklyn market is incredibly diverse. People don't want to be in the suburbs: we're also seeing a lot of people who are living and working there - Brooklyn is no longer a commuter city into Manhattan." Melissa agrees with the upswing of activity in Brooklyn, saying that Prudential is interested in Williamsburg.
Scott continues to see a few roadblocks with developing in Brooklyn. The configuration of retail space is typically older, smaller, and owned by non-real estate landlords. Pricing also is an issue - it is not consistent and priced several years ahead.
Up and Coming Areas
The group also agreed that the Hudson Yards area will be one to watch, and has the potential to be the next Rockefeller Center. Scott has seen a lot of development in the old garment/apparel district, which some are now calling "Times Square East". "I recently toured a 170,000 square foot property on 39th Street between 8th and 9th Avenues. 10 years ago, this was a tough area full of factories and vacancies. Now, it is home to seven hotels and office space for many tech and small businesses."
There is also some movement in Queens - with the resurgence of Austin Street and the opening of a new Crowne Plaza near JFK Airport.
Melissa has seen that people are looking for 10-20 year term money because of the rates. She is very bullish on the New York market and is willing to go off the beaten path for opportunities. In particular, Prudential is looking for hotel opportunities in primary markets, including Manhattan. Though prudential is a long-term lender that does large deals, they have also branched out with smaller deals between 15-20 million.
Though there are some issues to consider - a looming housing crisis, a rising population and aging infrastructure -- everyone agreed the outlook for 2014 looks promising. With the increase in lavish holiday parties this season, a sense of optimism for the coming of Mayor de Blasio, and the worldwide desire to live in New York City, it seems to be an ideal time for real estate growth.
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