Interviews Dan Marks, CEO, TERRACRG

0:00 Speaker 1 Good morning. This is Mike Still at the Stolar Real Estate Report. It’s Brooklyn, it’s active, It’s Coney Island, it’s East New York, it’s Crown Heights. It’s growing each and every day. I grew up there. I love Brooklyn, and today I have the man who has missed to Brooklyn.

0:15 I have Dan Marx, who’s the CEO of Terrorist CRG. Thanks for being here.

0:20 Speaker 2 Mike, It’s always a pleasure. Thank you for having MEU.

0:22 Speaker 1 So what’s happening really in Brooklyn?

0:24 Speaker 2 There’s a lot to talk about.

0:25 Speaker 3 I know we only have ten minutes, so we’re going to try to hit the high points and hopefully if anyone has more questions they’ll reach out to me. But thank you again for having me on the show. It’s always a pleasure and honored to share the mic with you.

0:34 So what’s happening in Brooklyn? I think it’s important we take just a quick step back. We’re at the end of the first quarter. Terror CRG just released our first quarter report today, but I think we should look back at how to two thousand and twenty four perform.

0:47 Speaker 1 Right because twenty twenty three was a nightmare.

0:51 Speaker 3 Yeah, it was a down year for sure, it was a five point two billion dollar a year in the Brooklyn market.

0:55 Speaker 2 We had a tremendous comeback.

0:56 Speaker 3 From a dollar volume standpoint, we were up significantly all the way up to almost eight billion dollars in deals in the year. However, that doesn’t tell the full story. The transaction volume was actually only up a little bit, so the Brooklyn market still was humming throughout these last couple of years. The reason we saw such a big

1:16 pop in dollar volume was because there was a lot of very notable, high dollar distress deals that actually led the way.

1:24 Speaker 1 Why didn’t you explain the distress deals for my audience?

1:28 Speaker 3 Well, I think most notably the Brooklyn Tower in downtown Brooklyn. That was a JDS deal that was absolutely incredible property. Unfortunately, the timing for them just didn’t work out. Silverstein, who was the lender on that, ended up taking that property back.

1:44 So that was the largest deal. The largest deal of the year actually wasn’t a distressed deal. Camber actually purchased a very large portfolio of affordable properties down out in East New York for over eight hundred million dollars, which for the Brooklyn market is absolutely a tremendously huge deal.

2:01 Speaker 1 What else is happening.

2:03 Speaker 3 Well, forty five X passed, which was a benefit to the entire city at the beginning of twenty twenty four, City of Yes pass At the end of twenty twenty four, we had interest rate cuts, We had an election that we all remember very well that we got passed. So twenty twenty four had a lot of momentum at the end.

2:18 Speaker 1 Now, do you think the for eighty five X is going to be valuable in Brooklyn?

2:23 Speaker 3 Yes, I think it’ll be more valuable in Brooklyn than it will be in Manhattan, mostly because Brooklyn. While there are a lot of large developments that happen in Brooklyn, the Brooklyn market is primarily a small to medium sized development market, meaning less.

2:35 Speaker 2 Than one hundred units.

2:36 Speaker 3 With forty five X, if you build more than one hundred units, you have to pay what’s called prevailing wage, which is a very expensive addition to your regular construction costs. If you keep it below one hundred units, you are not required to pay that prevailing wage and you pay whatever the market is bearing. So our expectation is that

2:52 Brooklyn is going to have a very active development market this year. We may just not see the record breaking headline and leading development deals. That are that were accustomed to seeing a couple of hundred million dollars deals a year.

3:05 Speaker 1 Let’s talk abi about the pro Logics deal, the industrial project.

3:09 Speaker 3 Sure, so, we had the pleasure and honor of working with exclusively for Exon Mobile, one of the largest companies in the world, when they wanted to sell their asset in Brooklyn. Thankfully, they came to us and hired us to work on that. Prologist closed on this deal at four ten kings On Avenue in green Point. It’s a

3:26 ten acre site for one hundred and twenty million dollars. Just at the end of last year. That was the largest industrial land sale in New York City.

3:33 Speaker 1 Now, what is Prologics going to do with the property.

3:35 Speaker 3 They haven’t announced publicly, but typically what they do is when they buy these properties, they developed them.

3:39 Speaker 2 They developed them into.

3:40 Speaker 3 Generally, you know, industrial uses, mostly last mile logistics. What we need to keep a close eye on in the market is that both the city and the state have been talking and it was in part of the City of yes documents about limiting last mile distribution warehousing and requiring special permits to do so. Another way of saying

4:01 you have to go through a EULURP in order to be able to build.

4:02 Speaker 2 Stuff like that.

4:04 Speaker 3 That’s still in its early stages, but something that we’re keeping very close tabs on. But the industrial market has been very strong since I would say twenty seventeen. Twenty eighteen took a very small blip because of the pandemic like every other asset last but then came back very strong.

4:20 Speaker 2 Over the last few years.

4:21 Speaker 3 Most of the big sites have been spoken for, so we’re not going to see a lot of big industrial trades this year.

4:26 Speaker 1 What about the Crown Heights rezoning.

4:30 Speaker 3 Crown Heights rezoning is similar to what we saw in Guanas. Guanas rizoning happened in twenty twenty one after a ten year community discussion and you know back and forth between the politicians and the community members.

4:41 Speaker 2 Crown Heights is right.

4:43 Speaker 3 At the tail end of their official EULURP or rezoning process.

4:46 Speaker 1 And what will the rezoning do.

4:48 Speaker 3 Well, it’s going to take an M zoned area and manufacturing or industrial zoned area and allow residential development there along with different commercial uses. So our expectation is that, you know, Crown Heights is basically going to be a copy and paste of the incredible growth that we’ve seen in Guanas over the last few years. And if you

5:05 go if you walk through the Guanas neighborhood today and you haven’t been there in a few years, you wouldn’t believe it. The amount of development that’s up, the buildings that are open, the retailers that are coming. The neighborhood is completely transformed, and it’s adding thousands of both market and affordable rate units to a market that is so

5:23 desperately needs them. I was at a panel discussion last week and Melissa Birch from the EDC gave a presentation, and one of the things she talked about was that of all the metro areas in the United States, New York was number one as far as growth from twenty twenty three to twenty twenty four, with over two hundred

5:40 thousand new residents coming in number one of all metro areas. So people are still coming and the development is not happening fast enough to keep up with the pace. So we’re still expecting rents to continue to climb up until we can find ways to build more housing.

5:52 Speaker 1 What’s happening with the office market.

5:54 Speaker 3 Office market is still struggling However, you know, we still hope that because of the back to office movement that we’re seeing across the board federally, locally private businesses, that hopefully that’s going to continue to drive people back into the office and create more demand for the office space.

6:11 But there’s there are still millions of square feet of vacant office space in Brooklyn in great neighborhoods, tertiary secondary Brooklyn markets tend to do very well because people don’t necessarily want to commute that far, so they’ll the office.

6:24 You know, products in like South Brooklyn or Central Brooklyn tend to do very well. But unfortunately, when you look at our top ten list or our top five lists within that asset class last year and again in our first quarter report this year, you’re still seeing plenty of distress at the top of that list.

6:38 Speaker 1 What’s happening in the hospitality the hotel industry, it’s very quiet.

6:42 Speaker 3 There was a hotel trade that happened this year that made the number ten on our top ten list. Because of the special permit requirements that were passed when Delasio was in office, we have seen zero new hotel development in Brooklyn let alone. I think New York city. I mean, we track only Brooklyn, but I can’t think of any

7:05 new ground up hotel development that we’ve seen in the Brooklyn market, and we don’t expect to see one anytime. So we think if you built it, they will come. We think with all of the new housing that’s can be developed, it would do very well. And I think that from speaking to people in that space. It’s doing really.

7:20 Speaker 2 Well in Brooklyn right now.

7:21 Speaker 3 Retail retail has done extremely well. It’s been one of the great success stories coming out of coming out of the pandemic. The fear of everyone just staying at home, shopping on Amazon and needing the e commerce has sort of passed, and I think people are seeking out more out of home experiences and so food and beverage has

7:41 done extremely well. Retail has done very well. Empire Realty Trust came into the Brooklyn market with a force last year. They absolutely They spent well over one hundred million dollars in Williamsburg purchasing High Street retail. And you know, you grew up in Brooklyn, you probably never thought anyone would talk to about Williamsburg retail is.

7:59 Speaker 1 High grew up in Coney Island, so you know, I’m in a resurgence area. Yeah, what’s what’s happening in Coney Island.

8:07 Speaker 2 Well, I think all eyes are on.

8:08 Speaker 3 If the if, if the casino bid is going to be one down there by by Joe sittin thor not sure, you know, I’m not sure where people are placing those bets. I personally think it’s a wonderful idea. I think that that is such a It’s America’s playground. It’s a wonderful place for people to gather. Uh, you’re right there on

8:24 the water. There’s been a lot of new development. The EEC has two RFPs out right now to encourage more development along the boardwalk there, and there’s been a lot of new housing development built down there over the past you know, five years, just alone.

8:39 Speaker 1 So where do you see the opportunities for an investor in Brooklyn?

8:43 Speaker 3 Well, I think they’re all over the place. And then they’re all they’re within all the asset classes. You know. I think the thing that we are really focusing on this year is, you know, city council is is coming.

8:54 You know, there’s a lot of city council races up. There’s the Mayor’s race that’s coming up, and policy is is such an important and driver on how our market and.

9:01 Speaker 1 What about tariffs? What effect that are they going to have?

9:04 Speaker 3 Fun Brooklyn, We’re already hearing from clients calling us worried about it because their products are costing more. They think it’s going to really impact their business. So either they’re going to downsize or sell if they’re at the late stages of their career. Anyways, this may be the straw that breaks that camel’s back. But the reality is, if

9:19 the cost of goods gets more expensive, it’s going to cost more to build. We’re going to have to change our underwriting assumptions on our development analysis.

9:25 Speaker 2 I mean, the numbers will absolutely shift.

9:28 Speaker 3 It’s too soon to tell if these tariffs are you know, they’re sort of stopping go, so we don’t People don’t exactly know when. This sort of uncertainty is always not good for us in the transactional market.

9:38 Speaker 2 But we’ll see.

9:39 Speaker 3 But the point I want to make here is that the twenty nineteen rent laws that are still in effect are being felt severely by rent stabilized property owners, and we’re seeing people losing tremendous value, not fixing their apartments, not making capital improvements to their buildings, and we’re seeing that side of the market really struggling.

9:57 Speaker 1 One last question, what’s happening with the Navy ord The Navy.

10:00 Speaker 2 Yard thing is doing really well.

10:02 Speaker 3 You’ve got the Wegmans opened up there a few years ago. Steiner Studios is still doing very well. They’re they’re even doing some expansion there. That area, you know, is continuing to grow. We’re seeing some of the large sites in that area going through some private rezoning discussions and so, you know, I’m a.

10:21 Speaker 2 Big fan of that. Our offices are very close to there.

10:23 Speaker 3 You know, my partner and chairman of or For Cohen has been on the board of the Navy Yard for many years and they’re doing just incredible work along with you know, their their sort of cousin down at Industry City.

10:34 We’re seeing tremendous amount of growth for new businesses in those areas.

10:36 Speaker 1 So I think that we’re going to see a lot of growth. I’m happy that Dan Marks, who just completed his one year anniversary being the CEO of Terra City g has come to my show and I’ll see you next week anytime. Thank you.