Interviews Eric M. Gural, Principal of GFP Real Estate.

0:00 Speaker 1 Good morning. This is Michael Stola for the Stolar Real Estate Report on the Cats round Table this morning. I have one of the leading owners of office buildings in New York City, a company who’s been around close to seventy five years, a third generation company. I have Eric Garraw, who’s a principal at GFP real Estate. Thanks for being here,

0:19 Thanks for having me, Michael. So, how many buildings do you have in New York City today? It’s about fifty five. Representing how many square feeding.

0:28 Speaker 2 It’s about eleven million feet.

0:29 Speaker 1 Now you and how are they broken down? You have a large number in the nonprofit world.

0:34 Speaker 2 Right We’re the largest privately held landlord of nonprofit tenants. So privately held meaning you wouldn’t includ schools, it wouldn’t include the sort of the city agencies. But in terms of the amount of actually nonprofit tenants, we have more nonprofit tenants by square footage than anyone else in New York City.

0:50 Speaker 1 I’m proud of that. You should be because besides nonprofit, you’re a very charitable organization. I know that. Also, it’s registered all the time, starts its top, no question about that. So what’s really happening in the office market. You know, you hear certain things in the press, you read it in each each and every day there is a different

1:09 comment what’s really happening? So I think a couple of things. I think.

1:13 Speaker 2 I think one of the things I’m want to start with is sort of what are the things that people are reading, which is basically the statistical analysis, most of which is basically put together by the large brokerage companies. Now, the large brokerage companies generally they only study sort of leasing transactions above ten thousand feet. However, a large majority

1:30 of the tenants in New York City probably some people think seventy five percent are under the ten thousand feet. So you’re basically getting this data and statistics based on only a smaller part of the market. Maybe by square footage per tenant it might be large, but in terms of total tenants, there’s more total tenants under ten thousand feet,

1:45 which means that statistics aren’t measuring any of their data. So I think some of the data has to be flawed. So maybe Mark Twain is right about statistics. So I think, if they’re not measuring what most of the people are doing, how do we know that we’re getting a positive outcome.

1:57 So I think the other thing we’re doing we’re seeing is people are studying these statistics around how many swipes of access cards are people coming into the building. So one of the questions is if I come in on Monday and Wednesday and you come in on Tuesday and Thursday, does that mean one person came in that week? Or

2:11 does that mean two people came in that week? Those things aren’t being studied as closely. The other part of it is people think that the denominator when they say, say fifty five percent of people are coming in is one hundred percent, and I don’t think that’s true. I think most companies would tell you that the a typical

2:25 day throughout the year, non holidays, that there’s more like an eighty five percent of the people are actually in the office. So when they say fifty five percent, it’s really not fifty five percent over one hundred, it’s fifty five percent over eighty five. So I don’t think the statistics are really telling the story.

2:39 Speaker 1 So why don’t the statistics provide the accurate information?

2:44 Speaker 2 I just think that I understand why the large brokers firms they only want to study the larger transactions because those are the ones they do most of and those are the ones they’re really chasing. That makes sense to me.

2:52 What it doesn’t happen is the landlords don’t get together and put together their own statistics just because no one organizes us to do so, and there’s really no reason for us to do so. But I think if you look some of the other statistics around the MTA, around the buses, around the trains, around people paying the tolls

3:06 at the tunnels and bridges, I think a lot of those numbers are back up closer to where they wear pre COVID, which means people are again and enjoying the city and coming in, you know, to do all the things that make New York great.

3:16 Speaker 1 Why do you believe the number is of the people coming into your buildings? What percentage?

3:22 Speaker 2 I think the percentage I think the percentage we used track similar to what they they report through castle in like the fifty five percent. Number. But I can tell you like some of the things that that we look at is how many actual people differentiating where if you and I came in on different days, that would count as too, So those numbers are actually

3:42 a little higher. And what everyone’s saying about Monday and Friday is right, We agree that that Monday’s light, Friday’s lighter, and the middle of the week is definitely sort of more so.

3:51 Speaker 1 Wednesday’s big, the big day including the shows.

3:54 Speaker 2 Yeah, now that’s that’s the more popular today, right, Wednesday suddenly became important. Right, it had that hump day thing for so long. It’s finally something else.

4:01 Speaker 1 What do you see with regard to rents today for your buildings?

4:06 Speaker 2 Yeah, so the rents have come down somewhat, but I realized they’re coming off their highs, right, So if you go back to pre COVID, those are the highest rents that New York has ever gotten. So yeah, look to think, things swing and things shift and things bounced, So we’re coming off those highs. So percentage wise, it looks like

4:20 a lot. But if you go back ten years ago, right, ten years ago, we were coming a couple of years out of sort of the recession in eight o nine. Ten years ago twenty thirteen, the rents had just started to rise then from those sort of recession rents. So if you compare them to ten years ago, they’re very

4:35 similar to what they were ten years ago. So you know, we survived ten years ago, we think what will survive again. I think the key piece that we always talk about is where does the office or any collaborative place work in the chain of productivity. So, if you think about all the companies that want to be productive, how do

4:52 they find their peak productivity? And for years, and there’s a lot of evidence to this, collaborative environments have been the thing that done it. So if you think about the things you use, the things you see, the things you touch, almost every single one of those things was created in a collaborative environment, whether it be an office

5:05 or a lab or thought of in an academic institution. We’re not the typewriter. We weren’t replaced by something better. What we’ve seen basically is all of these things were made in these environments which included people being together. So until that becomes not the best way to be productive, we think that we’ll sort of get back to where

5:24 we were at the same time. Look, the labor markets are super strong, and what COVID created was almost like a labor event. You know, we’ve been watching the news with the auto workers and it’s almost the same kind of thing where where people were allowed to work from home, working from home wasn’t new.

5:37 Speaker 1 It was old.

5:38 Speaker 2 It’s just your employer allowing you to do it was new. Now we’re having a hard time getting convincing people to come back. But if they can convince us they’re just as productive doing what they’re doing, I think companies were accepted, but if they can’t convince us that they’re just as productive and being together is going to be more productive,

5:51 I think some companies will lean that way.

5:53 Speaker 1 Let’s talk about the conversion of office buildings to residential, which I know you’re quite active then.

5:59 Speaker 2 Right, So what I think is, I think you have to have the incentives to be on the seller side, not the buyer side. I think. The sellers are the people who’ve owned the buildings. Over the last few years, we’ve lost every round of a fifteen round fight. We’re lying on the mat right and our noses bleeding in our jaw hurts. We’ve had a

6:20 really hard time. You know, you talk about those nonprofits we had, but we had to help all those nonprofits and we had to watch those people and make sure that all the good they do they can still do.

6:30 So everyone had to take cuts, right. We had laws that gave people the opportunity not to pay the rent. I understood who they were trying to protect, but unfortunately they protected more people than needed it. So asking us now to sort of take these major commitments financially to put it into their buildings to convert, it’s not something

6:46 that we’re in a position to do. If you would have asked us to do this in twenty nineteen, you would have had a lot of takers. But asking us to do it in twenty twenty three, you’re not going to have as many takers. So you need an incentive on the seller side. So if the sellers are incentivized,

6:58 what will happen is then the rices could go down, right because if your net taxes are going to I’m sorry if with taxes, if you’re gonna net out more than you would have netted out before. In theory, you can sell the property for less. If you sell the property for less, the new developer can actually create more

7:12 affordable housing because they’re paying less for the property. So I think incentivizing the sellers I think makes the most sense. And especially if you need affordable which is definitely what you know we need in this city, I think those things work together.

7:22 Speaker 1 So let’s specifically talk about the projects you’re planning for downtown.

7:29 Speaker 2 Right, So, everyone you know saw the Flatterron in the news that We’ve been in the news a lot. It’s been an interesting story, you know. I think it would be a fantastic place to live. I’m really excited about it.

7:38 Speaker 1 And that’s gonna be all condos.

7:39 Speaker 2 It’s gonna be all condos as the plan Now. Obviously we’ve partnered with with with the Brotzky’s. We’re very happy with that. Those guys are sort of more experts than we are. We thought about it in terms of this sort of like Macro New York living thing. Right, if you said to anyone, and I mean anyone, hey, do

7:55 you want to come check out my apartment in the Flatterron building? Is anyone going to say no? We think that’ll be the most compelling place to live. We think it’s an amazing area. There are certain things that a lot of people don’t know about it, because if you think about it, almost no one has been in that

8:10 building for the last twenty five years other than McMillan, right, right, other those guys. And it was amazing when they left the amount of books and the fantastic stuff that they’ve had in that building. I wish those walls could talk, because the stories they would tell about the people that were in there are fascinating. But so many people sit

8:24 outside on the north side and take pictures of it. It’s the second most photographic building in the world, but no one’s ever been in it. So the opportunity to be in it is going to be fantastic. But what people don’t know is the views in that building are fantastic.

8:36 All the buildings that run to the west are small, most of the things run to the south are small. There’s one building on the east side, there’s an apartment building across the street otherwise, and the view north you know, through the park up Fifth and broadway’s spectacular. So I think it’s one of those things where it’s very well located,

8:50 unlike some other buildings. The views are spectacular and look, it’s one of the most unique and profoundly popular buildings in the world.

8:57 Speaker 1 Well. With regard to the mayor’s plan for the city of Yes, what’s your initial ideas? I like it.

9:03 Speaker 2 I think he’s got the right idea, but we all have to work together. But we can’t work if we’re stalled in a bureaucatic process, So I think he understands that. So I like the idea of, hey, we want to say yes, we want to make it easier for people to do things.

9:17 Speaker 1 You know.

9:17 Speaker 2 I think one of the struggles we’ve had is is the lack of building hurts a place where populations are growing. So as long as New York is as popular as it is and the population continues to grow, especially among young people, we need to build more places for them to live and work.

9:29 Speaker 1 Right now.

9:30 Speaker 2 The working thing is not something we’re going to build more if we have plenty of that, but we need to build more places for them to live. And the words yes of what we need to hear more than the word no.

9:37 Speaker 1 What about financing of office building struggle?

9:40 Speaker 2 Definitely a struggle. So you know, this is going to be a hard time for us. We had a good run. Everyone’s going to have to, like, you know, sort of buckle their seatbelts and realize that this is going to be difficult for us to do this. At the same time, if you buy into new office product when when rates

9:57 are high, the only way the rates are going to to go is down right, which is something you don’t have. You don’t have to pay for. So the reality is like, if you think about what the right time to buy into a deal is, what my grandfather would have said is environments like today, because there’s more likely a chance

10:13 in the next five years that office rates will been sorry, that interest rates will be lower than higher, and that’s not a benefit you have to pay for.

10:20 Speaker 1 So he would like that.

10:21 Speaker 2 I think you’re going to see partnerships among people who are going to get together in these buildings, will get fresh capital from other not necessarily lenders, but other investors who realize that, hey, look, it’s going to be a survival of the fittest. And what happens in a survival of the fittest is that coal supply. Like we’ve had

10:37 other supply constricting events in New York City nine to eleven. Obviously one of them. The second one was they changed that the zoning in Chelsea in Midtown South where they allowed residential and there were a lot of B buildings that were converted then, and the real estate commercial market went up after that because supply went down. So as

10:52 you go through this sort of survival of the fittest, there’s gonna be some people aren’t going to make it, which is going to make the supply of commercial office shrink a little bit.

10:58 Speaker 1 So I think with three to the late Sam Zell, the Grave Dancer would be very happy and probably be very active at this time to buy properties. And I really think that you’ve been very influential, you and your company and the third generation to your father and your cousin with regard to helping New York City. And I’d

11:16 like to thank Eric Garral for being on the show today. See you next week.