Interviews Michael Cohen, Tri-State President, Colliers International

0:00 Speaker 1 Good morning. This is the Stolar Real Estate Report on the CATS Roundtable. What’s really happening in the office market and are there are there investment sales taking place? What’s the status that we work, what’s the status of conversion versit of office to residential. There are numerous topics to discuss.

0:17 So I brought together this morning the CEO, president and CEO of Hollyuson International, Michael Cohne, who is also a principal at Williams Real Estate William Sequites or is.

0:32 Speaker 2 It william Sackuck?

0:33 Speaker 1 Okay, thank you, So let’s talk about it. You’re an owner and a broker, so you have both sides of the coins. Which one do you want to talk about first?

0:42 Speaker 2 Well, let’s start with my broker’s side of the coin.

0:45 Speaker 1 Okay, So tell me what’s going on in the brokerage business.

0:49 Speaker 2 So we’re experiencing a surplus of office space. I know there’s been a lot of talk about, you know, the market tightening, the A market, and the A market is doing much better than other sectors of the market. But we are rapidly inching our way towards one hundred million square feet of available space on the island of Manhattan,

1:13 which would be an all time high in my career of over forty years. It’s not evenly distributed. Some of the availability rates, for example, on Park Avenue north of forty sixth Street, or really north of two hundred Park.

1:30 Speaker 1 Avenue.

1:31 Speaker 2 The America’s other sectors of the market are sporting availability rates just like the good old times, ten percent, a little bit more, eleven a little bit less.

1:41 Speaker 1 But those are limited to certain neighborhoods.

1:44 Speaker 2 Absolutely certain neighborhoods, and certain quality product. So some of the market is faring better than others. If you’re on Third Avenue or Broadway or Park Avenue south of two hundred Park, your availability rate could be approaching twenty percent or more. And then there’s downtown. We don’t have to talk about downtown today, do we.

2:04 Speaker 1 Let’s talk a little bit, because downtown is a part of the city, and downtown always has the problems during the worst of times.

2:12 Speaker 2 Well, every time I think that downtown has reinvented itself, live, work, play and it’s going to find a new equilibrium, the fates seem to work against it in downtown.

2:25 Speaker 1 So why don’t tenants say to themselves, I can save money, I can have tax and send this if I go town downtown and they want to stay in Midtown instead.

2:34 Speaker 2 You know, that’s a great question. I really thought as we approached the end of the twenty twenty teens that downtown was going to become the bargain haven for the cost conscious tenant, the way Midtown South was in the eighties and nineties. I literally said, Downtown is going to be the Midtown South of the twenty first century. And

2:56 that may yet prove to be true. I’m just not sure I’m going to live to see it. There’s twenty percent vacancy rates along all product classes, whether it’s old or new. I think, of course the brand new buildings the Trade Center and the Brookfield Place are doing better than some of the older buildings along Water Street. But

3:19 whether you’re a big tenant, a small tenant, or a medium sized tenant, you have plenty of choices.

3:24 Speaker 1 So you have great alternatives if you want to go downtown. Absolutely, So let’s talk about Midtown South that you brought up in that you have some properties in.

3:34 Speaker 2 So Midtown South is in some ways the poster child. I’ll put on another hat, Michael my hat as the chairman of the twenty third Street. Sorry, the flatirron nomad bid. And I’ll be a booster and say we consider our part of town around Madison Square Park, Midtown South, north of Union Square to be exemplary in that it embodies

4:01 live work play. We have big companies, small companies, startups, household names like IBM, retailers like home Depot. It’s a fabulous market. And while there is space available in that market, it would be hard not to say that it’s a thriving market. But throughout Midtown South there are some big holes that need to be filled, you know.

4:25 Speaker 1 As far what about One Madison.

4:27 Speaker 2 One Madison has done very well. It’s home to IBM and Franklin Templeton. It’s brand new product with great amenities and outdoor space, and you know, it’s a tad cheaper, shall we say, then some of the pricing we see over at the Hudson Yards and in many ways just as desirable, if not more so so. And it really

4:48 anchors that flat iron nomad neighborhood.

4:51 Speaker 1 Terrific, terrific. Well, let’s talk a little bit Penn Station and the huts and yards. What’s your thoughts about the office market over there?

5:00 Speaker 2 So you know, The interesting irony, Michael is, if you’d asked me twenty years ago, I would have said that Penn Station would be the source of gentrification and the development of that neighborhood would move from Penn Station to the west. But as luck would have it, the development of huts and Yards turned that theory on its head

5:24 and the development really moved from the west to the east. And now Penn Station, in the hands of Barnado, is really catching up with the magnificent buildings that were built at Hudson Yards. And the Wornado has done a great job with one excuse me, PEN one, the former one pen Plaza, and following suit with Pen two, the former

5:46 two pen Plaza. It’s a product that’s as splendid as anything in the huts and Yards, with full of amenities and sitting right on top of a transportation hub, and they started chipping away at the available space. I think it’ll do very nicely.

6:01 Speaker 1 What’s happening in the garment zone, So the.

6:06 Speaker 2 Garment center, if we’re talking about the buildings, let’s say between Broadway and Tenth Avenue in the West thirties, the garment center is having a tough time, and I think that it’s there that’s one of the softest parkeets in the pockets in the city. We’re starting to see rents that remind me of the early twenty first century rents

6:30 with a three in front of them. A lot of talk about whether these buildings can be converted to residential, a lot of talk about whether the Midtown South zoning will apply to this pocket of Midtown South the whole city of Yes, encouraging rethinking of certain parts of the city, certainly applies to the Garment Center, and I’m hopeful that

6:55 we’ll see some kind of a recovery there thanks to the changes in zoning and the redeployment of some of these properties from office, manufacturing, showroom to some other uses.

7:10 Speaker 1 Let’s talk about we Working. The co working.

7:14 Speaker 2 Very interesting. As we Work emerges from their bankruptcy in what appears to be a successful certainly they’re going to give it a go. I think there are three lessons that we learned from the we Work chapter and the coworking industry. The first is that the so called enterprise model where we Work and others of their competitors and Hotel,

7:37 which was a client of mine for many years, the enterprise model where they would lease large space outfit it. Look for a large company that wanted to house fifty one hundred people for a year or two or maybe six months. That model is too lumpy, it’s too volatile if you’re the provider, the we Work or the hotel,

7:58 and you suffer a vacancy if a space says vacant for six months or a year, even though you rent it at a large premium, when you do, you can never catch up with the downtime. Really for spaces that large landlords are, property owners are really the right source of that kind of place.

8:17 Speaker 1 So the property owners today are running their own we Work off the shirt.

8:21 Speaker 2 Some are, but in many cases, as we Work emerged from bankruptcy and some of their competitors downsized, these enterprise spaces were given back to the property owners and they now have them nicely fitted out. Some of them have signed up tenants for long term, some for short term.

8:38 The space the improvements were actually helpful, but it’s not part of the we Work offering or its competitors anymore. The second, the second lesson that we learned from we Work is that what works best where the demand really is is from smaller tenants the ones season twosies. The office suite model, certainly IWG and its brands, Regius Signature, HQ,

9:04 they’re the king of that space, and the spaces that we work will keep coming out of bankruptcy. And some of the competition as well, are all now modeled after the original office suite model, with offices not much larger than the broadcast booth we’re in now housing one to three or four people. And this model is much more

9:30 secure financially because you can’t get that badly hurt. A couple of suites go in, a couple go out. Eighty percent occupancy is profitable and that’s why the model work.

9:42 Speaker 1 Last question with regard to the conversion of office to residential, what do you see happening?

9:48 Speaker 2 I see a lot of a large pipeline. Some of the buildings need to get carved up like Thanksgiving turkeys. Some buildings can work without lot of reconfiguration. But a lot of smart money is starting to target the conversion from office to residential. And once upon a time it was confined to the financial district, to the Fiday, but

10:11 I think now we’re going to see it throughout Manhattan, and I think there are a lot of good candidates on Third Avenue, in the Flat Iron and elsewhere, and I think that at the end of the day is going to help us in a very important way chip away at that one hundred million square feet of available space.

10:31 Speaker 1 So how do you look at the end of the year, what’s the office market going to look like?

10:35 Speaker 2 Well, I think we’re kind of bumping along the bottom right now. I’m not an advocate. I don’t believe in the recoveries around the corner, nor do I believe that things are going to get worse before they get better.

10:48 I think this is the classic bottom of the cicular sign curve and we’re going to be here for a little while.

10:54 Speaker 1 I’d like to thank Michael Combe for being here today and I’ll see you next week.