The Stoler Report with Norman Bobrow

0:00 Speaker 1 Good morning.

0:01 Speaker 2 This is Michael Stoler for the Stolar reporting on the Cats Roundtable. My guest today is Norman Barbara, the president of Norman Barbara and Company real Estate Services and also the president of the First New York Realty Brokers LLC.

0:13 Thanks for being here, Norman. Thank you, Michael.

0:16 Speaker 1 So let’s talk about the world of leasing.

0:18 Speaker 2 You know, we’re in a difficult time with the banking world over there. How do you see the office leasing market in New York City.

0:26 Speaker 3 Well, the market is unbelievably busy because a lot of people have started working remotely, and then there are other companies that have actually merged with other companies, and there’s so many different scenarios out there where people have moved to Florida or left a firm. So in a number of cases we’ve had leases where one example is eight

0:47 O five Third Avenue, a law firm which we put in the building twenty five years ago. We just did a renewal eight years ago. We just did a new deal for them and we cut their space from thirteen thousand feet down to eight thousand feet.

1:01 Speaker 1 What about the rent?

1:02 Speaker 3 The rent, the rent was a lower rent and some concessions. Uh, but the and the landlord resented having to you know, he had about a year and a half left on the lease. But you know, he he worked it out.

1:14 He said, you know, I have to be realistic and I have to cut deals today. And basically where the tenant was saved here he’s he you know, he cut back on his rent on his square footage bayly over three thousand square feet. Other situations are you know, people have merged firms that we’ve moved two or three times

1:34 suddenly said, you know what, I’m over sixty years old and I’m going to uh cash in the chips and merge with another firm and be out of business. And we’ve had that with a number of firms, which are really surprising. And then other other firms have just suddenly said, you know, I need actually larger space because we’ve had

1:55 a group of people that have joined us that we didn’t expect to join us.

1:58 Speaker 2 What about the situation with people from working from home?

2:02 Speaker 3 So I come in five days a week, I’m there every day because there is action going on all the time. But I would say on Fridays it is very very quiet. We have like four brokers or five brokers that come in out of twenty five brokers. But everybody in the office is busy. There is so much business out there.

2:21 People are fleeing to the better buildings. Those buildings are really basically holding up very well, even though their work letters have to are really quite high.

2:32 Speaker 2 For my listeners, what would you consider the better buildings, the A buildings, and then there’s the B plus buildings.

2:38 Speaker 3 The A buildings, the A buildings, the ones that are all glass, the ones that have really people are really that crazy about amenities they’re looking for. It has decent views, it has a you know, they love the pre built where it’s you can walk right in the door and you can start your business right away. But people are gunshy,

2:56 example to sign a long term least because people don’t know where business is going to be. So where normally people would jump to sign a ten or fifteen year lease, now I’ll see them say, oh, I’ll do eight years or nine years or seven years, and many least of five years. And the owners are not objecting that because

3:13 they want to just get the cash flow going in. We know that this is going to readjust itself and the market will be back. The question is how long will it take to come back and who are going to be the people that are going to be hurt by it. A lot of owners are really hurt that

3:28 they they have large mortgages that we you know, they had great rates before, but now the rates are higher, or they have a you know, loans of value that is much you know, not what it used to be, and they have to either put more money into the property to keep it or they’re going to have to sell.

3:46 Speaker 2 What about amenities, you know a lot of people are telling me that to keep these employees in four days a week even they have to have amenities. I have to have you know, you know, kitchens, other things over there, like work spaces. Yeah, social amenities.

4:02 Speaker 3 See, I’ve about five or six years ago I saw amenities being important within the office. So you know, we bring in fresh food all the time, we have we have lunch every two weeks in the office. But when you have amenity on the fourteenth floor, the twentieth floor and the lower level, people aren’t running out the door,

4:21 you know, to go to those amenities in the building. They’re they’re you know, they they’re they’re at their job, at their desk, doing their job. And then when when they have free time, they’re going home. They want to know, have their private life. But I don’t see that many people using the public amenities of the building.

4:35 Speaker 1 Now, okay, what about coworking.

4:38 Speaker 3 Coworking is is really is really a mess. You know, we all see what’s going on with we work and we all see many spaces that have you know, collapsed. The other people that are coming in and doing this type of a business are doing it more with a partnership with the buildings, where they’re getting the landlord to say,

4:57 I’m not gonna get rent, but i’ll get a percentage of your profits. Now, some of them must be very successful, but I would say it’s it’s a risky type of business. People don’t sign long term leases. And but on the other hand, there are lots of companies that don’t want to make a long commitment. I’m happy to go three

5:13 months at a time, even though they’re paying one hundred bucks a foot for their space.

5:17 Speaker 2 What about conversions of office buildings to residential what’s your thoughts?

5:22 Speaker 3 Well, I think that’s what helped us after September eleventh, when we you know, lost the towers downtown, you know, changed, and I think that’s what we need right now is many buildings to turn residential because residential seems to be holding up. But I you know, it’s it’s a very costly project. You know, if you own the building, and

5:42 you own it for eight hundred dollars a foot, and then you’re going to go gut the building, throw everybody out and turn it residential. It’s not a simple matter. It takes years to do and it’s very costly. And you have to the right If it’s too big a floor plate, you know, you’re not going to get the

5:57 right windows to to make compartments with it, it’s going to be too much interior space.

6:02 Speaker 2 In addition, you need tax benefits. That’s why Lower Manhattan work because they get head the four twenty one gs, so they lower.

6:10 Speaker 1 The benefits were very important.

6:12 Speaker 3 I never resent the landlords for making money. They’re taking the risk they’re giving. They’re putting up the money up front to build out the space, they’re giving all these concession packages, and then it takes years for them to recoup.

6:28 Someone has to take the risk, and they’re taking the risk.

6:31 Speaker 2 So would you say it’s a tenants opportunity Today, it’s a tenants market.

6:35 Speaker 3 There are unbelievably inexpensive deals, cheap subleases, they’re even direct leases that are very economical, and landlords have to, unfortunately still give a large work letter more than they ever expected to attract those tenants.

6:49 Speaker 2 They So, besides the workletter, do we have a large amount of concession?

6:54 Speaker 3 Yes, yes, you’re talking about a month for every year of a lease in a typical situation. Of course, there’s some special spaces which you’re not going to get that, but if you take a ten year lease, you’re going to get most likely a year’s free rent.

7:08 Speaker 1 Now what about work letters?

7:12 Speaker 3 The cost of building space is extremely expensive. Like Empire State Realty Trust has a lot of cash, they have the money to build, but other owners don’t. And the other owners are pulling back and saying, you know, we’ll give you x amount of dollars. But unfortunately everything has gotten much more expensive to build and the labor materials

7:33 are more expensive. So it’s a fight between the broadcast handle, fight between the tenant and the landlord too to navigate how much is it going to really cost to build a space?

7:42 Speaker 2 So if you have to give me an outlook for the rest of the year, what’s your thoughts for.

7:47 Speaker 3 The brokers it’s a very very busy business where we’re really extremely busy. We’re going to do fine. Yes, it’s gonna be smaller commissions because the rents are lower. But for landlords it’s all on a pay case by case bas is. It all depends on you know, how economical they can make their space and how fast they can move.

8:07 You know, you put an offer in, they’ve got to turn around an offer in twenty four hours. They’ve got to move very quickly. They’ve got to get a lease out right away or also lose the deal to another deal, which you will. There’s always a better deal out there, no matter what you think you got a great deal,

8:20 there’s a higher floor, better views. There’s always something else that will come up. So landlords have to move quickly and close the deals.

8:26 Speaker 2 So in conclusion, it’s a tenants opportunity over there. Take the advantage, you know, evaluate what you have to do. And I really thank Norman Barbara for being here this morning on the catch Around table with Michael Stoller and the Stolar could thank you.

8:40 Speaker 1 Michael