The Real Deal New York

NYC real estate’s “Mount Rushmore” lives up to billing

Ross, LeFrak and Rudin talk millenials, construction costs and terrorism

November 19, 2015 04:50PM
By Rey Mashayekhi

Bill Rudin Richard LeFrak Stephen Ross

From left: Bill Rudin, Richard LeFrak and Stephen Ross

The lunchtime panel at New York University’s Capital Markets in Real Estate conference this year promised “the Mount Rushmore of New York City real estate,” and it didn’t disappoint – with Stephen Ross, Bill Rudin and Richard LeFrak discussing topics ranging from the state of the city to the “monopoly” of construction unions to what keeps them up at night.

Speaking before hundreds of people over lunch at the Pierre Hotel’s Grand Ballroom in Midtown, the three developers – with LeFrak stepping in for an under-the-weather Larry Silverstein — started with a discussion on whether conditions in the city have deteriorated since Mayor Bill de Blasio took office.

“I think the stats show the city is doing good or better than it’s been doing for years,” Rudin, CEO of Rudin Management, said, citing “sales of residential properties in the billions” in the city and droves of young people flocking here for work and other opportunities.

“Obviously, homelessness is a big issue, [but] it’s a big issue around the world,” he added, noting that any prospect of the city returning to the economic doldrums of the 1970s is “not happening.”

“People have always said that New York is unaffordable; that’s nothing new,” Ross chimed in when the subject of affordable housing came up. While expressing concerns about a “malaise” in the city economy affecting everything from retailers to high-end condo sales, the Related Cos. founder said he is “still very encouraged by New York City.”

But Ross saved much of his vitriol for the construction unions, who he claimed have “been ripping [developers] off all these years” and driven construction costs through the roof. Unions are also threatening to ruin the city’s affordable housing economy, he said, with demands for a prevailing wage provision on projects receiving the 421a tax abatement currently being negotiated.

“We have to keep (construction) costs down,” he said. “You really can’t build anything.” Ross noted that he had seen “no movement” on a compromise on 421a, and expressed his believe that there would be “zero units of rental housing built [in the city]” if 421a were to expire.

He added, however, that New York “is becoming for the first time an open-shop city” in terms of construction, and said more people would “buy condos built by nonunion contractors” due to lower construction costs that would lead to cheaper, more affordable apartments.

“Steve is right, the unions here have basically had a monopoly forever,” LeFrak agreed, describing the process of developing with union labor “like building with a teaspoon.”

The developers also discussed trends in the city’s real estate market like millennials (“Brooklyn was not discovered by the millenials,” LeFrak said. “Some guy with a beanie and an ironic T-shirt didn’t come there and plant his flag.”) and the greater urbanization that is drawing more people to the cities than ever (“But people don’t want to live there,” Ross said when told what $3 million could get one in the suburbs. “So what’s the difference?”).

LeFrak, meanwhile, bemoaned how land costs are now at the point where sellers are using “regression analysis” to base every deal off what apartments at top-end developments such as 220 Central Park South can fetch.

The CEO of the LeFrak Organization, who was in fine form, noted that the thing that enabled ambitious projects such as Hudson Yards and Rudin’s building at the Brooklyn Navy Yard was “cheap land.” His fellow developers took objection to that, however, with Rudin preferring the more measured “affordable land” and Ross pointing instead to “location.”

All three men were asked about what keeps them up at night. Ross noted “the policies and what’s going on in Washington,” while LeFrak said his biggest worry was the threat of violence and terrorism – “Someone comes along with a rifle and shoots 50 people.”

Rudin, meanwhile, had no such worries. “I sleep pretty well,” he said.