Save for a few short-term dips, the real estate market in New York has run full steam ahead since the recession of the early 1990s, when Jeff Blau joined the Related Companies out of college.
And what a run it’s been for the 41-year-old president of the privately held real estate juggernaut, which developed One Union Square South, the mixed-use tower that helped revitalize its downtown neighborhood, and Time Warner Center, which played a similar role at Columbus Circle. On the purely commercial side, Related has also developed the Gateway Center, a three-month-old mall by Yankee Stadium that’s brought big-box retailing to a low-income area.
Today, the city’s appetite for full-block projects may be diminished, but Blau welcomes the market’s lasting challenges. “The true test of this business is whether you’re able to survive through the cycles,” Blau said, who runs a 2,000-employee company with a $15 billion portfolio.
In the short term, he’s focused on completing sales at four Manhattan condos: the Brompton, the Harrison, Superior Ink and Riverwalk Court on Roosevelt Island, all of which are passing the two-thirds point in sales, he said. And after months of delays, construction has resumed on a yet unnamed project on West 42nd Street, where offices, stores and hundreds of apartments are planned.
Plus, independent of Related, Blau is also a co-owner of the recently formed SJB National Bank, which is eyeing distressed construction loans; the bank received FDIC approval last month.
Overseas, meanwhile, Blau continues to explore opportunities in Abu Dhabi, in the United Arab Emirates and Saudi Arabia, the stage for which was set by the 2007 deal that saw Related part with a 25 percent stake to Goldman Sachs and Mideast investors for $1.4 billion.
Blau talked to The Real Deal about the economy, how distressed assets may provide opportunities and the importance of affordable housing.
What’s your analysis of the housing downturn in New York? Is there an end in sight?
I think we’re seeing a leveling out. If we’re not at bottom, we’re at least not declining any more. But only when confidence comes back will people start buying again, and that will turn things around. And we’re starting to see that.
But what about the commercial markets? Aren’t they just beginning their collapse?
From 2005 to 2007 those markets got very aggressive, in terms of pricing levels and interest rates, and now we’re in a situation with a lot of collateralized debt obligations maturing in five years time. It will be more of a financing crisis, which is why we want to originate new loans and finance existing loans as they come due.
Buyers have fought to get their security deposits back at the Brompton, over concerns about financing since their apartments may not be worth as much anymore, and construction issues. Do any of their claims have merit?
There has been one attorney chasing us on some issues, and he had a couple of clients, but virtually all of them have either closed or settled at this point. What happened is that people signed contracts, and then the market got soft, and they came up with ways not to close on their units. And when plans change during construction, it leaves developers vulnerable to buyers who want to get out.
We have always been very focused on the product we deliver and have matched the product to the offering plan, with a lot of attention to detail. Other developers lost focus on delivering the exact product they promised, and some of them got caught.
[By the end of October, two-thirds of the Brompton’s 193 units had closed at full price, without any concessions, a spokesperson added later; 80 percent are expected to be closed by year’s end.]
One mega-project that has yet to be built is your $15 billion Hudson Yards development. Why do you think the MTA went with your proposal, after Tishman Speyer’s fell apart?
We have a vision for the West Side that includes cultural facilities, open space, hotels and apartments. We are really creating a new environment in a new neighborhood, but obviously we were competitive economically as well.
Tell me about your planned 58-story tower at 440 West 42nd Street, which stalled after foundations were poured.
We had started construction before the tsunami hit the markets, but we are proceeding now with a fully financed building. It’s underway again. We knew we had to make some changes, which was reducing the number of for-sale units to rentals, plus rewriting some of the contracts with the labor unions. It should be completed in 2011.
Related began in the early 1970s as an affordable housing company. How important is creating below-market-rate apartments for you today?
We remain very committed to that goal. One of our new funds will focus on affordable housing. Our focus is to buy affordable and keep affordable as a preservation strategy. For us it’s about preservation, versus conversion to market rate. We think it’s critical for the growth and future of New York. Without a base of affordable housing, all the other businesses can’t work.
You were personally rejected for a co-op at 820 Fifth Avenue in September. Should co-ops be forced to give explanations for their rejections?
I’m not going to comment on that.