Madison Realty Capital managing director Michael Stoler – of “The Stoler Report” fame – led a panel of real estate experts Wednesday who discussed market trends and their outlook on the city’s real estate scene at the 7th annual NYC Real Estate Expo at the New York Hilton Midtown.
Stoler was joined by Stephen Siegel, chair of global brokerage at CBRE; Frederick Cooper, senior vice president of finance and international development at Toll Brothers; Bruce Mosler, chair of global brokerage at Cushman & Wakefield; and Jeffrey Moerdler, head of the New York real estate practice at law firm Mintz Levin.
Topics included a shift in the residential market toward rentals, Manhattan’s new office paradigm, the potential of a New Jersey real estate renaissance and the ever-present WeWork phenomenon.
Residential market shifts to rentals …. and New Jersey?
Siegel, who serves as a principal at Midtown-based real estate investment firm Fairstead Capital, discussed Fairstead and Blackstone Group’s recent $690 million acquisition of a 24-building residential portfolio from the Caiola family.
Siegel noted that around 970 of the portfolio’s 1,000 units – all of which are located below 96th Street — are market-rate rentals, and stressed his believe that “there’s going to be a significant flight to rentals” among real estate investors.
It was a sentiment echoed by Cooper, who noted that Toll Brothers has “embraced” the market for high-rise rentals in urban areas, despite land prices that are “priced for condos.”
The panel also discussed emerging residential markets in the area such as the Bronx and parts of New Jersey. “There are no bad neighborhoods [in New York City],” Siegel said. “And if there are, they won’t be bad neighborhoods in the future.”
He added that any neighborhood providing access to Manhattan within 20 minutes would be due a “boom” in residential development, and described the Bronx, in particular, as “ripe” for such a boom.
Cooper also pointed to Toll Brothers’ increased activity in New Jersey markets like Hoboken and Jersey City as part of the residential giant’s embrace of urban rental development – a market it decided to step into around 2001.
The panelists were more hesitant when the subject of Newark came up, however. “There is some renaissance, if you will,” Siegel said, but cited issues around crime and safety that still beleaguer Newark’s perception among investors and consumers alike.
Manhattan office riding high
Mosler, meanwhile, heavily backed the massive development seen in the Hudson Yards area as indicative of a paradigm shift in the Manhattan commercial market. He noted that, all projects considered, Hudson Yards promises to bring 48 million square feet of new development to the market – including a commercial component the size of Dallas’ central business district.
While Mosler — whose firm represents Brookfield Property Partners, one of Hudson Yards’ largest developers – asserted that the commercial “epicenter of Manhattan is shifting west,” Moerdler questioned transportation access to “such a large area” and floated the idea of trolley lines to “improve” transit in and out of Hudson Yards.
Moerdler also floated whether the influx of office development in Hudson Yards, coupled with record demand for space in the Midtown South office market, would resign Manhattan’s traditional Midtown office market to “B-office space” status.
But such pending vacancies could provide landlords with “an opportunity to upgrade” Midtown buildings that comprise the “oldest office supply in the country,” Siegel countered, noting that such an opportunity would reposition the Midtown market moving forward.
The panel also also discussed Midtown office pricing, with both Siegel and Mosler bullish on further growth in commercial values thanks to robust demand. Mosler described the New York market as “indicative” of a larger trend toward “urbanization” across the country, and cited how “millennials, who are now the largest part of our workforce, want to be in New York.”
Office rents and values would continue to grow “as long as demand holds up,” Mosler added. “And demand remains strong.” Asking rents averaged nearly $78 per square foot in Midtown in the third quarter, according to CBRE’s latest report.
Shared workspace giant WeWork was also inevitable brought up, with Siegel describing it as a “think tank” for “Silicon Valley East” and Moerdler noting how the firm is “taking the business that [previously] were started in homes and garages” and providing them with an office environment.
Mosler described WeWork’s model as effective in a market where “no corporation is taking excess space,” and said the firm “got in at the right time of the cycle.”
Siegel, meanwhile, pointed to WeWork’s recent activity in the Midtown market as its traditional Midtown South locations have become “too pricey.”