Malkin still wary of WeWork, “venture capital” startups

Shared-workspace tenants "beat the hell out of buildings," ESRT chief says

TRD New York /
Apr.April 28, 2016 12:22 PM

Anthony Malkin’s skeptical views on WeWork and fellow “venture capital” startups, which have driven a good amount of the city’s office demand in the past few years, have not changed.

Speaking on Empire State Realty Trust’sTRData LogoTINY first-quarter earnings call Thursday morning, the chair and CEO responded to an analyst’s question on whether Malkin had changed his stance on WeWork — which he has previously referred to as “a gig-worker center of excellence” — and other shared workspace startups.

While acknowledging that the real estate investment trust does lease to more “traditional” shared office providers like Regus, Malkin affirmed that ESRT would not be leasing to WeWork — which was recently valued at $16 billion — and other, newer “venture capital” startups anytime soon.

“Why should we take a venture capital risk for the benefit of collecting rent?” Malkin said.

He then went on to criticize the companies for “the damage these [shared workspace tenants] do to buildings.”

“People blow in and out of WeWork,” Malkin said. “They beat the hell out of buildings, bathrooms, systems. … Why should we take a venture capital risk when our only upside is to collect rent?” he reiterated.

When the analyst followed up by noting that shared workspace providers like WeWork expose landlords like ESRT to a wider variety of smaller, prospective tenants, Malkin responded that his company does not “lease to those people in the first place. Why should we aggregate and lease to them as a group?”

Malkin, who earned $3.5 million last year at the helm of the Manhattan-focused office and retail REIT, has previously said that ESRT is consciously “insulating” itself from tenants catering to a “part-time” workforce. But, as he told Bloomberg TV last year, that doesn’t preclude the landlord from leasing space to more established technology or TAMI sector tenants like LinkedIn and Shutterstock — both of which have sizable footprints at the REIT’s flagship Empire State Building.

“LinkedIn is a real company,” Malkin told Bloomberg. “We look at them, we look at Shutterstock — these are different businesses. Startups, we’re not interested in. … I’d rather collect rent from somebody I know has a certainty of paying it.”

Shutterstock’s full-floor, 25,300-square-foot expansion at the Empire State Building was among the 47 new leases, spanning nearly 256,000 square feet, that ESRT signed in the first quarter of 2016 across its entire portfolio. That included 15 new leases representing roughly 136,000 square feet — signed at an “average starting rental rate” of $60.01 per square foot — in its Manhattan office portfolio alone.

ESRT’s total 9.4 million-square-foot office portfolio was 88 percent occupied at the end of the first quarter, up 1.3 percent from the previous quarter and 0.7 percent year-over-year. Its 7.5 million-square-foot Manhattan office portfolio, meanwhile, was 86.4 percent occupied through the first three months of 2016 — up 1.5 percent from last quarter and 0.3 percent year-on-year.

The REIT also reported a significant 16.5 percent year-on-year increase in its Empire State Building observatory revenues, which hit $21.2 million in the first quarter. Approximately 719,000 people visited the skyscraper’s observatory in the period — a nearly 16 percent jump from the same period last year.

Company president and COO John Kessler attributed the boost in observatory revenues and visitors to “favorable weather conditions” and “the calendar shift of Easter weekend,” which fell in the first quarter this year.


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