Editor’s note: Reading the tea leaves of fall

Stuart Elliott
Stuart Elliott

Welcome to the fall. The world hasn’t fallen apart (yet).  

With summer over, and Wall Street traders back at their desks, any economic clouds they had been able to ignore while on holiday loom larger. 

That phenomenon helps explain why stock markets often tank in the autumn. Think back to the fall of 2008 (the collapse of Lehman Brothers), 1987 (Black Monday) and 1929 (the crash that signaled the beginning of the Great Depression).  

Even without stock market volatility, the beginning of fall is always a litmus test for where the real estate market is at after the seasonal summer slowdown.  

Could we see a crash? That’s not clear. But we certainly seem to be teetering on the edge of a recession, with the Fed seeking to curb inflation by raising interest rates, and in the process slowing down the economy and the real estate market. 

In New York, home sales activity has cooled, rents are starting to plateau, office leasing is weak, and trophy investment sales are few and far between. Just about half of office workers returned to their desks in the city by the middle of September, up from 38 percent in April.  

The picture isn’t much brighter for the office markets in the second and third-biggest cities in the U.S., Los Angeles and Chicago, as we explore in a series of stories.  

Not that commercial real estate boosters aren’t trying to shoo people back into the office. The CEO of Manhattan’s largest office landlord, Marc Holliday of SL Green, has been one of the back-to-work movement’s leading evangelists, with limited success.  

Holliday has spent the pandemic era extolling the virtues of togetherness in a physical workplace, and warning against the “brand and cultural dilution” that will hurt fully remote companies. 

Then there are the bells and whistles to try to woo back tenants — at 7 World Trade Center, Silverstein Properties has a room full of F-35 flight simulators that tenants can use for team building or management training exercises.  

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But will any of it move the needle — or are we in for darker days ahead for the office sector and the broader economy? Check out the stories by Rich Bockmann, Sam Lounsberry and Isabella Farr.  

When it comes to propping things up, there’s no bigger story in the residential brokerage world than Compass’ current struggles, the focus of our cover package this month. 

The firm went public with a market cap of nearly $7 billion last year, only to plummet to a $1 billion market cap as of press time. Its losses in the 18-month period since January 2021 total nearly $800 million, and it’s looking to shed over $300 million in expenses this year.  

Compass has done multiple rounds of layoffs and taken a harder line on agent commission splits. But can it move fast enough to stanch the bleeding?  

The 28,000-agent company has long been criticized as an emperor with no clothes (or at least a scantily clad king) — a tech-infused brokerage with little in the way of actual tech. Instead, it seems to many like a traditional brokerage.  

Some critics say that Compass has mainly been in the business of raising money, not actually innovating. As appraiser Jonathan Miller recently noted, the huge amounts of VC funding the company received from SoftBank made it a “disruptor by capital, not by innovation or design.” 

Still, two major money managers, BlackRock and Vanguard, have upped their stakes in the brokerage now that it can be bought on the cheap. Check out the series of stories that look inside the firm’s wartime playbook. 

Finally, take a look at our pieces on Frank Gehry’s megaproject in L.A. (which he is taking on at age 94); our Closing interview with Brad Greiwe, the co-founder of Fifth Wall, the country’s largest real estate-focused venture capital firm (now facing some headwinds from its proptech investments); and our annual ranking of New York’s top law firms. 

Enjoy the issue.