Longtime broker Leonard Steinberg drilled into the sense of conflict among the city’s residential agents and their firms last month when he called for a two-week ban on apartment tours, due to the rapidly spreading coronavirus pandemic.
“We should all view it as a moral obligation to not expose this virus to the most vulnerable,” Steinberg, Compass’ chief evangelist, wrote in an Instagram post to his 52,000-plus followers on a Sunday in mid-March.
Many New York brokerage executives were quick to cry foul.
“If [Steinberg] wants to do something, he should do that. But he should stay in his lane and not preach to us,” Brown Harris Stevens CEO Bess Freedman said during a TRD Talks Live webinar a few days later, emphasizing that “there are people that need to pay bills.”
But after a week of intense debate about whether brokers should continue showing homes, Gov. Andrew Cuomo barred the practice in his wide-ranging ban on outside activities and work practices deemed nonessential.
While some agents now fear for their livelihood — with real estate being a highly exposed industry in these times — Douglas Elliman broker Lauren Muss seemed relieved. “It’s the right thing,” she told this publication.
Hours before the governor unveiled his order, Muss said, she had conducted what will be her last showing with “a real live buyer” for some time. Though she had been proactively staying at home, Muss said she decided to step out for a repeat client despite second thoughts.
“I was uneasy,” she recounted. “I didn’t want to get in the elevator with him.”
The world is rapidly transforming, including how we live and work for the foreseeable future, with the reported number of global coronavirus cases surpassing 700,000. Most of the city’s normally bustling office buildings are sitting vacant, while New Yorkers are increasingly fleeing the five boroughs — now a center of the global pandemic.
But even with a growing number of bigwigs and other residents escaping to the far reaches of Long Island and other remote areas around the city, many of the city’s towering condominium, co-op and rental buildings remain packed and strained. At the same time, occupancy rates for commercial office space in the city have plummeted over the past few weeks, dropping from about 90 percent on March 9 to under 3 percent on March 23, following Cuomo’s executive order, according to the Real Estate Board of New York.
For the office landlords, co-working companies and commercial tenants that have seen their spaces emptied and scrubbed clean, it’s a harsh reality with a bleak but still uncertain outlook. Though companies are being given some relief through city and state programs, Washington’s $2 trillion stimulus package and the Federal Reserve’s “unlimited” bond buyback, there’s no cure-all for any industry.
For residential landlords and developers, it’s a moment of crisis management and high-level talks with lenders and government officials, while for many city residents, along with their brokers, it’s increasingly becoming a fight for survival.
That comes as infections continue to spread and hospitals struggle — and increasingly fail — to treat patients. In New York’s abundant condo, co-op and rental high-rises, one person’s recklessness can now impact hundreds of neighbors. As a result, some buildings are seeking recourse for perceived misbehavior and some lawyers have even been advising their clients to take their neighbors to court.
“The last thing anyone wants is litigation,” said real estate attorney Steven Sladkus, who runs his firm’s litigation group. “But in this particular context, if people’s health, safety and welfare are potentially being jeopardized, that seems good enough reason.”
At the same time, a growing number of companies inside and outside of real estate are also fighting for their livelihood — as the pandemic wreaks havoc on business models, and budget cuts and reduced work time become stark new realities for employers and their workers. Now, many firms that once thrived on optimizing their open-floor spaces are relying on videoconferences and wondering if a work-from-home emergency measure will turn into a long-term trend.
And that might not even be the biggest issue the office market faces looking ahead, according to Brett Theodos, a senior fellow at the Urban Institute.
“The bigger immediate effect I see on commercial real estate is not from a shift to telework, but from the layoffs and pending wave of small bankruptcies, which will mean unpaid rent and less demand until we are back at full strength,” Theodos said.
The office exodus
Before Cuomo’s stay-home order, office landlords throughout the city were doing their best to tackle the rapidly spreading coronavirus head-on — with large public and private companies stepping up cleaning efforts and following guidance from the Centers for Disease Control and Prevention.
Rudin Management went as far as consulting with an infectious-disease specialist for recommendations on how to keep its workspaces as sanitary as possible.
Commercial brokerages, acutely aware of the coronavirus threat even before last month, were taking similar precautions. The publicly traded Newmark Knight Frank, for one, had stationed a nurse in its reception area to screen guests by asking about their physical movements, assessing their general appearance and taking their temperature, Crain’s reported.
The Durst Organization’s Jordan Barowitz told TRD in early March that the company hadn’t noticed a decline in people showing up to work. But that all changed about two weeks later, when the state mandated the closing of all nonessential businesses.
Even before that, some of the city’s biggest commercial landlords were dealing with employees in their office buildings testing positive for the coronavirus.
SL Green Realty had workers test positive at 1185 Sixth Avenue, 100 Church Street and 125 Park Avenue as of March 10, while Brookfield had a worker test positive at one of its buildings in the Financial District, and Related Companies had a worker test positive at one of its buildings in Hudson Yards.
It remains unclear what the long-term effects of so many office building closures will be, and while some insiders have downplayed the potential impacts, others are being more bearish in their forecasts.
Barowitz acknowledged that office landlords could face a tougher environment even after the pandemic ends. But he attributed that more to the potential for a broader economic downturn than to companies deciding they don’t need as much space anymore.
But RXR’s Scott Rechler said during a TRD Talks webinar on March 24 that the city’s office landlords should brace for significant ripple effects.
“Clearly, people are going to want to work differently,” Rechler said. “People are going to want more distance.”
During the same video panel, hosted by TRD’s editor-in-chief, Stuart Elliott, CBRE’s Mary Ann Tighe offered a different perspective.
Sporting a blue sweatshirt, the veteran office leasing broker sat in a stately-looking room at her home in Westchester and lamented that a day’s work has never felt more draining.
“I personally believe that, at the end of this, people will have a renewed sense of appreciation for going to the office,” Tighe said.
Tighe added that one silver lining will be the companies and business strategies that can withstand a global health and economic crisis. “I think we’re going to have the great co-working answer at the end of this period,” she said.
For now, the co-working company that recently grabbed the world’s attention by storm is looking to provide that answer in the thick of the pandemic.
While most other flexible office space providers have closed up shop in the five boroughs and other major cities until further notice, WeWork was keeping all of its New York City co-working spaces open in late March, as it continued to grapple with layoffs and missed financial targets in the midst of its turnaround effort.
The co-working giant, which has reported several coronavirus cases at its locations, told its customers that it was staying open because some of them operated essential businesses. The company has implemented a work-from-home policy with its own staff, but was offering $100-a-day bonuses to those who choose to come into the locations. Some WeWork members have been arguing that the firm should close its sites and temporarily waive fees while the pandemic plays out.
Throughout the city’s residential buildings, landlords and developers are also grappling with how to best manage the pandemic as they navigate difficult conversations with their lenders.
Many building owners, condo and co-op boards and their property managers are also doing whatever they can to keep their spaces cleaner than ever and limit visitors — be they family members, delivery workers or personal trainers.
“You can’t trust people to self-quarantine,” said Kobi Lahav, of the residential brokerage Living Real Estate Group, who lives in a building owned and managed by Glenwood Management. “Unfortunately, that’s the situation.” Lahav said his landlord closed all common areas on March 11, before any government orders were in place.
And as virtual walk-throughs and closings in escrow become the standard way of selling homes, “coronavirus clauses” and other contingencies have crept into new development deals and resales, allowing buyers a second chance to review the property in person at a later date. One real estate lawyer is even demanding funding contingencies for the condo and co-op buyers he’s representing.
Each deal is “contingent upon the bank having the money on the day of the closing to show up with the funds,” explained Pierre Debbas, a partner at Romer Debbas. “We’re trying to protect buyers from an absolute worst-case scenario of a total economic collapse.”
At the same time, a growing number of wealthy New Yorkers are decamping for the East End of Long Island, causing a sudden spike in demand before the summer season. The market for rentals in the Hamptons has seen a remarkable surge in recent weeks, as more city residents look to avoid becoming trapped in their apartments, several agents on the South Fork told TRD.
“We had a bidding war last night for an eight-week rental,” said the Corcoran Group’s Susan Breitenbach. The property, listed at $300,000 for the duration, ended up going for $400,000, she said.
“We’re getting maybe 30 to 50 calls a day” as opposed to the usual two or three calls at this time of year, Breitenbach added. “There are people who want to move in tomorrow, to bring the U-Haul van and move in in the morning.”
A new housing crisis
But for many residents throughout the city’s multifamily, senior and public housing — along with the tens of thousands of people living in homeless shelters and on the streets — escaping to the East End may be the last thing on anyone’s mind.
In mid-March, cries to halt evictions reached a fever pitch and New York’s top administrative judge issued a memo declaring that eviction proceedings would be postponed as housing courts closed for any cases outside of emergency matters.
Even before that, REBNY, the biggest industry trade group in the city, announced that more than two dozen of its landlord members had pledged to hold off on rental evictions for the next three months in response to the coronavirus.
The companies, which own an estimated 150,000 apartments through the city, included some of the biggest names in the multifamily business: LeFrak, Related Companies, Brookfield Property Group, RXR, A&E Real Estate and the Blackstone Group, among others.
“No one knows how long this pandemic is going to take to play out,” REBNY President James Whelan said in a statement. “Our best guess, in terms of seeing this through, was to look at a 90-day time period.”
Whelan later told TRD that the coronavirus pandemic has transformed his role into “crisis management seven days a week” and called on the city and state for more relief as the real estate industry struggles to cope.
And in a rare moment of agreement, both tenant advocates and landlords say the federal stimulus package and state actions to help renters and the multifamily market weather the coronavirus crisis is insufficient. That leaves many on their own to confront the crisis.
Ryan Freedman, chair and CEO of the New York-based venture capital firm Corigin Ventures, said his firm’s NYU student housing portfolio was emptied after the school shuttered. State officials notified him that his properties could be taken over for use as medical facilities, he added.
“You’re talking about things that are completely unprecedented,” Freedman said.
Like other landlords, Daniel Goldstein, a principal at E&M Management, which owns thousands of apartments in the city and upstate, said he’s concerned about what to do when the rent rolls drop.
“Cuomo said, ‘We’ll suspend mortgage payments,’ but what do they expect apartment owners to do? They’re trying to protect the homeowner,” Goldstein argued. “But they’re not protecting renters.”
Cea Weaver, of the tenant advocacy group Housing Justice for All, said that neither the federal stimulus package nor the state measures do nearly enough to provide relief to tenants. “In New York, hundreds of thousands of people are not going to pay rent on April 1, because they can’t,” she told TRD last month. “We’re pretty worried about that.”
Perhaps more than any other population, the city’s homeless are poised to be hit the hardest: Overcrowded shelters render them unable to keep 6 feet away from other people, and they are more likely to have underlying health conditions.
“It’s terrible. There’s no coordinated plan,” Paulette Soltani, of the New York advocacy group Voices of Community Activists & Leaders, said about the city’s response to the coronavirus in the homeless shelter system. “It’s going to spread like wildfire.”
But while advocates for renters, the homeless and public housing battle the immediate impact of the coronavirus, some are hoping that in the long run, the inequities revealed by the health crisis will lead to systemic change.
“The coronavirus is like a blacklight,” said Charles Khan of Strong Economy for All, an advocacy group fighting against inequality.
“All the things that may have looked okay in New York, but were huge problems, now people can see them,” he added. “You have to find housing for people, not pack them in.”
Throughout major cities around the world, societal shifts are sparking daily debates about everything from when new construction or renovation work is deemed essential to how many people can be in a given space at a given time.
But while government orders, social distancing and working from home become new norms for people all over the world, how that all reshapes real estate more broadly remains to be seen.
As of late March, New York shut down all construction throughout the state except work on infrastructure, health care facilities, affordable housing and homeless shelters. Within less than a week, however, the city’s Department of Buildings issued guidance stating it may approve other types of construction.
And for the time being, some observers say, commercial landlords may want to consider turning their office space into residential apartments in response to the fast-growing pandemic and the city’s ongoing housing crisis.
“It could be a way to expand the supply of residential housing without encountering the same kind of community resistance, because you’re still keeping the streets safe and the skyline the same,” said Ingrid Gould Ellen, director of the NYU Furman Center for Real Estate and Urban Policy.
“In recent years, we’ve seen a number of office-to-residential conversions in Lower Manhattan and other parts of the city,” she added, noting that it’s “not a new idea, and it’s not a new phenomenon.”
New York developer Miki Naftali, who sided with the growing number of cities and states imposing shelter-in-place orders, also emphasized that within real estate development and leasing in dense urban areas, things will need to change.
During a TRD Talks webinar, the Israeli-born chair and CEO of the Naftali Group took a harsh stance on those who were still partying on South Florida’s beaches in mid-March. He also voiced doubts about an immediate bounce-back from the coronavirus pandemic — whenever it ends.
Naftali said that could prove especially tough for what he referred to as “the WeWork world.”
“This entire concept of … being with 30 people in a small area drinking tequila shots, this is something that I think will take some time to come back,” he said. “My prediction is it’s going to take years to come back.”
—Additional reporting by Kathryn Brenzel, E.B. Solomont and Sylvia Varnham O’Regan,