The Real Deal New York

Building the future

NYC industry and tech insiders forecast what’s coming in real estate
By Christopher Cameron | November 01, 2014 07:00AM

When the futurists of the early 20th century imagined the New York City of tomorrow, they thought big. Renderings from the 1920s and 30s depicted massive infrastructure projects: roadways that carved deep canyons between skyscrapers, dirigible docks atop Midtown towers and skywalks between buildings.

Nearly 100 years later, those reimagining the city are thinking green and smart. They emphasize streamlining existing infrastructure, empowering small tenants, shrinking carbon footprints and building highly efficient information networks focused on micro-markets and individuals.

Last month, The Real Deal spoke with real estate tech insiders, CEOs and industry mavens to glimpse their vision of the New York City of the future. Read on to learn what they see in their crystal balls.

A greener city

In September, the de Blasio administration pledged $1 billion toward “greening” city-owned buildings, and rolled out incentives to nudge private landlords toward doing the same.

Over the next decade, the city plans to take myriad steps, from upgrading lighting and boilers in public housing and offices to installing solar power at schools and possibly even City Hall.

The ultimate goal is to cut greenhouse gas emissions 80 percent by 2050 and make a “complete transition away from fossil fuels,” according to a report on the proposals.

That vision may well be within reach. Experts predict that the city will become incredibly sustainable in the coming decades. Buildings, they said, will become extremely energy-efficient and managed remotely by tablet on the individual, portfolio or even city level. Green features that are on the cutting edge now, such as living roofs and wind turbines, may well become the norm.

And that’s just the beginning, according to Jack Nyman, the executive director of the Steven L. Newman Real Estate Institute at Baruch College, who recently organized Baruch’s Next-Gen Buildings and Cities Conference.

“You are going to see super-advanced technology platforms that are going to control air quality, temperature, traffic demands and energy consumption,” Nyman said. “You are going to see pedestrian flows and experiences change through design and urban innovation. Neighborhoods are going to become more ‘environmentally attuned.’”

He added that the way the city conceives of parks and green space is set to radically change.

“Vertical parks on commercial and residential buildings will interface with horizontal parks. Innovation in green design is going to intermingle with technology to create a more responsive environment.”

When it comes to the environment, modern-day visionaries haven’t completely lost their taste for behemoth infrastructure projects. Some new concepts were inspired, in part, by the havoc wreaked by Superstorm Sandy.

In one such response, the city has partnered with the starchitect Bjarke Ingels to design the “Big U,” an eight-mile buttress — running along the waterfront from West 57th Street down to the Financial District and then back up to East 42nd Street — aimed at protecting Lower Manhattan from flooding.

The project is a rethinking of how city dwellers interact with infrastructure. Instead of crudely cutting off Manhattanites from their coastline, the way many mid-20th century highways did, the Big U aims to serve each neighborhood it touches in unique ways, and on that community’s terms, through interactive design.

For instance, between the Manhattan Bridge and Montgomery Street, plans call for deployable flood walls that can be flipped down under the FDR Drive. And rather than acting as mere infrastructure, they will sport artwork by local artists.

“Architecture turns fiction into fact,” Ingels said. Building a storm barrier around Manhattan may sound far-fetched, but can become reality, he noted. “When you come up with something like this, it sounds like science fiction. But in just a few years, it becomes a fact.”

A mixed-use city

Recent zoning changes, combined with soaring land prices, make developing mixed-use and multi-use complexes especially attractive to builders eager to both hedge their bets and earn top dollar. And experts say that trend is here to stay.

“I think you are going to see more mixed-use developments throughout Manhattan,” said Michael Mandel, the co-founder of Compstak, an online database of commercial real estate information based in New York.

Residential buyers are already flocking to commercial neighborhoods like Midtown and the Financial District, while so-called “creative firms” are jumping ship for more residential areas like Chelsea and the East Village.

“We’ve already seen successful commercial development in areas like the Meatpacking District and in the East Village with 51 Astor Place,” said Mandel. “Those projects have proven that developing office space in primarily residential areas is appealing to companies and their employees.”

Advances in how real estate data is accessed and used by residential buyers has the power to reshape neighborhoods, Nyman said.

“We’re talking interconnected micro-grids on the neighborhood, and even city level, with layers of wired and wireless technology, providing massive amounts of info,” Nyman said.

Those layers of technology will give buyers the ability and knowledge to go where they have never gone before en masse, while the neighborhoods themselves will acclimate to that influx on an unprecedented timescale.

And armed with better data, developers will be able to produce projects that are more closely aligned with demand, leading to higher occupancy rates and less speculative development.

“There will be less development, but what is developed will be leased up quicker,” Compstak’s Mandel said.

In the rapidly growing outer boroughs, that means highly tailored developments that are flexible and integrated with the needs of individual communities, he added.

Small tenants, shorter leases

In recent decades, a small and growing company would often struggle to find space in Manhattan, either because it could not afford to sign a large lease that it might not grow into, or because it could not find a broker willing to take a miniscule commission for a small deal.

Now, the birth of shared workspaces is giving start-up firms access to flexible workspaces that can be adapted to fit their specific needs. But in the future, experts say, there will be even more emphasis on catering to small tenants, as larger space users look to become more efficient by filling every nook and cranny of unused office space.

“I think the group that will benefit the most from innovation will be small tenants,” Mandel said.

“Right now, if I’m a 1,000-square-foot tenant, no broker wants to work with me, because the commission is too small. But I think more online tools are coming that will allow small tenants to educate themselves on what space is out there and what they should pay.”

And as landlords cater to the needs of small and dynamic tenants, leases are going to become shorter, according to David Mandell, the co-founder and CEO of PivotDesk, a platform that matches up small tenants with larger firms that have extra space within their leases.

“Don’t think ‘short-term,’ think ‘flexible,’” Mandell said. “If you have extra space and are hosting another company and all of a sudden you start growing, you can get your space back, because you aren’t locked into a sublease.”

“And if you are the guest company, and you start growing rapidly, you don’t have to liquidate your office space,” he said.

The same goes for retail, which has embraced the branding value of operating small brick-and-mortar shops in the e-commerce era, according to Namek Zu’bi, co-founder of Silicon Badia, an early-stage venture capital firm with numerous real estate tech investments including Compstak and Honest Buildings.

Zu’bi envisions more small pop-up stores and super-short leases from big and small retailers, along with more new technologies and brokerages that facilitate matching up store owners with flexible spaces.

Changing spaces

In the future, build-out trends that are already popular with start-up tenants will go mainstream, more thoroughly penetrating New York’s entire office stock. The emphasis will be on flexible-use spaces and less on Class A aesthetics like floor-to-ceiling windows or marble finishes.

To produce these sleek functional spaces, Angela Castleton, the national workplace leader and principal of DLR Group, is drawing upon biology and nature.

“Being around things that are natural is proven to make you work and feel better,” said Castleton, who led DLR in the design of the Magnate, a cutting-edge office environment that recently won NAIOP’s 2014 Build-Out/Interior Design Competition. “Offices will be tactile and varied with natural finishes. There will be living walls filtering the air and lighting that mimics the sun.”

She added that she expects to see offices that function more like a beehive than a traditional workspace. She calls it “the hive principle.” Expect to see efficient octagonal shapes, workers that come and go as they please, and a mixture of private and shared spaces that break down hierarchies and facilitate casual and accidental interactions.

Devices play new roles

Mobile technology gives the real estate industry and its customers on-the-fly access to an overabundance of information about virtually any property. Now devices like Google Glass, Apple Watch and Oculus Rift are also poised to once again allow tech-savvy realtors, developers and designers to rethink how people interact with spaces.

“I don’t think new devices are going to be game-changing, but I do see devices as a means of enabling something else,” Mandel said. “The laptop isn’t game-changing to real estate, it is the products people build on top of it. So we have been thinking about what kinds of applications we can build for new devices, like the Apple Watch.”

Some of the apps coming to these devices could allow building comps or residential listings to pop up on consumers’ wrists, or their phones, as they stroll by.

Devices like Google Glass and Oculus Rift also offer opportunities for 3D walkthroughs of a space — the ability to walk through a rendering and feel like you are really inside of it.

“The perfect tool to sell properties prior to construction would be the “Star Trek: The Next Generation” holodeck, where buyers could walk in and interact with and change a space as you pleased,” said Steve Bell, the founder of Archiform 3D, a 3D and virtual-reality rendering service.

That technology probably isn’t coming in his lifetime, he admitted. But what already exists are virtual reality, 3D and real-time technologies that are only going to improve in the coming years.

“I think coming around the corner are stereoscopic presentations in people’s homes,” he said. “People will be able to pull up your property development in their living room and show all their friends.”

But when it comes to the much-speculated-about use of drones, which are already being used to showcase properties in suburban markets, industry honchos were more skeptical about their future in super-dense Manhattan.

“I don’t think drone use will ever be particularly important in Manhattan, but it could be very impactful in other markets. People in the past paid tens of thousands of dollars to have helicopters photograph their properties,” Mandel said.

A transparent market

One of the major obstacles both residential and commercial tenants currently face is knowledge … or lack thereof. Even to longtime New Yorkers, knowing how much to pay to live or work in different neighborhoods can be perplexing.

As real estate listings have migrated online and to apps, the amount of information and resources available has grown exponentially in recent years. But future tenants and buyers will have access to an even greater wealth of specialized data, with details like building air quality, efficiency and quality of life factors, leading to hyper-educated, hyper-demanding consumers, real estate pros say.

“This consumer is becoming much, much, much more demanding,” said Leonard Steinberg, Urban Compass president.

To keep up with this increasingly sophisticated public, Steinberg added, “The broker of the future is going to need information, knowledge and intelligence that goes beyond the average consumer” to stay in business. In fact, he envisions brokers acting as data filters for buyers and sellers overwhelmed by the information available to them.

In the commercial realm, where cutting-edge tech tools like big-data portals and remotely accessed building management systems have thus far largely benefitted landlords, expect more technologies that resemble residential listing sites, apps and databases to empower tenants, said Ashkán Zandieh, founder of RE:Tech, a national real estate tech coalition.

“I think commercial is going to go the way of residential, and I think all the listings are going to be online,” agreed Mandel of Compstak.

“More transparency in comps will lead to more fairness in pricing,” he added. “What you are going to see is a much more efficient market. You are going to see a smaller gap between asking and taking rents. And you are going to see deals get done much more quickly.”

Divergent outlooks for brokers

Real estate tech and industry visionaries are divided on the future of brokers. Some expect to see the cutting out of the middleman and elimination, or at least vast reduction, of his or her role. Others maintain brokers will stay in the game in some form, while yet a third camp believes that industry changes will elevate brokers into the ultimate insiders.

Steinberg sees a role for the “human touch,” he said, “But the human touch needs information and technology to make sure it can provide outstanding service. Brokers will be fueled by technology, but not replaced by it.”

Brokers who thrive in the future, he predicted, will be those who can master the macro and the micro, meaning those who can unite endless amounts of information with emotional intelligence. Because public understanding of real estate is becoming so sophisticated, he added, “There is going to be a day of reckoning for the brokers who in the past have been lucky or relied on razzmatazz to make a deal.”

Others, like Zandieh, expect a modified role for brokers.

“It is changing as we speak,” Zandieh said. “Real estate is becoming hyper-local, and brokers are going to become much more specialized in dealing with specific neighborhoods, because a transaction in Greenpoint is completely different from a transaction in Bushwick.”

Compstak’s Mandel predicted that “commercial tenants, buyers and sellers are still going to rely on brokers” 10 years from now, “but they are going to come prepared with their own research,” making the transaction faster. And that will be good for the broker, as well as the tenant.

“Any broker will tell you the same thing: they would rather get a deal done quick than get a few bucks more in commission,” he said.

Zu’bi of Silicon Badia predicted the death of the exclusive listing, but not necessarily the broker, in the coming decades.

“In a more transparent, more efficient market, the information arbitrage will no longer be in the favor of the middleman,” Zu’bi said. “Still, I think we will always need an intermediary to make sure that stuff gets done.”