Landlords in “nuclear arms race” to upgrade buildings: Ric Clark

Industry leaders riff on technological change at NYU panel

Ric Clark, Anthony Malkin and the Empire State Building
Ric Clark, Anthony Malkin and the Empire State Building

Now that a real estate developer-turned-president is trying to broker peace with North Korea, it’s only fitting that the language of nuclear proliferation is entering real estate trade lingo.

“There’s a bit of a nuclear arms race going on in New York right now,” Brookfield’s real estate head Ric Clark said during NYU Schack Institute of Real Estate’s annual REIT Symposium Tuesday. He was referring to landlords racing to renovate their buildings and add new technologies to appeal to millennial tenants.

In the past, property owners invested heavily in technology tenants don’t see — for example concerning energy efficiency — Clark said. But now, in a bid to appeal to millennials, “technology and innovation has shifted more to front-facing, consumer-facing” products, he said.

Last year, Brookfield invested in Convene, a tech-centric startup that runs common spaces in office buildings like meeting rooms. Meanwhile, several landlords are undergoing costly renovations at aging office towers in an effort to compete with new developments such as Hudson Yards. Boston Properties, for example, is spending $150 million to spruce up 601 Lexington Avenue, 159 East 53rd Street and the surrounding plaza.

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The firm’s CEO Owen Thomas, who shared the stage with Clark, VEREIT’s CEO Glenn Rufrano, Regency Center’s CEO Hap Stein and Empire State Realty Trust’s CEO Anthony Malkin, said it can be a challenge to find useful technologies for its office portfolio. “Real estate is a difficult business to propagate a lot of technology through, because every building is different, has different characteristics, different tenant bases,” he said. “Creating one thing and then trying to replicate it over and over again can be challenging.”

In a bid to win over millennial office users, several landlords have leased buildings to WeWork. But Malkin continues to be skeptical of the co-working company. “I think that the WeWork phenomenon, to us, is much more chilling and in the end I think possibly self-defeating,” Malkin said, “except to the extent that they occupy their own buildings.”

WeWork tends to beat the shit out of buildings,” he added. “It’s very hard to have a secure facility with name tags and security when they have members coming in and out (…) and very, very high turnover.”

He also claimed “startup businesses can’t wait to get out of WeWork,” but acknowledged that the company is expanding rapidly and uses innovative technology.

Rufrano, meanwhile, dismissed the suggestion that the rise of online retail will kill brick-and-mortar stores. Instead, he argued, large retailers have the means to adapt to changes and stay competitive. “I go crazy when someone says ‘Amazon is going into the pharmacy business so all the pharmacies are dead’,” he said. “It makes the assumption that retailers sit around and put a gun to their head every time there’s a change.”