Rechler, Tighe assess pandemic’s effects on NYC real estate
Real estate titans cheer Cuomo, see changes ahead
The coronavirus pandemic has awakened the greatest sense of civic responsibility the country has seen since World War II, even as the best response to it — isolation — is diametrically opposite that of prior crises, according to RXR Realty CEO Scott Rechler.
“In other past crises, what we’ve done is we like to go right to the epicenter, whether it was 9/11 or Superstorm Sandy, and be there engaged and try to help,” the developer said. “But we’re fighting this war with this invisible enemy, and the best weapon is to actually stay away from everyone, and it’s hard to get your head around that.”
Rechler and another leading real estate figure, CBRE CEO Mary Ann Tighe, spoke with The Real Deal’s Stuart Elliott on Tuesday as part of TRD’s live series of webinars.
The conversation touched on almost every aspect of the pandemic’s impact on real estate, including the city’s need for hospital space to accommodate Covid-19 patients.
The state and Army Corps of Engineers are converting the Jacob Javits Convention Center, SUNY Stony Brook, SUNY Westbury and the Westchester County Center into makeshift hospitals. Tighe said she expected quick conversions like these to remain the strategy.
“I don’t think people are talking about building from the ground up here,” she said. “I think it’s about taking existing space that already has heating and air conditioning.”
Rechler also weighed in on the $2 trillion federal stimulus package, which Congress and the White House reached an agreement on after midnight. He stressed the importance of moving quickly on federal aid.
“Now is not the time to try to make this perfect,” he said. “We need to get liquidity in the system and make sure that people don’t lose jobs.”
The stimulus package aims to blunt the impact of layoffs, which have already hit real estate companies including Lyric and Compass.
Tighe said job losses have not hit CBRE yet but have been concentrated on the hospitality and retail industries.
She said her field had been largely spared from layoffs because of the way its people are paid. “Remember that, at least in my realm, it’s variable income because people are on commision by and large,” she said, “so there isn’t a tendency to go in that direction.”
Tighe and Rechler both cautioned that a rent moratorium, which some New York politicians are considering as a response to the pandemic, would have far-reaching, negative effects throughout the industry. Rechler noted that rent fuels the industry’s payments to others.
“We haven’t let go of any of the people working at our buildings. We’re still paying their salaries. We’re still paying utilities. We’re still paying real estate taxes. We’re still paying mortgages,” he said. “So to the extent that people stop paying rent, you have all these different costs, and the municipalities will be hurt if they don’t get paid … There’s a cascading effect.”
Rechler said a few of his tenants had asked for deferrals, but none for rent forgiveness, and seemed to dismiss predictions of mass evictions.
“We’re not there yet. A lot of this is conjecture,” he said. “We’re not going to be taking aggressive action against anyone. But people who can pay, need to pay.”
The two were not concerned that demand for office space would ebb as companies adapt to work-from-home rules imposed by Gov. Andrew Cuomo. In fact, Tighe, a titan of the city’s commercial real estate brokerage industry, predicted the opposite.
“I personally believe that, at the end of this, people will have a renewed appreciation for going to the office,” she said. “Now, that may be a peculiarly New York-centric thing, but I’m hearing something very different from, ‘Wow, this really works for me.’”
But Rechler said the pandemic would change office layouts and locations. “Clearly, people are going to want to work differently,” he said. “People are going to want more distance.” Some businesses might want more offices to allow for flexibility if disaster strikes a particular area, he observed.
Rechler and Tighe gave Cuomo high marks for his handling of the crisis, with longtime Cuomo ally Rechler describing him as “the exact type of person that we want in this role at this time.”
“I second everything that Scott has just said,” Tighe added. “He’s actually really digging down deep and getting the right people in the right places. I think next time we select a mayor — or for that matter a president — it would be nice to look at the résumé and understand that they know what to do.”
Cuomo’s choice to let all construction sites remain open has prompted criticism from a few elected officials that it puts workers at risk for non-essential work. Rechler said RXR has been rotating workers to allow for distance between them and closing sites entirely for a week if someone there tests positive for the coronavirus.
“If projects are stopped, it’s very hard to get them going again,” he noted.
Tighe backed the governor’s decision. “A lesser person would have said, Shut it all down,” she said. “He looked at it in a nuanced way.”
Rechler predicted that, over the next few weeks, New York would have a clearer idea of what the pandemic means for real estate and life in general.
“By the time we get towards the end of April, I think we’ll have better clarity,” he said. “It doesn’t mean that at the end of April we’re going to get back to normal.”