The REInterview: Bill Rudin on remote work, property taxes and the future of tech leasing in NYC
REBNY chair responds to fears that tech's love affair with the New York office market is over and talks about how the city is going about reopening
Bill Rudin is the co-chairman and CEO of Rudin Management, one of New York City’s largest family-run real estate firms. Rudin is also chairman of the Real Estate Board of New York and a former chairman of the Association for a Better New York. With more than 15 million square feet of holdings in Manhattan, he’s got more skin in the game than nearly any New Yorker when it comes to real estate. We caught up with him to discuss the mass adoption by tech companies of remote work and the implications for office landlords, how the city intends to bounce back from the pandemic and his thoughts on the property-tax system.
This interview was conducted May 29. It has been edited and condensed for clarity.
We’re chatting during a time that a lot of people have predicted is going to fundamentally change the value proposition of the NYC office market. Facebook, which has 1 million square feet of office space in New York and 1.5 million square feet in the pipeline, announced that they are going to transition quite substantially to remote work. And there are other big companies that have made similar announcements. What’s your take on what that means?
I think we have to put everything in perspective. If you watched Mark Zuckerberg’s interview, and you get past the headline, he makes it very clear that this is part of a larger strategy. All Facebook’s products are related to the internet and people interacting in a virtual world. Fortunately, we live in a real world, where human interaction is critical. He [Zuckerberg] even talks about how senior management are going to continue to work from their office. Only the people who are seasoned are going to have the opportunity to work remotely.
He said, “Initially, when we hire new people, if they’re senior, and they can work remotely in a manner that’s efficient, we’ll let them do that.” And yes, you’re right: Mark is not planning to stay at home and dial in for Zooms every day.
I think he talked about eventually over the next 10 years, half of the company [will go remote]. But they’re 45,000 people, so you assume 10 percent growth, 5 percent growth, so it’s a few thousand people a year. But he made it very clear that there are challenges related to working from home: the team-building, the feeling of being part of the social bond is going to be something you’re going to have to figure out. What we’re going through right now with Covid-19, there are fundamental shifts in the way people are thinking. But as we get back to normal, people will find that an office environment is critical.
Having an office environment is critical — no one’s debating that. It is about the footprint, the scale of that office.
Right, but they [Facebook] are still going to grow within their office. And others — Microsoft, Google, Take-Two Interactive — are not going to go substantially to a work-from-home environment. The CEOs have been very clear that they think the model that works for them is having people in the office. Now, there will be obviously different takes on this — the headlines are “the real estate market’s going to collapse, the big cities are going to be set back…” We’ve had setbacks before, and we’ve figured out ways to repurpose, and recreate ourselves. The article that you guys posted related to TikTok, that’s a 230,000-foot lease in Times Square at the Durst Building. They’re right now 50, 60, 100 people in a WeWork on 49th Street.
You went from Conde Nast, which is this flagship legacy media company, to something like TikTok, the new age company.
But that’s my point. Five years ago if I said to you, “Well, TikTok’s going to come to New York,” people would say ‘What’s a TikTok? Is that the watch on your wrist?’ They’re going from 100-plus people to 1,000 people. Doesn’t that tell you something? Five years ago, was Peloton in business? Probably was just starting. Or Etsy, which has been around 10 years. IAC, Datadog … These are now publicly traded companies worth north of $10 billion, and a lot of that market value increased over the last few months, because they’re providing a very unique service for this difficult time. But they’re based in New York. Yes, obviously Facebook talking about [remote work] makes people aware.
Did Facebook’s decision not concern you, as a landlord, as chairman of REBNY?
It doesn’t concern me. Facebook 15 years ago was half a dozen people, today they are 45,000. Somebody else is going to come along and create a business that will have a presence in New York that will fill the gap. On top of it, they have over 2 million feet of space in New York City. This is part of an experiment — sometimes it’s going to work and sometimes it’s not.
But the longer this forced working-from-home period lasts, the more tools are being developed to make sure that remote work isn’t as crummy as it used to be.
If there’s an emergency, we now know we can work remotely. I’ve talked to many CEOs and COOs of these companies, and I think there’s a shelf life for people’s enthusiasm for working from home. Talk to the young people who are sharing apartments, or the young people who have children, and see how difficult it is to manage. And there’s no cutoff point [between work and home].
All I know is, we haven’t heard from any of our tenants saying, “Oh my God, we’re going to give back space.”
Do you think tenants have gained leverage? I guess one of your priorities right now would be to stabilize your assets.
First of all, on rent collection, we’ve done surprisingly well. We’re in the mid-90s on the commercial side and the low-90s on the residential side. It depends on who your tenants are and the quality of your tenants. Some of the Class-B buildings are having a more difficult time. The PPP [Paycheck Protection Program] was very helpful for a lot of companies, and hopefully we’re going to get some extension of those efforts. Hopefully, we’re going to see the city start opening in the next couple weeks, in Phase 1, in terms of construction and manufacturing.
You’re on the governor’s reopening council. What sort of progress has it made?
We’ve had several formal meetings and several informal conversations. Discussing short-term issues related to Phase 1 reopening, protocols for construction sites, protocols for opening up buildings — everybody understands the rules of engagement: You’re going to have to wear a mask, you’re going to have to practice social distancing. We’re going to have to produce more fresh air. So those are things that we’ve been working on. We’ve been working very closely with the construction unions. They’ve been actively involved.
Has everyone come to the table? There’s always been a push-pull between construction unions and developers.
Everybody has been coming to the table. I’m also on the mayor’s task force. We had a call on the subcommittee last night, the senior executive of 32BJ, Larry Engelstein, was on. A broad group of people are on the conversation, talking about short-term issues, but also medium-term and long-term issues. What have we learned in the past, and how can we apply that to now? A crisis is a terrible thing to waste. What do we look at in terms of regulatory changes? The mayor’s been talking about having restaurants come out onto the sidewalk. Do we talk about zoning changes, like we did in the 1990s, in Lower Manhattan? I’m not sure if you were around.
I interviewed Carl Weisbrod, so I have a good sense.
Okay. So in the early ‘90s, when we had 30 million square feet of space in Lower Manhattan, 30 percent vacancy. That was a scary, scary time. Obviously, this is a very scary time, and people have lost their lives and lost their jobs. But in the ‘90s what we did was we turned lemons into lemonade. We created a plan that provided conversion of obsolete office buildings to residential buildings.
You’ve got an interesting asset there, 110 Wall Street. What’s the status of the WeLive [WeWork’s co-working division] at that building, given the times we’re in? People are going to be quite reluctant, at least in the short term, to pack themselves in.
The apartments are small, so maybe you go to only one person in the apartment, or a couple living there. I think it’s still going to be a good value proposition. It’s got an incredible location — the ferry is right next door to it.
You think any sort of fear or hesitation on it is short-term then?
I definitely think it’s short-term. We’re going to hopefully see this vaccine come to market in the third and fourth quarter. Look at these other countries, look at Singapore and Hong Kong. They’re up to 80 percent, in some places 100 percent, back in business.
Right. But unfortunately, we’re not Singapore or Hong Kong. We don’t have that unified national message. It takes us a lot longer to get things done.
The governor’s been very clear about wearing your mask [puts on mask with “New York Strong” on it]. We’re all going to have to adapt to this reality. The mask also says “Don’t bet against New York,” which is something my dad always talked about.
I am going to ask you about your father, actually. Lew Rudin was one of the champions of getting landlords to prepay their property taxes during the fiscal crisis in the 1970s. He said, “Look, our city needs us, and this is the time for us to show our stripes.” What’s happening now is that REBNY [of which you are the chairman] has asked for some relief on property taxes. Talk about that.
It was different times back then. The real estate industry back then essentially did a bridge loan. The city was running out of money, the federal government was not stepping up. There’s some analogies to now. We need the Covid-4 package that would provide funding for the cities and states. The difference is, this is not just about New York. Back then it was really just about New York. When you have 40 million-plus unemployed, that puts severe strain on budgets. We have to be creative — the city and state governments, just like all our businesses, have to become more efficient.
Have they been responsive to the requests that REBNY and others have made on the property-tax issue?
The state and city have to get through their issues with the federal government. But we didn’t ask for anything specific. We just said, be cognizant that we cannot go forward and increase tax burdens that are already significantly higher than other places, and create an environment in which we’re not competitive anymore.
At Dock72 [the WeWork-anchored project by Rudin Management and Boston Properties in the Brooklyn Navy Yard] , you’re essentially betting that tech is going to create a new future for certain neighborhoods. Do you think, given all we’ve talked about, that’s still a viable strategy?
No question about it. We designed, really, the building of the future. And it’s really apropos to right now because our food hall is 15,000 feet, a gym of 13,000 feet and a conference center of 12,000 feet. We have space to do this social distancing. It really is designed for the companies I talked about before, like Datadog and Etsy, when they were starting out. Because we have the amenities and infrastructure that they don’t have to put into their space. This is great for the workers who live in Brooklyn, that’s sort of the suburb of the city right now. This will provide an opportunity for companies who have a hub-and-spoke concept so that they want to provide alternative spaces for their employees. We think the thesis is going to be proven correct, because there is this strong desire to be together, have this entrepreneurial energy, that happens when you are together.
(Related: “We’re not in the business of land-grabbing:” Hana CEO on the future of flex space)
I can hear the optimism throughout.
It is optimism, but it’s also based on, you know, everybody likes to take a snapshot in time and the world’s coming to an end, and yes, we’re going through a very difficult time, but again and again, throughout history … There was an interesting article in the Journal the other day which talked about cities that have gone through severe trauma — earthquakes, bombings, terrorist attacks — and they all come back.
We’re certainly one of the most resilient cities in the world. Given your optimism, what are the missteps we could make and we have to be really careful about?
Rushing back too quickly and having people get reinfected would be a very unfortunate situation. And also, we have to make sure we don’t go to the knee-jerk reaction of increasing taxes and going after the middle class, the upper middle class and the wealthy. Because there’s a significant amount of mobility in our society that could tip us into not a good direction.
(Watch more of The REInterview, a series of in-depth conversations with real estate leaders and newsmakers hosted by Hiten Samtani, here.)