A look back at a year of distress

In one of the first Daily Dirt editions of 2023, I asked, doubtfully, if this would be WeWork’s year. It was not.

At the time, then-CEO Sandeep Mathrani said the “tail-end” of 2023 was WeWork’s new target for profitability. Mathrani departed in May. By August, the company was telling investors it might not survive another year. In November it declared bankruptcy.

Aside from punctuating WeWork’s spectacular downfall, the bankruptcy bears on the future of co-working and how competitors model their version of it. In the year ahead, we will also be watching how landlords left in the lurch by WeWork fare as the firm reorganizes.

WeWork, of course, was not alone in having a clunker of a year. Multifamily lender Signature Bank collapsed as customers, including real estate firms, scrambled to withdraw $18 billion worth of deposits. Office property owners handed keys back to lenders as debt came due. Foreclosures of rental buildings piled up, and debate raged about how many rent-stabilized apartments were vacant and who was to blame.

Distress in these properties, as well as in older office stock, will continue to be a big story in 2024. City and state officials want aging offices converted en masse into apartments, but have been unwilling to provide the tax breaks needed to achieve that. State Democrats say they hope to reach a housing deal involving a multifamily development tax abatement and tenant protections in 2024, but that doesn’t address the plight of rent stabilized owners.

A long odyssey to challenge the state’s rent stabilization law came to a head when the Community Housing Improvement Program and Rent Stabilization Association filed a petition with the U.S. Supreme Court. It was not picked up. There is still some hope the court will hear two other cases that take a narrower approach to challenging the rent law, but I’m not holding my breath.

These two landlord groups are in the process of consolidating their efforts. A merger could bring new leaders and mark a turning point in how these groups make owners’ case to lawmakers and New Yorkers at large.

Also of note this year: The Adams administration suffered a number of real estate-related scandals.

Eric Ulrich, the former buildings commissioner, was indicted on charges that he accepted or solicited $150,000 in bribes in exchange for, among other things, helping friends and associates advance their project approvals. He had resigned in November 2022 when his name popped up in a gambling probe.

A separate investigation into Adams’ fundraising activities has various real estate threads, including an alleged straw donor scheme involving a construction company and a list that allowed major landlords (and donors) skip the line for fire inspections. The mayor has not been accused of wrongdoing.

One of the kookiest stories of the year was the auction for the Flatiron Building, which is the reason we now know the name Jacob Garlick.

The owners of the iconic, oddly shaped building, a partnership that now includes the Brodsky Organization, plan to convert it into condos, perhaps with a retail component.

The new year promises to be an interesting one in New York, with congressional and state legislative elections, housing policy initiatives and various projects (like the Flatiron) to be decided. The competition for three downstate casino licenses will heat up, with some of the biggest names in the industry vying for the chance to open New York City’s first.

If there is an issue you are watching closely in the year ahead, let us know!