Mary Ann, Seth, Janno, and Joe's Open Letter To The Mayor-Elect
In a week, NYC's mayor-elect will be two days into a done deal. And in two months, the government will have new heads of the City Council and NYCEDC, as well as the departments of City Planning, Finance, Landmarks, and Buildings. Here's what panelists at yesterday's Bisnow Future of NY Real Estate Post Bloomberg event expect of the City's new leaders.
The crowd at the NY Bar Association heard our panel's take on the mayor-elect's first priorities. RXR emerging markets fund manager (until recently head of the NYCEDC) Seth Pinsky calls for a diversity of real estate stock, including redevelopment in the core and development elsewhere where infrastructure can bear more density. Columbia University facilities head Joe Ienuso says it should be "five-borough development." World Trade Center Properties prez Janno Lieber says construction simply needs to cost less. (Hopefully "go to Hope Depot on Black Friday" isn't the mayor's answer.)
CBRE Tri-State CEO Mary Ann Tighe says only 19% of the office that has been built in NYC since 1990 has gone up without subsidies. She didn't go so far as to say development isn't doable without tax abatements, but she did point out that the City's budget has risen 60% under Mayor Bloomberg, while real estate taxes have gone up 100%. "The City needs to support real estate, because real estate supports the City," she says.
Our moderator, Stroock's Ross Moskowitz (whom we snapped with Taconic's Andy Zlotnick), spells out real estate's role in the City's cash flow: Income-producing properties are 21% of the $69.9B 2014 budget, a larger share than sales and personal income taxes combined. (When people say, "But who's counting?" the answer is Ross Moskowitz.)
Seth (flanked by Windels Marx's Sanjay Mody and NGKF Landauer Valuation's William Picoli) adds that land is too expensive to justify commercial development. Part of the reason may be a product of residential subsidies and high building standards, but it simply costs more to build the same building in NYC than in similar, developed global cities. (It keeps getting destroyed in movies, so insurance rates are high.) He adds that incentives should be used responsibly (not as gifts from the government but rather as investments by the City),and that means underwriting on the returns. Citing Madison Square Garden's no-taxes-since-1982 status, Mary Ann poses no argument there.
Acknowledging that "no one's going to cry tears for a developer," Janno says New York has become dependent on real estate to get other things it wants done. He'd like tax consistency across building types, as well as predictability (yes, the WTC benefits from a PILOT, but it includes a hard-to-pinpoint escalation based on other buildings). To that end, Mary Ann says the real estate tax on any new development is unpredictable, adding, "Imagine building when you don't know what 25% of the office rent, for example, will be."
Joe's not immune to private ownership concerns, either, as a good portion of Columbia's 240 buildings are commercial, and as he points out, everyone knows Columbia isn't going anywhere. As the university makes its way through a 6.8M SF expansion using union labor, he'd like to know there'll be enough minority- and women-owned, certified businesses to rely on to build the threshold 35% of such a large project. "Wouldn't it be great," he asks, if the City, State, and private interests could work together to reduce the number of certification agencies?