Extell CEO Sush Torgalkar On Learning Under Gary Barnett, NYC’s Luxury Market And 2020 Vision
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This January marked a changing of the guard at one of the city’s best-known real estate firms, Extell Development. After three decades leading the company he founded in 1989, Gary Barnett announced that Sush Torgalkar would be assuming the role of president and CEO.
Though Barnett has stayed on as chairman and remains heavily involved in the day-to-day operations, the 42-year-old Torgalkar, who was previously chief operating officer of Westbrook Partners, is now charged with growing Extell's business and overseeing its properties.
That is no short order. The portfolio includes some of the city’s most skyline-defining, priciest condominium offerings. Right now, Extell — which has developed some 30 residential buildings in the city including the Billionaires’ Row poster child, One57 — is building Central Park Tower, which will be the tallest residential building in the world when it opens.
It also has built One Manhattan Square, an 815-unit tower at 250 South St. in the Two Bridges neighborhood, and is underway with a 68-story mixed-use condo tower at 138 Willoughby St., its first development in Brooklyn.
But like most developers in the city, Torgalkar will face some headwinds while shepherding Extell through the next few years. A decade after the Great Recession, most real estate players are anticipating some form of a downturn. The city’s once-glorious luxury residential market is experiencing a well-documented oversupply.
Torgalkar, who is giving the keynote address at Bisnow’s New York 2020 Forecast event this week, spoke with Bisnow about his transition to the company, why he isn’t so worried about the softening of the luxury residential market and being mentored by Gary Barnett.
Bisnow: You joined Extell as CEO and President in January. So, what's the first year been like?
Torgalkar: It's been enjoyable. I've been learning a lot, working very closely with Gary and just trying to understand the development business. I was exposed to development and I worked on development projects in my prior job. I was at another company for 18-and-a-half years, and we invested with different partners, including Extell. That's how I got to know Gary in '05 and '06.
But it’s very different when you're actually doing it directly. And just getting to know the organization, we have 350 people across all aspects of real estate development, and I've been really impressed with the quality of the team. It’s been better than expected.
Bisnow: So, Gary, as the founder, is very much the driving force, very much the public face of Extell. What's that been like for you to step into a role like yours and working with someone like Gary?
Torgalkar: It's an honor. I get to learn from Gary, who I view as one of the smartest, most humble people in real estate that I've ever encountered. I think he's changed the landscape of New York City, and to learn from him, and work with him in such a close manner every single day on everything we do, is an honor. I'm very grateful. He's been very supportive and embraced it and brought me into all aspects of the business. So it's been great. I couldn't ask for more.
Bisnow: And he didn't retire. He's still on as chairman. So on a practical level, how does the company run now?
Torgalkar: He continues to do what he always has done. Obviously, as I'm getting more up to speed, I'm trying to take on more and more responsibility and work. But he started this business and continues to run it day to day, and I'm doing my best to help him in every way possible. These projects are like his kids that are grown-ups, or are growing up. I'm learning it and helping out where I can. It's been great. I view it almost like a mentorship in some ways, where I'm obviously helping in areas where I have strengths and learning. There's plenty of work for me, Gary and our whole team. So we kind of divide and conquer, and it's worked well.
Bisnow: You described him as a mentor in the past. [And] I understand Westbrook Partners co-founder and CEO Paul Kazilionis was a mentor to you as well, so how have those kinds of relationships shaped your career?
Torgalkar: I worked at Westbrook for 18-and-a-half years and I learned a lot from Kaz on how to make real estate investments, how to sell projects and how to run a fund management business. And I'm very grateful for that experience. And I think Kaz and Westbrook are one of the preeminent fund management businesses out there. So to have that kind of seat for the first, call it roughly 20 years of my career, was great in that respect. This is now a different stage of my career, to learn from one of the best developers, if you will, and most experienced — especially as it relates to New York City. It's equally rewarding as the fund manager. But it's a new skill set.
Bisnow: Is it quite a transition? Being at Westbrook, as you said, being at a fund manager, and then jumping over to a development company. What's the transition like?
Torgalkar: [At Westbrook] we had probably 150 investment properties at any one time across 10 global cities. Probably the easiest way to describe it is as “you're a mile wide, but an inch deep.” You know what you need to know, but it’s at kind of a high level. You want to make sure there's no major issues in any investment, and if there is, then you focus on that particular area.
At Extell, we have roughly 30 properties, all more or less in New York City. And so it's almost the other end of the spectrum, where you're an inch wide, but a mile deep. And so we're much, much more intimately involved in every aspect of these projects from aggregating the land and getting the permits and developing a building — all the construction during the construction phase. And then obviously, once you've built the building, filling it up with tenants and then managing it. So we're in every aspect of that on a day-to-day basis.
Bisnow: So Extell’s most famous development is One57, which is where the first condo in the city to break above the $100M price threshold happened. And that's really what kicked off and established Billionaires' Row. But it's a very different market now. So how is the firm preparing for, I guess, this next chapter in this city's luxury market?
Torgalkar: The market is today obviously softer than it was many years ago. But just being in the seat for the last year, you see the depth of demand for New York City apartments. It is literally from every country in the world, all U.S. states. I mean, people want their piece of New York City.
And so, the demand continues to be strong. What happened is, you have an oversupply situation across certain aspects of the market ... But I see that changing. Traffic's picking up, people see that the market has corrected, and they have an opportunity to get a good deal. So they're getting more active and they're stepping up and transacting.
So I think that's healthy, and new supply has stopped. I mean, there's really no new supply. So I think it's a classic cycle where, you know, as now that new supply stopped, demand continues to slowly burn off the inventory. You'll then have a market that starts to recover again.
I've been in New York City real estate for 20 years. And out of those 20 years, there's really only been three or four years where [there was] a good opportunity for the tenant or the buyer. It was, '02 maybe '03, post 9/11 — which obviously was a traumatic event. [Then again in] '09, 10, post-the greatest financial crisis since the Great Depression. Those are two super-traumatic events. But anyone who bought in that time made a lot of money.
This time it's different, this time you have a correction, but otherwise, outside of the oversupply, you have a healthy situation: low interest rates, demand's strong, etc. So I think, in the long run, it's probably a pretty good time to capitalize for a lot of people. And I think they'll do well.
Bisnow: So how are sales at Central Park Tower? As far as I understand, there are 179 units there and 18 of them are asking more than $60M.
Torgalkar: That's not something we get into details on, but we're doing well. We're pleased with our progress today. The building will be finished next year and we're excited to get going. Nordstrom opened up there [in the] last month or so and it's doing super-well. So it's a very exciting project.
Bisnow: Is there any sense of anxiety about the sales there, considering that kind of correction that we were just discussing? I've read that Extell needs to to sell $500M of the apartments by December next year to meet the loan deadline?
Torgalkar: I don't have any anxiety about the project. As I said, I'm super-excited about it. Nordstrom's doing well and we're working to get it finished and get tenants moved into it.
Bisnow: I know that you're saying there's not a lot of supply coming online. But there's been a lot of data out there in recent months that is quite unflattering, I guess, so to speak, for the luxury market.
Torgalkar: Traffic has picked up and inventory is burning off. And I see now as inventory burns off, it's starting to get the promising signs of an uptick. It'll take time ... Not all buildings are the same. So there's different types of quality construction and amenities and experience that all plays into it ... I would say in the past, people were kind of waiting, seeing. I am seeing that starting to change. So those customers themselves are saying, ‘This is probably a better time to buy than not. We're closer to the bottom than not.’
Bisnow: So Ryan Shear from PMG — they're developing another Billionaires' Row supertall — he made a really interesting comment at a Bisnow event recently in Miami. I just want to read to you what he said:
"New York is worse than Miami and nobody's talking about it because there's a bunch of friendly foreclosures happening quietly or LLC purchases. A lot of things happen behind the scenes."
And then he said, "New York is so over the hill on land purchases from condo buyers, because the scales are bigger and the dollar is a bigger. There's no pre-sale, no private launch like the cost basis was $2,500 a foot with zero sales. Now it's coming to roost. They haven't sold a lot of the condo units, and that's a huge problem."
So when you hear something like that, what's your reaction?
Torgalkar: I think there will definitely be some developers that have overlevered projects ... that are going to have issues. There's no doubt. But that doesn't mean that's indicative of the whole market. And yeah, maybe some of those buildings will have issues. I can't speak to what he's specifically talking about. I don't know. There definitely will be some issues. But that's like any other cycle. I mean, if someone is stretched too thin ... they don't have the cushion.
Bisnow: You've offered deals at One Manhattan Square, waiving the common charges for a decade, which is quite unusual. And then, I understand, back in September you announced a rent-to-own scheme. How effective have those programs been?
Torgalkar: I think it's worked well. I mean, people are excited about the building. Tons of amenities and just a very well-constructed building. So, it's gone well so far. But that's the opportunity. That's exactly my point … rent-to-own programs or something like that, that's not typical. We can offer it because we do have also the property tax abatement. Where tenants don't have property taxes for 20 years. So when I look at that project, that's a good opportunity for a tenant, a buyer. And people are capitalizing on it now.
Bisnow: Do you see that you would expand those types of offerings to other buildings in the city?
Torgalkar: Not right now. But it's going well and perhaps, but it's not something that we're focused on right now.
Bisnow: Ultimately, you were brought on to oversee and expand the business. So what's your target moving into the 2020s?
Torgalkar: As I said, this year has been a learning year. I'm super-excited about the business. We're big believers in New York, I think there's a lot of opportunity still in New York in the years to come.
Extell's done all different price points, like One Manhattan Square, Brooklyn Point — those are much lower-priced than something like One57 or Central Park Tower. We've kind of spanned the spectrum of residential and I think we've been on the forefront of building quality residential homes for families of many different different levels and individuals of many different income and wealth levels.
So I think we'll continue on that. It's the strength of the firm. We've also done hotels, even office. We have a bunch of different ideas in the years ahead.