New York City Still Seems 'Closed For Business' As CRE Challenges Mount
As New York City faces up to a multibillion-dollar hole in its budget, the real estate community is banking on newly inaugurated President Joe Biden sending bailout help. But those funds may not get here as easily and as quickly as many hope, and would only address part of the problem.
Biden last week revealed his $1.9 trillion stimulus plan, featuring $1,400 checks for many Americans. The plan would put $25B aside for rental assistance for people affected by the coronavirus pandemic and extend the federal eviction moratorium.
New Yorkers predict a unified federal government and Sen. Chuck Schumer's ascension to Senate Majority Leader bode well for the city. But Ja'Ron Smith, the former deputy assistant to President Donald Trump, warned at Bisnow’s New York City Economic Forecast digital summit Tuesday that it may not all be smooth sailing.
“With this latest stimulus, I think a lot of Biden proposals are viable, it's just, what is the appetite in Congress?" Smith said. "They were very reluctant in the Senate to even pass the package that was done in December. So if he's able to get consensus amongst Democrats, then he can get it done."
A key aspect of the stimulus will be extending unemployment insurance, Smith said, adding that Biden “rubbed a lot of Democrats the wrong way” with his proposal for $1,400 in checks, rather than $2,000.
“A lot of these different pieces that he put in his plan would have to be negotiated," Smith said. "I think whatever comes up in the new year under the Biden administration will be different than what he proposed, just because there are so many different aspects his caucus, along with the Republicans, have different priorities [on].”
New York Gov. Andrew Cuomo said this week that the state is facing a $15B budget deficit, and implored the federal government to help with funding. Schumer has already pledged $2B for the state to help pay for expenses from the pandemic so far, suggesting leaders in Washington are receptive to providing support for the virus-ravaged state.
Smith and fellow panelists pointed to the need for funding for infrastructure, strong rental assistance, monetary support for small businesses and business liability insurance. But even if state and city leaders’ funding requests are fully granted, New York City real estate is facing a myriad of economic and political challenges that may take years to overcome.
“Developers are making decisions to not invest in New York ... We need to remain competitive, we can’t just increase income tax, because the state legislature wants to do that,” said Rudin Management CEO Bill Rudin, whose company owns 35 office and residential buildings in the city. “So everything has to be looked at in context, and it is incumbent on the business community to lay these issues out in a clear, concise way.”
Rudin is one of the real estate companies that has agreed to work with the state government to help it open “pop-up” rapid testing sites the governor hopes will allow offices, restaurants and theaters to reopen. Rudin said his firm tests employees every two weeks with a PCR test and is now surveying tenants to gauge interest in a similar approach.
“We have several buildings in a few-block radius so we could set up a hub-and-spoke centralized testing," he said. "It takes a little work, but it is critical to giving people a sense of safety that they are coming into a safe environment and their co-workers have been tested.”
The state is also looking at rolling out rapid testing sites in vacant retail sites. But even as those plans take shape, much of the defining elements of the city remain shut down. Broadway is closed until summer at least, indoor dining is prohibited, office buildings are still largely empty, and travel bans and quarantine requirements are keeping tourists away.
Plus, the vaccine rollout has faced challenges too, with the city forced to push back tens of thousands of appointments as supply dwindles.
“We [already] had a big flight out of the Northeast in 2017, because of the changes of the tax provisions, which removed the [state and local tax] deduction, and I think that now, combined with some of what else is going on, is a benefit to some of the more growth-oriented, right-to-work states,” BentallGreenOak CEO Sonny Kalsi said on a panel.
His company had one of its most active years in 2020, but it largely focused outside of New York City, in places like Texas in the U.S. and in Asia.
“I'm sitting in South Florida right now, and if you look outside, you would not believe COVID exists," he said. "These markets are more open for business right now than New York.”
Himmel + Meringoff Properties co-managing partner Leslie Himmel, who has run her New York City property business for more than 35 years, agreed that other states appear more attractive right now.
“Florida has been open for business, the tax environments are favorable. New York's been closed since March,” she said. “[Cuomo] is trying very hard to reimagine, rebuild and renew New York, those are his three words. But he's got to do it really quickly, because too many companies like Elliott [Management] and even Goldman Sachs are saying, 'You know, New York doesn't seem like it's open for business.'”
She added the city could continue to be challenged for a good 18 to 24 months, and that the real estate market is still largely frozen.
Prices appear to be sliding already, generating at least some transaction activity in New York City. Last year, $8.5B worth of Manhattan commercial property changed hands across 160 transactions, according to Avison Young. That marks a 51% drop in the sales volume from 2019, per the brokerage.
“Some [state] proposals about converting office and hotel buildings to affordable apartments ... those are smart, intelligent things. But the political environment in New York is a tough environment today,” said Witkoff Group founder Steven Witkoff, who added the Paycheck Protection Program loan program allowed him to keep two hotels from closing permanently. “New York has always been about the government coming together in a compact with business. I hope that continues.”
And while residents leaving the city — some 70,000 people are said to have left the New York metropolitan region in 2020, costing the city some $34B in lost income — is of concern, most panelists expect the city will claw its way back.
“I'm very enthusiastic about what we're going to see when we're on the other side of COVID,” Empire State Development Executive Vice President of Real Estate Development and Planning Holly Leicht said. “I have stepkids in college, and they are going to graduate post-COVID, and they want to come to New York. And I think that that is one of the beauties of New York. There is that enthusiasm, that desire to be in the best city in the world with the smartest people in the world."
CORRECTION, Jan. 21, 11:00 A.M. ET: An earlier version of this story misstated the cost of Biden’s stimulus package. It is $1.9 trillion not $1.9B.