Put Those Dot-Com Fears to Rest
What's a fad: the sheer number of Frozen Elsas that will appear at your door tonight asking for candy. What's not a fad: the tech sector in New York City.
And while some folks have feared a replay of the dot-com crash, Thor Equities CEO and Town Residential co-chair Joe Sitt says the sector's going to be around for a long time. "We're in the second phase of the Industrial Revolution," he says.
These companies have great valuation, and they're doing something with that value. (For instance, he says, Google bought multiple robotics firms in one month.) Venture capitalists will then raise more money to invest in even more tech, and feeder companies supporting these businesses will flourish. Sitt was among the panelists at Wednesday's sixth annual Bisnow New York State of the Market event. (Read our previous coverage here.)
His partner in TOWN, CEO and co-chair Andrew Heiberger, says he's seen up to a 20% increase in volume, sales, and commissions this year from the $1M to $5M condo unit market. The $5M to $12M market is also selling at a healthy pace. However, he's concerned about the rising cost of construction and land, which makes it prohibitive to build rentals. "There are not enough units for working people," he says. On the flip side, it's regulating how much product is coming out of the ground. One of the properties he's marketing, The Charles on 73rd and First, has broken sales records for the area, with the penthouse selling for $37M and units for $2,500/SF (prior to that, First hadn't broken $2,000). He hints that he has a 170k SF landmark building on Madison Square Park coming this spring.
Brian Halberg, of counsel for Squire Patton Boggs, moderated Joe and Andrew's keynote, the first time the partners have appeared on stage together since becoming co-chairmen of TOWN. Joe says that overall, the grass is greener in New York than the rest of the world; just look at the slowdowns impacting the BRIC markets. From Harlem to Lafayette and the Bowery, "what was worst is now first," he says.
To give you an idea of how the TAMI sector is driving the market, Colliers International Tri-State prez Michael Cohen gave us numbers to chew on: Midtown North, at 10.6% vacancy, has only seen a 1.5% increase in rents from five years ago (to $75.74/SF). Meanwhile, Midtown South (6.5% vacant) has seen a 26% jump to $58.19/SF and Downtown (12.2% vacant) has risen 20% to $51.70/SF. Downtown is taking overflow (like architects) from Midtown South, where there are few choices for firms that aren't ready to jump to Long Island City or Jersey City. But don't write off Midtown, where most of the office stock is, he says, and don't be frightened by the 40M SF of vacancy—it's only a small part of the 500M SF market, he says, and if we go any lower, there won't be much room for tenants to expand.
Development at Hudson Yards and the World Trade Center only moves the needle slightly and mostly impacts institutional tenants, says L&L Holding Co managing director Simon Wasserberger. "It doesn't help the 20k SF tenant. If you're in the development, the name of the game is to rehab Midtown buildings." Think submarkets with older building stock like Grand Central. Landlords, though, need to distinguish themselves with buildings that include features like collaborative space and double-high ceilings. "That's how you can attract the TAMI tenants."
MHP president of brokerage services David Greene, whose firm is in contract with partner Clarion Partners to acquire the 1.2M SF 180 Maiden Ln by year's end, says he believes a good portion of the Downtown building's tenants will be TAMIs. What's driving this: tenants don't need to be in a particular area anymore, he says.
Hunton & Williams partner Carl Schwartz moderated the office leasing and development panel. If it looks like he's singing into the microphone, maybe he's just silently practicing for his Dec. 2 appearance with band Normal By Day (he plays bass) at the fourth annual Real Estate Rockers in Relief concert supporting the Jewish Disaster Response Corps.