Articles 8.31.10

Local Manufacturing Jobs: stick a fork in it, it's done?

Contrary to popular belief manufacturing as an industry is not dead in New York. In fact, as the article "Made in Brooklyn" illustrates certain types of manufacturing jobs are thriving in New York.

Grab your Nuts and Have Sex 700 times a year: The Best Health Advice I've ever received.
Need I say more? Check out "What Works."

New York Uncovered
One of the great things about living in New York City is that it's very difficult to get bored. The city is dynamic, multicultural, and amazingly diverse. I've lived here over 50 years and can always find something new to explore. Two recommendations: Chicago has its famed architectural tour conducted from a tour boat on the river. Now New York has a similar tour. If you're a building nut like my wife and me, I heartily recommend this tour. For more information look at the article "A Singular Perspective on the Urban Mosaic."

For something more pastoral, take a trip to Governors Island. Viewing it from a distance does not do it justice. It needs to be experienced to be truly appreciated. Besides being architecturally interesting and offering great views of the city where many cultural programs that are going on there that should be experienced. Go by yourself or bring the kids. The article "Governors Island as Playground" is aptly named.

How to Seduce a Community
Given the experience of Wal-Mart in unsuccessfully attempting to open its first store in New York City over the past decade it is somewhat surprising to find other big-box retailers who have succeeded where the country's biggest retailer has failed. For a primer on how to accomplish this difficult task take a look at the article "A Decade of Wooing."

How to Push a New Yorker's Buttons
We all have our pet peeves. The article "What drives New Yorkers up a wall" describes New Yorker's top annoyances. Don't expect too many surprises.

Jingle Mail

Those of you who are regular readers of my blog know my fascination with various terms that crop up from time to time that indicate what is going on in the marketplace. The newest entry "jingle mail" refers to a property owner mailing the keys to a property back to their lender. Definitely a sign of the times!

And the winner is!
(And, no it's not "Stairway to Heaven." So what is Rolling Stone's top rock 'n roll song of all time? Take a look.

News and Views, August 13

Stats and the City

For some curious statistics about the City check out this article.

What I found particularly interesting is that while $2 today buys you what $1 got you in 1985 (a 100% inflation rate over 25 years), average apartment prices for a one bedroom co-op/condo in Manhattan have increased 185% (significantly higher than the inflation rate), the average asking rent for commercial space has increased 76% (significantly less than the inflation rate), and the average 30-year fixed rate for New York area co-op mortgages has decreased from 13.28% in 1985 to 5.13% in 2010 (which probably explains why the appreciation in co-op/condo prices has greatly outpaced inflation during this period).

Also interesting is that while the city's population increased by 1.2 million people over the 25-year period, the number of people employed only increased by 200,000 during that time. Yet the unemployment rates were 8.2% in 1985 and 9.4% in 2010. Given the large increase in population relative to the modest increase in number of people employed over the same period together with slightly disparate unemployment figures it's difficult to explain this phenomenon.

My guess is that the number of children and elderly in the city relative to those in the workforce has increased significantly during this time period.

Operating Figures for Rent Regulated Housing

The "Highlights from the first three RGB Reports" provide some very interesting statistics relating to rent regulated housing in New York. The statistics are based on 2008 data and show that the average monthly rent for all rent stabilized units was $1,012 per unit ranging from a high of $1,404 in Manhattan to $743 in the Bronx. Operating and maintenance costs averaged approximate $739 per building.

The most startling number to me, however, was the number of properties that are characterized as "distressed" (buildings that have operating and maintenance costs greater than gross income). At 12.8% (or one in every eight buildings) this is an extremely upsetting number, particularly given that this was data collected based upon 2008 results which, for the most part occurred before the economic downturn fully affected New York.

I would expect that for 2009 and 2010 this statistic will be even worse. Under no set of circumstances is it healthy for 1/8 of the rent regulated housing stock to be in distress. This is bad for landlords, the tenants who have to live in substandard conditions as a result, and the city and the state that stand to lose significant tax revenues as a result and who ultimately may become the landlord of last resort.

Alive and Well!

It's expected that the 2010 census will demonstrate the resilience and strength of our city. New York is the only large city in the Northeast and Midwest, including Philadelphia and Chicago, that has shown substantial population gains since 2000. In fact, New York City has been adding, on average, almost 1000 people a week since 2000. What's even more interesting is the characteristics of these people and what it tells us about how the city has changed during the past decade and what we can expect going forward. For more information check out Crain’s white paper on "what the 2010 census..."

Three Years of Law School and This is What We Get

A recent newspaper article headlined " Alton attorney accidentally sues himself". Can't say that I'm surprised.

Great Idea of the Week

One political candidate’s answer to the proliferation of governmental rules and regulations: Office of the Repealer. He's got my vote.

25 Big Ideas to Change New York

Definitely worth a quick read.

No, It's Not "Stairway to Heaven" (volume 1)

Rolling Stone magazine just published their list of the 500 greatest songs of all time. I've included their list of the second through 10th. Number one will be included in my next blog posting.

Sierra in the News

Some interesting news this week:

• The New York Real Estate Journal notes that Sierra's own Jeffrey Anderson has leased 1,100 s/f to Musmanno of The Musmanno Group at 229 East 60th Street.
  

• Attention cupcake lovers! The Real Deal reports that Sierra helped our fave bakery, Sprinkles Cupcakes to lease 780 Lexington Avenue, across the street from Bloomie's.

• Real Estate Weekly's On the Scene writes about Sierra's Barry Sanet as the exclusive agent for Renaissance Studios at 130 West 57th Street -- exciting mixed use with some very glamorous retailers --

and finally,

• The Commercial Observer notes that yours truly (James Wacht) is Appleseed Advisory Council Chair -- check out their wonderful NYC advocacy and social justice work here

This Week's News Roundup

Click on any of the following links to read the stories -- this week's interesting real estate business news:

NYC Architecture: better rents, new projects, and the Vornado effect bring new eateries to Midtown South.

Real Estate Board of New York's Retail Deal of the Year Awards -- fun photos here!

Crain's New York Business notes that restaurateur Ed Martinson signed a 20-year, 5,000-square-foot lease at 45 E. 30th St. Peter Braus and Peter Levitan of Sierra Realty Corp. represented both the tenant and landlord, 43 Park Owners Group. Mr. Martinson's new restaurant is scheduled to open this summer.

REBNYʼs annual Retail Deal of the Year awards highlighted the Best of 2009. Above, Ripco Real Estateʼs Peter Ripka (joined by Sierra Realtyʼs Peter Braus) holds his award for the deal that “Most Significantly Benefits Manhattan” -- the leasing journey of the 475k SF East River Plaza, which turned a dilapidated manufacturing plant into a retail destination.

M. Marianne Thorsen and An-Chi Miau of Sierra Realty are handling Hotel East Houston at 151 East Houston, between Eldridge and Allen streets, on the market for $25 million. The newly constructed hotel, comprising 15,395 square feet and six stories, has 42 rooms with custom-made furniture, wood finishes and marble bathrooms. In addition, the hotel has a banquet facility, nearby parking and a rooftop terrace and lounge that overlook the Hudson River.

Sierra Realty Corp. launched Sierra Development, its new construction and development division, which will be led by Gary Zaid. This expands the companyʼs service lines to include construction and project management, owner and tenant representation, general contracting, value engineering, and development services.

Buzz Words du jour

Our industry, like many others, loves buzzwords.

Often, a lot can be read into these buzzwords besides just their intended meaning. Probably the buzzword that best exemplifies a word or phrase that has meeting way beyond that which was intended is the phrase "burn rate."

For those of you with short memories this phrase came to prominence during the dot com boom and referred to the rate at which unprofitable "new economy" (another buzzword rife with unintended meaning) companies were burning through their capital.

Unbelievably, at the time this was not necessarily meant to be a bad thing but just another metric to be considered in valuing a business. However, in retrospect and with the value of hindsight, it is clear that this buzzword signified the mania of an era.

Similarly the term "capital stack" (sorry, but it makes me think of pancakes) is a recent real estate industry buzzword that has similar significance. It refers to the many layers of equity and debt and hybrids of each that are created as part of the "financial engineering" (another great buzzword) to allow developers and property entrepreneurs to acquire huge amounts of real estate with little or none of their own money.

What this innocuous term really signifies is a transaction that is so overly leveraged that the capital stack is in danger of collapsing. This buzzword pretty much sums up the last five years of our industry.

Falling Water

Falling Water: Not your typical Tudor, colonial or ranch style house, "Falling Water" is a Frank Lloyd Wright masterpiece. Watching this video will help you truly appreciate the genius of his architectural style.

Sierra in the news

Our friends at the Mann Report mention that we are the exclusive agency for 801 Madison Avenue, between East 67th and 68th streets -- two 1,200 square foot floors currently occupied by luxury and high-fashion retailers Giorgio's, Max Mara, Dolce & Gabbana, and Donna Karan.

Sierra in the News

Another nice mention of us in Real Estate News in their On the Real Estate Scene section. Thanks!

Real Estate & The City –- Bitten to Death by a Duck

In the midst of one of the most severe economic downturns that the City has experienced since the 1970s, the government on all levels is contending with the same elevated costs and lower revenue as the private sector. Taxable income and sales are down, jobs have been lost and the number of people in need of assistance has increased.

Increasing taxes may very well be necessary in this time of crisis. But if taxes are to be raised, it should be so that only urgently required revenue is attained without hindering the growth of the private sector. After all, more jobs, higher incomes and increased consumer spending all equate to more revenue for the City, making economic stimulus the most profitable and ultimately sustainable solution to municipal budget woes.

Real Estate’s Essential Role

The real estate industry plays a vital role in the economy of any city, but here in New York it is a load-bearing pillar on par with investment banking and mass media. In fact, $10 billion a year, almost one quarter of the City's annual budget, is paid in real estate taxes every year by the real estate industry. It is therefore in every citizen’s best interest that this industry recover as quickly as possible. As it does, many other sectors will follow its upward lead.

And yet, a litany of factors has coalesced into a perfect storm for local real estate. While not catastrophic for the industry individually, these measures, if adopted, will collectively act to profoundly hinder its recovery. We run the very real risk of being bitten to death by a duck.

Of course we have to start from where we presently stand. Financial losses as a result of the stock market collapse, for instance, cannot be magically undone. We do find ourselves facing a credit contraction that is hindering acquisitions, the funding of building improvements, or the ability to refinance existing mortgages as they roll over. The decrease in rental values for commercial space and apartments alike is simply an unpleasant fact.

The question is, how can these problems be quickly and effectively addressed?

Discouraging Economic Activity

To begin with, changes in Federal, State and City income tax rates on the highest earners –- whose wealth, and the will to spend it, fuels the machinery of New York real estate –- amount to increases from 35 percent to 39.6 percent, 6.85 percent to 10.3 percent, and 3.7 percent to 4.65 percent, respectively. Moreover, the real property tax rate was increased 7.5% in January, 2009, while tax assessments for 2009/2010 also increased significantly in spite of an across the board reduction in real estate values.

Finally, an increase in the city sales tax is proposed, from 8.35% to 8.75%, as is the elimination of the clothing purchase exemption. This will hurt local retailers, further hindering real estate’s recovery.

Changes Proposed to Rent Regulations

Many bills have been proposed to tighten the regulation of rent-regulated housing. These proposals include an increase in the threshold for luxury deregulation, or the all-out elimination of it. Another would modify major capital improvement increases so that they become surcharges that expire once landlords have recouped their investment, rather than permanent increases. Other changes have been proposed as well that if adopted will discourage investment, slow rent growth and severely affect real estate values.

Miscellaneous Fodder Feeds a Fire, Too

There are also the costs that are less easily categorized but which add up nonetheless. Among these is a recession-prompted, exponential rise in the number of tickets being issued and fines being levied for minor infractions. Another is bureaucratic delays in processing permits and applications, which adds significantly to the cost of doing business.

All of the above, when taken together, will have an extremely pronounced effect on the real estate industry. While many are still only proposals, it looks likely that many will indeed become law. If that happens, recovery in the real estate industry will be greatly delayed. Jobs will be lost and real estate as an asset will continue to decline in value.

Moreover, rather than helping tenants as rent regulation is intended to, these new policies would make many rent-regulated buildings not just unprofitable for their owners, but a major liability. A substantial number of properties, particularly in transitional and marginal neighborhoods, will be at risk of falling into a bad state and being abandoned as owners become unable to afford their maintenance. As investment in real estate is discouraged, many tenants will be condemned to living in substandard housing

If these things happen, the cost to the City will more than exceed the gains realized from tax increases and regulatory changes, quality of life will decline for some of the neediest residents, homeowners will be unable to sell their properties for their actual worth, and construction workers and other laborers who build developments and rehab existing properties will remain un or under-employed.

The loss of both property value and taxable salaries will have profound implications for the City and State budgets, both of which depend heavily on estate, transfer and related taxes, amounting to several billion dollars of income annually.

It is therefore in the best interest of all New Yorkers that a carefully thought-out strategy be adopted involving a balance between economic stimulus and urgently-needed revenue for the City. As it stands right now, we may just lose our balance and fall further into recession.

How property owners can deal with distressed tenants

I have an article in the New York Real Estate Journal discussing ways in which New York City property owners are going to be confronted with serious challenges over the next several years, and how concerned property owners can best protect themselves against these potentially serious problems?

Click here to read the whole thing.

Articles 04.15.09

How about some good news for a change? Apparently, despite recent economic woes, New York City is still the Big Apple and many young people's eyes. In fact, the recent downturn has actually resulted in many recently unemployed relocating to New York in search of their big break. This phenomenon is described in "Arrivals, New York."

"Recycling Suburbs" is featured in Time Magazine as one of the 10 ideas that are changing the world. This article describes the transformation that is occurring in many existing suburbs to bring them into the 21st century and to make them "greener."

For a description of how the 47,000 miles of the interstate highway system can be adapted to better serve the 21st century see the article "Reinstating the Interstate." No longer was the interstate simply be a roadway to transport cars from place to place but it can now serve as the basic infrastructure for creating light rail systems and extending the power grid.

Have you ever been curious about what the various style hats mean that are worn by Hasidic men? I always thought that the style of hat indicated the region of Eastern Europe from which the family had emigrated. I was wrong. The correct answer, look at the article "Hasidic Haberdashery."

Most of us have very little idea how to interview a prospective employee or to check their references. For some guidance, look at the article "Reference Checks."

Sierra in the News

Crains New York Business journalist Adrianne Pasquarelli talks to Sierra Realty's own Peter Levitan about retailer Flight Club signing their third Manhattan location. Read the whole thing here: Cut-rate Rent Makes SoHo Shop Shoe-in.

Sierra in the News

The Residential April, 2009 issue of the Mann Report has another nice mention of this humble blog. Thank you!
Click here to read: Sierra Realty Amps Up Real Estate Coverage On Firm's Popular Blog.

Owners and tenants wrestle over rent reduction requests

I am quoted extensively in the March 2009 Florida Loan Specialist Weblog about the ongoing issue of rent reductions for retailers in these rocky times. 

And in Manhattan, Sierra Realty Corp. President Jim Wacht is dealing with a local retailer that is downsizing from 11 stores to seven stores as part of its bankruptcy reorganization. “This retailer is using bankruptcy to cherry-pick the leases and has basically given its landlords an ultimatum–the stores that will stay open are the stores that have the lowest rents,” he says. “They’re really putting the screws to the landlords, and if my client loses this tenant, it’s really going to cost him. He feels like he has no choice.”

It's an excellent, useful article.

Sierra in the News

The Mann Report has an article up about this humble blog. We were also mentioned in Brokers Weekly and Real Estate Weekly. Thank you!

Articles 01.30.09

To understand the magnitude of the issues facing our city over the next several years it is instructive to understand what happened in previous downturns. “Future of NYC: How Bad Will It Get?” provides an invaluable history lesson. When reading this article keep in mind that current predictions are that the City will lose a total of about 250,000 jobs by the middle of 2010 although this number has been climbing every month.

For those of us who have been compelled to sit on the sidelines the last couple years while the spreadsheet cowboys have been chasing deals with cheap money, the article “Return to Fundamentals in Time of Crisis” is a breath of fresh air. Isn't this how deals were always supposed to be done?

“London and New York in the 21st Century” is an interesting analysis of what these two cities must do over the long term to maintain their stature as the foremost commercial centers of the world.

For the brave souls among you who would like to celebrate The Year of the Ox, “Fine China” offers recommendations for several restaurants in Manhattan's Chinatown. Enjoy!

The Real Deal Interviews Peter Braus

New York real estate news magazine The Real Deal's reporter Adam Pincus interviews Sierra Realty's own Peter Braus.

Peter Braus, executive vice president and principal at property owner and manager Sierra Realty, said tenant brokers have more leverage in the commercial leasing market today as vacancy rates rise and new tenants are hard to find.

Click here to read the whole thing.

Excelling in Tough Times

The next several years will present serious challenges to all businesses. With unemployment rates rapidly escalating, banks cutting off credit, and consumer confidence plummeting, many businesses will fail or see their revenues significantly decrease. By adopting the right approach and attitude, however, a handful of businesses will be able to take advantage of the opportunities this market presents them and will strengthen and grow their businesses during these times of economic contraction. What can you do to strengthen your business over the next several years?

For a printable checklist for how to excel in tough times not only in the New York Real Estate industry but all businesses, click here.

• Reduce Expenses: Review every recurring expense and aggressively renegotiate pricing and credit terms with your vendors. Many vendors would rather reduce their prices or loosen credit terms then lose business. If necessary, switch vendors to those that will provide you with better pricing. Rent is often one of the biggest recurring expenses that a business incurs. Review your lease and evaluate your options for obtaining a rent reduction from your landlord. If your lease is expiring soon, take advantage of the decline in rent rates and aggressively shop for the cheapest possible deal. You may ultimately renew with your existing landlord but having market information available to you and offers in your pocket will let you negotiate the most favorable deal. An experienced and reputable real estate broker can help you here.
• Employees: For an employer this is now a buyer’s market. Take advantage of it. Take a hard look at your employees and determine which are valuable and which are under performing. There is much talent out there to be hired. Upgrade the quality of your staff without incurring an increase in payroll.
• Reconnect with your clients and customers: Don't take your existing clients or customers for granted. Contact each client personally and make sure they understand that you value their business. Each year I make a point of asking each of my clients to review the quality of our services. I meet with them personally to discuss their observations. Now more than ever you need to make each client feel as if they are the most important client of your firm. It is far easier to keep an existing client than to find a new one.
• Evaluate any weakness in the quality of the work that your firm performs: Make sure that you are providing an exceptional product or service. Address any deficiency immediately. Replace any underperforming employees and, if affordable, upgrade your infrastructure.
• Aggressively pursue new business: Many of your competitors will be impacted by this economic downturn. They may be required to make cutbacks in staffing, delay making much needed infrastructure upgrades or take other actions which may seriously compromise the quality of the work they perform. This is an ideal opportunity for the well-positioned firm to increase market share by picking up the dissatisfied clients and customers of these firms. How best to do this?
• Marketing: This is not a time to scrimp on marketing. Use intelligent marketing through public relations, advertising, direct mailing, cold calling etc. to get the message out that you're still in business and provide a quality service.
• Networking: Network like crazy. Attend events where you might meet people who could be potential customers. Let your professionals, vendors and existing clients and customers know that you're actively seeking new customers. Perhaps there are people they can refer you to. Don't be shy! And make sure that all your contacts are aware of all of the lines of businesses and services you can provide. Sierra Realty provides a full spectrum of leasing brokerage and property management services. It is surprising how many of our leasing brokerage customers are unfamiliar with our property management services and vice versa. We continually need to educate them so that they can refer new business to us. Don't assume your clients know everything that you do.
• Leverage your relationships: Use the business that you give your vendors and professionals as a way of encouraging them to refer potential customers to you. When I hire a new vendor or professional I make it clear that I expect them to refer business to my company.
• Incentivize your employees: Think about giving your employees incentives for finding new business for the company. Make your employees "partners" in your enterprise. Incentives can range from gift certificates to a percentage of the business they initiate.
• Get involved: I urge every one of my executives and employees to get involved in organizations outside of work. These can be religious organizations, alumni organizations, charitable endeavors, community groups, sports leagues, political clubs, reading groups etc. The list is endless. Not only can it be amazingly gratifying, it is a great place to develop relationships with people who might be able to refer business to your company.
  

Tough economic times are difficult for all. The uncertainty of what is to come can unnerve even the most seasoned of business executives. Yet by following some of the steps outlined above and taking a proactive approach to the economic downturn, a savvy business owner can not only survive this market but emerge from it a stronger and better company.

Articles 11.04.08

Our most recent batch of articles focuses on the retail sector.

For those of us who've gotten tired of the typical fast food fare (McDonald's, Panda Express, Wok N' Roll) found at local shopping centers "Food Courts for Food Lovers" describes the recent and welcomed trend of replacing traditional food courts with higher end food courts focusing on comfort, atmosphere, and fresh food.

The story "Incentive Enough" describes the unscrupulous accounting trick that one recently bankrupt retailer, Steve and Barry, used to artificially inflate their earnings.

Those of you with empty retail space will be interested in the article "Vacancies to cash cows" which describes how vacant stores can easily be converted into valuable ad space.

Next time you spend 15 minutes lost in a multi-tiered parking structure, think about the article "Beyond Valet Parking". This describes a high-tech parking system that reduces parking time by up to 55%.

"Developers cut 2008 pipeline by one third": does this is article really need an explanation?

Articles 10.31.08

I've put another batch of news clippings relevant to the New York realty market and outlook on the website. Check them out!