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Month: May 2023

City Council Votes Unanimously for Homeless Bill of Rights…One Provision Prompts Debate

Published on May 31, 2023

As a child when asked to clean my room, I would gather all of my scattered toys, games, and other nick-nacks, put them in a pile in the corner, and heaved a blanket on top. If you couldn’t see the mess, then it didn’t exist. But of course, this made no sense and similarly, the hallmarks of a strong civil society require transparency and honesty even when it’s unpleasant as the homelessness crisis in NYC is. Embracing this philosophy, NYC’s Mayor Adams decided to bring homeless people out of the shadows and the shelters by bestowing them with the right to sleep outside in at least some public places when he recently allowed the Homeless Bill of Rights to pass. It’s been said that “sunlight is…the best of disinfectants” and the double entendre couldn’t be more true or apropos than it is to the recent passing of the Homeless Bill of Rights. Moreover, the bill represents a significant departure from past practices that often involved police clearing homeless encampments as they arise i.e., usually dozens each week.

According to the bill’s sponsor, Public Advocate Jumaane Williams, no new rights are being created and, it is true, that there are no laws against sleeping outside in public places per se but there are a fair amount of restrictions. In fact, on any given night, several thousand people rough sleep on New York City’s streets and subways. In a recent NY Times article, it was reported that the city’s Law Department declined to answer questions about what is and is not legal in the realm of sleeping outdoors. Why? According to a spokesman from the Law Department, its “primary obligation is to advise client officials and agencies,” and providing advice to the media on these topics “would not be consistent with that obligation.” Hmmm…

New York City is, of course, not unique in its struggles with a sizable homeless population and in determining the most humane, safe, and favorable policies for all relevant stakeholders. Los Angeles recently passed anti-camping measures and bolstered this decision by outlawing tents within 500 feet of schools and banning sitting, lying, sleeping, or storing personal property that would disrupt traffic flow on streets, sidewalks, and bike lanes. Even one of, if not, the most progressive state, Oregon, couldn’t muster support for the “Right to Rest” proposal that would have allowed homeless people to use public spaces without time limitations. Portland is, however, attempting to set up municipally run campsites while restricting camping elsewhere as a compromise.

So, how would the provision in the Homeless Bill of Rights to sleep outdoors work in practice? Privately owned spaces are off-limits, streets and sidewalks must remain unobstructed, most parks close at 1 a.m. and don’t allow entrance until 6 a.m. and there are rules against setting up campsites. Lying down on benches or seats on subway trains is forbidden but often unenforced; still, I don’t think anyone is looking to populate subway stations with homeless people as a path forward under the new Bill of Rights. Instead of shirking its responsibility, the City’s Law Department (or some other agency) at some point will have to provide sufficient clarity on the rules regarding the details as to where and under what circumstances one can sleep outdoors.

NYC’s obligation to shelter those who ask for it stems from a 1981 court decision—the so-called right to shelter mandate. However, with more than 70,000 migrants entering NYC since the spring and the homeless population jumping by nearly 80% since May 2022, shelters are nearing a breaking point prompting city officials to seek a court-ordered exemption from the shelter mandate saying it “lacks the resources and capacity to establish and maintain sufficient shelter sites.” As a result, Mayor Adams did not have much of a choice but to allow the Homeless Bill of Rights to pass into law as there is an insufficient number of shelter sites for the recent influx and, moreover, they are expensive to operate, putting significant dents in an already stretched budget. With politics, motivations driving policy are ambiguous and this was likely a decision made out of necessity rather than compassion. But whether the bill turns out to be a “sensible…response to unprecedented homelessness” as described by Taysha Milagros Clark, a policy and data analyst for the Coalition for the Homeless in New York City, remains to be seen. Establishing the specifics for a homeless person’s right to sleep outdoors is critical for all New Yorkers as the safety of its residents is at stake, including the homeless themselves who may be most at risk. City-sponsored and operated outdoor encampments may be the best option but are officials up to the task? Also, let’s not let our pursuit of a compassionate policy fail to take into account quality-of-life issues that have the tendency to make cities shine with swagger or sink ignominiously if ignored. Nor should we overlook the many underlying causes of homelessness such as a lack of affordable housing, domestic violence, job loss, hazardous housing conditions, drug addiction, and mental illness, according to NYC’s Coalition for the Homeless. It’s a new day for all of us in paradise.

Basic Facts About Homelessness: New York City - Coalition For The Homeless. (2023, February 8). Coalition for the Homeless. https://www.coalitionforthehomeless.org/basic-facts-about-homelessness-new-york-city/
Newman, A. (2023, May 28). Is It Legal to Sleep Outside in NYC? A Bill Aims to Clarify. The New York Times. https://www.nytimes.com/2023/05/26/nyregion/nyc-homeless-camp-bill-of-rights.html
Mays, J. C. (2023, May 24). New York City Asks for Relief From Its Right-to-Shelter Mandate. The New York Times. https://www.nytimes.com/2023/05/23/nyregion/right-to-shelter-nyc.html#:~:text=Right%20to%20Shelter%3A%20Mayor%20Eric,accommodate%20all%20those%20in%20need

Are Commercial Real Estate Brokers at Risk of Being Left Behind? Let’s Ask ChatGPT and Bard to Find Out…

Published on May 22, 2023

Not a day passes where we don’t read about the powerful capabilities of Artificial Intelligence and the long list of professions that are at risk of being replaced by AI. I figured who better to ask whether my role as a commercial real estate investment sales agent is at risk of disappearing than the two most recognized large natural language artificial intelligence platforms, Microsoft’s ChatGPT and Google’s Bard.

My first question was straightforward enough: can you tell me how artificial intelligence will replace the commercial real estate broker?

Chat GPT Response

Artificial Intelligence (AI) can automate various tasks in commercial real estate like data analysis, property valuation, and market prediction, reducing the need for brokers. AIs can provide 24/7 service, instant responses, and personalized recommendations based on vast datasets. Additionally, AI can facilitate virtual tours, making property viewing more convenient. Hence, as these technologies mature, traditional broker roles may diminish, but they won’t be entirely replaced; instead, they will shift towards more complex negotiations and relationships, where human touch still holds significant value.

Bard Response

AI-powered tools are automating many of the tasks that were once done by brokers, such as lead generation, property research, and contract negotiation. As AI becomes more sophisticated, it is likely to replace even more of the tasks that brokers currently perform. There are several reasons why AI is poised to replace commercial real estate brokers. First, AI can access and analyze vast amounts of data much faster than humans can. This allows AI to identify patterns and trends that would be invisible to human eyes. Second, AI can learn and adapt over time. This means that AI can constantly improve its performance, making it more and more efficient at completing tasks. Third, AI is becoming more affordable. As the cost of AI technology decreases, it will become more accessible to businesses of all sizes. Brokers who are able to adapt to the changing landscape and leverage AI technology to their advantage will be able to thrive in the future. Brokers who are unable to adapt are likely to be left behind.

They both, in their own way, seem to be saying the same thing i.e., much of what brokers do can be done better and more efficiently by AI with each giving their own caveat. ChatGPT suggests we humans are safe from irrelevancy insofar as the role involves tasks that require a human touch. Bard suggests brokers who can leverage AI to their advantage will thrive and says nothing of the need for humanity. I decided to pick up on this need for humans and imbued a bit of anthropomorphism in my next question when I asked the two platforms to answer the same question but make it funny. See how they did.

Chat GPT Response

In the future, commercial real estate brokers might need to have a serious chat with their careers. Why, you ask? Because AI, or as I like to call it, “Artificially Intelligent Real Estate Sharks,” are in town! These Sharks are hungry and they’ve got an appetite for data. They’re like Pac-Man on steroids, gobbling up numbers, statistics, trends, and spitting out property valuations, market predictions, and buyer preferences faster than a broker can say “location, location, location.” They’re the night owls of the real estate world, providing 24/7 service without needing a coffee break or even a power nap. Need a property tour? These Sharks offer virtual tours with more energy than an over-enthusiastic Zumba instructor. And did I mention they do it with all the charm and personalization of a top broker – minus the silk tie and the sweet aftershave, of course. However, brokers, don’t start packing up your corner office just yet. These AI Sharks, with all their data-chomping efficiency, still can’t replace the suave charisma of a human broker or navigate the delicate labyrinth of complex negotiations. So it seems brokers might have to stick around, but they better up their tech game!

Bard Response

Artificial intelligence (AI) is rapidly automating many of the tasks that were once done by brokers, such as lead generation, property research, and contract negotiation. As AI becomes more sophisticated, it is likely to replace even more of the tasks that brokers currently perform. This is bad news for commercial real estate brokers. But it’s also good news for anyone who hates dealing with commercial real estate brokers. Let’s face it, commercial real estate brokers can be a pain. They’re always trying to upsell you on something you don’t need. They’re always late for appointments. And they always seem to be more interested in making a commission than in helping you find the right property. But with AI, all of that is about to change. AI-powered tools can do everything that a commercial real estate broker can do, but they can do it better, faster, and cheaper. So what does this mean for the future of commercial real estate? It means that the days of the commercial real estate broker are numbered. AI is coming for your job, and there’s nothing you can do to stop it. But don’t worry, you’re not the only one who’s going to be affected by this. AI is also going to replace lawyers, doctors, and even teachers. So if you’re looking for a career that’s safe from AI, you might want to start thinking about becoming a stand-up comedian. Because after AI takes over all the other jobs, there’s going to be a lot of people who need a good laugh.

Like beauty, humor is in the eye of the beholder so I’ll let the reader weigh in for themselves as to which is funnier. ChatGPT may suffer from a “dad joke” vibeBut at least it tries while the Bard response is more angry, dark and ominous and about as subtle and nuanced as a roundhouse kick in the face without any attempt at humor. It is also guilty of some generalities about brokers that seem off the mark. A waiter may upsell you on a porterhouse over a filet but not sure brokers are often guilty of attempting to convince a buyer to purchase the 50-unit elevator multi-family in the West Village over the 8-unit mixed-use in Harlem when the buyer’s budget is $2.5 million but, then again, maybe I’m doing this broker thing all wrong. And, as far as being a pain, well maybe, but never late for appointments.

I give ChatGPT the victory on the follow up question but both have a ways to go. That said, the platforms have been live for weeks in one instance and a few months in the other. Humor is like wine that improves with age up to a point and, for now, the platforms are mere toddlers. The adoption rate/usage of the platforms, however, is unprecedented (ChatGPT had 100 million active monthly users only two months after launch) and despite being early innings, I think it’s safe to say the world is going to change in a major way with AI and not just for brokers. Who knows, maybe we’ll all be competing for laughs on the comedy circuit in the months and years ahead.

A Battle Between Billionaire NYC Real Estate Families: Ashkenazy vs. Gindi

Published on May 19, 2023

The story that unfolded last week, publicly anyway, could be described as a Greek tragedy with a modern twist involving two rivaling wealthy New York Jewish families with deep pockets, valuable real estate portfolios and lots of animus between them if only there was a protagonist on either side with a bit more kindness and professionalism. Instead, we have a public display of what appears to be disreputable and immature behavior more fitting of a high school cheerleading squad, but it’s a fun story nonetheless and who doesn’t love a bit of Schadenfreude so let’s get into it.

The facts are relatively straightforward: Ben Ashkenazy of Ashkenazy Acquisition Corporation (think the more aggressive head of the Capulet clan in this story) and Raymond Gindi of the Gindi family (or the more subdued punching bag from the Montague side) co-own the Cross County Mall in Yonkers. The two tangled over a refinancing and capital calls on the asset and—to avoid a default on the loan—the owners were able to secure a $55 million refinancing from Citibank if the parties contributed $6.3 million of additional capital and closing costs. Ashkenazy claims the Gindis both refused to cover their portion of this shortfall and are liable for back rent on their Century 21 store at the mall. Gindis’ counsel, for his part, is claiming that the capital call is invalid as Ashkenazy, in fact, owes the Gindis money. That’s fodder for the attorneys and a court of law, but it’s the juicy tidbits that make this story worth the price of admission. Ashkenazy accused Gindi of spreading rumors about him stealing from the Gindi family to prominent members of the Syrian Jewish community.

One wonders if Ashkenazy would have cared as much if Gindi only spoke disparagingly about him to less prominent members of that community. Ashkenazy—in a series of aggrieved and mean-spirited text messages—called Gindi a “schmuck” (as any good Jewish boy does when he loses his cool) and further called into question his business acumen claiming its “no wonder you lost and bankrupted your $2 bil[lion] business that your dad left you with no debt.” Upping the stakes, Ashkenazy indicated he would “crush [Gindi] for damages” and even suggested Gindi would “lose much more [due to his] destruction and business harassment.” How much you ask, “more than you know,” according to Ashkenazy who thrives on ambiguity.

All of this was disconcerting to NYC real estate tycoons from inside and outside the community who generally follow the playbook on these things, which suggests that business disputes among community members shall be settled out of court. In fact, several real estate players tried to no avail to settle the conflict. One such player was none other than Charles Kushner of Kushner Companies who pleaded with the pair to “stop the fighting” as he knows “from personal experience that these fights have a life of their own and rarely end with a good conclusion.” Of course that’s rich: some of you may know Charles as the father of Jared Kushner—son-in-law and adviser to former President Trump and business phenom in his own right—but there’s a lot more to him than that. Charles Kushner spent 14 months in a federal prison “camp” in Montgomery, Alabama, in part, for witness tampering which involved an act of retaliation against his sister’s husband, William Schulder. Specifically, Kushner hired a prostitute he knew would seduce William and arranged to have the sexual encounter between the two recorded and later sent the tape to his sister, William’s wife. With siblings like this, who needs enemies? The takeaway in all of this is that billionaires can be every bit as petty as you and me and let’s hope for a favorable outcome for both sides and a restoration of peace between the families.

To Mr. Ashkenazy, I respectfully submit this piece was not intended to cast aspersions in any way or prompt a lawsuit (my legal budget pales in comparison to yours) and any stones I may have picked up along the way in this writing have been placed back on the ground where they belong.

Hourie, Ilya. “Retail Mogul Ben Ashkenazy Blasts Raymond Gindi in Angry Text.” The Real Deal, 4 May 2023, therealdeal.com/new-york/2023/05/03/ben-ashkenazy-to-raymond-gindi-im-going-to-crush-you/.

Elevated Interest Rates that Remain Stubbornly High Spells Doom for Commercial Real Estate

Published on May 16, 2023

For the last decade, investors have enjoyed the benefits of ZIRP, or a zero-interest rate environment, where asset prices were one-directional. But like any good buzz, there is a price to be paid in the post-bender aftermath and we could be paying it for many years. Commercial real estate assets and all relevant stakeholders partied at the ZIRP; heck, it’s been a gluttonous feeding frenzy with properties acquired at yields well below the cost of capital (i.e., remember the days of cap rates under 3%). One well-established NYC broker earned the nickname “Joey 1 Cap” because of his uncanny ability to sell properties to willing investors at such low yields. And why not as, in those days (pre-2019), investors could often double or triple the rent roll in short order, turn a 1% cap into a 6% cap, and cash out all equity through refinancing. This was the way it worked until the music stopped and yesterday’s ZIRP heroes are tomorrow’s unfortunate losers. Buying a multi-family property at a 2% cap in 2018 with 3% financing gets a whole lot uglier five years later in a world of 6% cap rates and 7% interest rates. As the proverbial tide recedes, we are starting to see those that were swimming naked.

So what’s going on and why are increasing interest rates wreaking havoc on commercial real estate and why is the issue particularly acute in NYC? Perhaps a hypothetical Class B office building acquired in NYC in 2015 best illustrates the point and let’s assume for the sake of the example that interest rates were zero at the time. The office has a net operating income of $1 million and, because any intelligent office investor demands a sensible yield, he acquires the property for $25 million, or a 4% capitalization rate. And because the real estate game is all about leverage, the investor cuts an equity check of only $5 million and borrows the remaining 80%, or $20 million. Things go well for a while as ownership increases the rent, and operates the asset more efficiently, and by December 2019, the net operating income increases to $1.3 million (and assuming the same 4% cap rate, the property is now worth $32.5 million). Of course, the prescient investor sells right at this moment and takes home a tidy profit for herself and her investors but, in this hypothetical as in real life, few are so prophetic to see the pending doom around the corner. The pandemic hits, New Yorkers flee their apartments and office space sits vacant, tenants walk away from their lease obligations, and those tenants that do stay, re-negotiate their rents lower. The mayhem subsides just a bit and it’s now 2023, the office building is 70% occupied, rents are reduced from their peak, the net operating income is a mere $800,000 and it’s time to refinance that $20 million loan. Uh oh, you see the problem? The value of the office has been decimated and not just because the net income dropped $200,000 but cap rate creep from 4% to 8% during the hold period has further eroded value. The bank determines the value is now around $10 million but you owe the lender $20 million. For those more visual, the charts below illustrate this discussion:

What does a borrower do whose asset is worth substantially less than what they paid and it’s time to refinance? Depending on what that shortfall is and whether ownership is willing to cough up additional equity to cover that gap, the bank may restructure the debt or agree with ownership to sell at a loss. Ownership may simply stop mortgage payments if a turnaround of the asset is unachievable and hand over the keys to the lender. In fact, RXR may be doing just that with two of its office buildings in NYC, Brookfield did so with two Los Angeles towers but surely these aren’t the only groups impacted…expect more headlines in the coming months. In NYC as with other major cities, the pandemic and work from home was the initial kick in the stomach for office landlords while the interest rate hike is likely to prove to be the knockout left hook to the face.

There will be a similar reckoning of multi-family property owners in NYC with a healthy mix of rent-stabilized tenants. Again, it isn’t just the elevated interest rates when owners go to finance that is problematic, the valuations for such properties declined from 35% to 40% in June 2019 when the laws involving rent-stabilized apartments changed in a draconian way. Prior to the change, these buildings were “value add” plays with juice in the rents or meat on the bones as investors back then referred to them because investors could—often through buyouts—convert rent-stabilized apartments with nominal rents into fully free market apartments within a year or so of acquiring them. To illustrate, take a 25-unit rent-stabilized building with a net operating income of $250,000 purchased in January 2019 for $6.7 million at a 3.75% cap rate. That same asset today (assuming that the net income hasn’t declined which is probably not the case as taxes and other expenses likely would have increased while the rent roll plateaued) likely underwrites at a 7% cap rate, or $3.6 million. With refinancing on the horizon, many of these owners face a similar challenge that the office owners do. They can only pray for a change in the rent laws, a dramatic fall of interest rates, or execute a steep capital call to inject additional equity into the asset to hold on to it. This author’s view is that the sharks are currently making their way to the Hudson River for the feeding frenzy on the horizon. Are you the shark or the prey?

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