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Unlocking Doors: A Good Name But a Plan that Falls Short

Published on April 24, 2023

Affordable Housing

The first step in fixing any issue is recognizing that there is a problem in the first place. According to an internal state housing agency memo, New York City has the makings of an affordable housing crisis with more than 61,000 vacant rent-stabilized apartments in 2021 (probably much higher now). Mayor Eric Adams seems to have a plan; it isn’t a good one and the approach is the equivalent of putting a band-aid on a gaping wound, but it’s a plan bound to fail nonetheless. It is called Unlocking Doors—a $10 million program that provides $25,000 for repairs of 400 rent-stabilized apartments (less than 1% of the currently vacant rent-stabilized units) to house those experiencing, or on the brink of, homelessness. To an outsider, this may seem like a good start for a pilot program, so what’s the problem?  There are a few:

  1. $25,000 Isn’t What It Used To Be: $25,000 may fix a few toilets and sinks but it simply isn’t enough to cover the cost of rehabbing most rent-stabilized apartments into modern living standards given higher inflation impacting labor and material costs. Furthermore, with upcoming local laws soon to go into effect that requires emission caps and additional lead-based paint compliance, the $25,000 falls far short of the amount needed when permits alone can cost $10,000.
  2. Chronically Vacant Standard: To gain access to the Unlocked Doors program, landlords need to show the unit has been “chronically vacant” and has been registered with the state. Waiting for a city agency to provide the “chronically vacant” certification (and whatever interpretation of that phrase the city decides to apply) could take months to obtain and require a mountain of paperwork that would make a data entry clerk blush. This is to say nothing of showing the unit was properly registered with DHCR. If I had a nickel for every incorrectly registered DHCR legal rent, I’d be hobnobbing with Leonardo Dicaprio and Vlad Doronin on a football-field sized yacht off the island of Saint Barthelemy.
  3. City FHEPs Tenants Only: The newly renovated units must be rented to tenants through the City FHEPS program that provides vouchers to families facing eviction or homelessness but the program already pays landlords for rent stabilized apartments in excess of $2,000 per month for one and two bedrooms without needing to do the repairs so why would landlords bother with this bureaucratic debacle? And because the housing crisis is so acute, it isn’t reasonable to think City FHEPs would hold back on giving out vouchers until a unit has been repaired as that would exacerbate the housing shortage. Of course, there’s no shortage of ill-conceived ideas by those that make the rules so who’s to say for sure?
  4. Pay Now, City Reimburses Later: The Unlocked Doors program will not provide the renovation funds upfront; instead, it will reimburse landlords for qualifying expenses only after repairs are completed and reviewed by HPD.  Oh boy, if ever a case could be made for counterparty risk, this is it! Imagine shelling out $25,000 to repair your unit after waiting a year to have the apartment declared “chronically vacant” only to wait another year for the city to review and sign off on the repair work, taking the chance that they don’t because you failed to obtain a property conditions report they didn’t tell you was needed at the time before the work was commenced. Add the 7% inflationary environment we are experiencing and this seems like a program suitable only for thrill seeking economically reckless landlords with lots of time and little to do.  No thanks. 

To NYC’s Chief Housing Officer, Jessica Katz, who declared that this pilot program “demonstrates this administration’s commitment to housing New Yorkers experiencing homelessness,” I respectfully demur in suggesting you missed the mark.  This program neither “improves the quality of [the city’s] housing stock” nor provides “incentives to property owners to make vacant units available for the lowest-income New Yorkers.” Back to the drawing board, the people of New York and especially the most economically vulnerable, need city officials to do better. Until then, the doors are likely to remain locked.

Dilakian, Steven. “NYC to Fund Repairs at 400 Vacant, Rent-Stabilized Apartments.” The Real Deal, 19 Apr. 2023, therealdeal.com/new-york/2023/04/19/city-to-fund-repairs-to-vacant-rent-stabilized-apartments/.
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New York’s Lack of Affordable Housing is Serious But…Good Cause Eviction isn’t the Answer

Published on April 13, 2023
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Resource from Clio Chang at Curbed. (n.a.). https://www.curbed.com/author/clio-chang/. https://www.curbed.com/2023/03/good-cause-eviction-new-york-courts-losing.html

Call it good cause eviction or universal rent control, but the truth is a wretched legislative proposal by any name reeks just the same. A sincere and candid economist (preferably with one hand as President Truman liked them) will tell you that rent control is not a sound way to increase the amount of affordable housing as price ceilings create supply/demand disequilibrium. Sound economic theory be damned, however: the “give-them-what-they-want-and-then-some” Bernie Sanders has called for the need for “national rent control” while Alexandria Ocasio-Cortez—never one to be outdone when it comes to grandstanding and bloviating—demanded, “it’s time that we stop commodifying the housing market.”

Local judges, fortunately, are obligated to adhere to the rule of law and have ignored the politics on this issue. In cities such as Newburgh, Albany, and Poughkeepsie, judges are shooting down local measures aimed at limiting a landlord’s ability to increase free market rents on the rationale that cities simply don’t “have the power to draw a circle around [themselves]” and declare that “state laws [d]on’t apply” to them. That’s sound legal reasoning for sure (as good cause eviction is not the law in NY—it has been mired in legislative limbo for years). Sadly, however, the median household income in many of these cities is below $50,000 while free market rents have increased at a torrid pace (i.e., more than 50% in some cases) leaving many residents floundering on the brink of homelessness.

Rent control is in vogue because America’s housing market is increasingly unaffordable with real housing prices having doubled in NYC since 1970. Nationwide, 25% of renters spend over half their income on housing. Skyrocketing prices are the result of a demand-supply disequilibrium: housing demand across the US is outstripping supply by 370,000 units a year. Rent control is often presented as a solution to greedy landlords taking advantage of pinched renters—it takes aim at the landlord’s profits by limiting rents at below-market levels.

The problem of course is complicated and the fix isn’t simple. There has been a chronic lack of supply (newly built apartments) throughout the state but most notably in NYC. The issue is further exacerbated by the fact that nearly one-third of all units are rent-stabilized putting significant pricing pressure on the remaining available market-rate units. Furthermore, the population has increased by 800,000 people over the past decade but only 200,000 new places have been created for them to live. This isn’t a baffling Millenium Problem on the scale of the Poincare Conjecture, the math here is easy: New York hasn’t built nearly enough and the scale of new housing required to meet current demand is significant. Housing cannot become more affordable without becoming more available…meaning we need more of it. And wishing or wanting developers to build without the right economic incentives is as ludicrous as expecting to run a sub-4-minute mile with a daily diet of Double Trouble Bacon Bites and a training regimen that involves streaming endless hours of Succession.

The 421-a tax incentive worked. While in place, developers built an abundance of rental projects with 25% or more of these new buildings allocated to affordable apartments. It expired in June 2022 and legislators in Albany, to date, have yet to extend it or replace it with something similar. Local councilmembers share some of the blame too. In May 2022, Harlem Councilmember Kristin Richardson Jordan blocked the construction of a pair of two 363-foot-tall towers to be built in Upper Manhattan, known as One45, which called for 915 apartments, half of which would have been affordable. Ms. Richardson Jordan, however, wasn’t persuaded even after the plans were altered to include more affordable units. One45 isn’t dead, however; instead, the developers will build a combination of market-rate condominiums and a self-storage facility without any affordable housing. Way to go Ms. Richardson Jordan! That’s what the kids call a pyrrhic victory.

As time goes on, saying “no” to proposed development projects will—in this author’s view—become politically untenable. Governor Hochul and Mayor Adams certainly want to “build, baby, build” but the question remains whether the legislative dotards in Albany are on board or will they keep pushing for universal rent control, described by the socialist economist Assar Lindbeck in 1977 as the most efficient technique known for destroying cities “next to bombing.”

Chang, Clio. “Good-Cause Eviction Keeps Dying in Court.” Curbed, 30 Mar. 2023, www.curbed.com/2023/03/good-cause-eviction-new-york-courts-losing.html.
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WeWork Doesn’t Work and It Never Didwework office nyc

WeWork Doesn’t Work and It Never Did

Published on March 20, 2023

It’s been nearly a year since we last checked in on WeWork when we wrote a blistering critique of its founder, Adam Neumann, who has demonstrated an uncanny ability to fail upwards and amass obscene wealth in the process.  The WeWork narrative is one of shareholder pain and suffering coupled with broken dreams and empty promises. Neumann is doing just fine though: he walked away with a whopping $1.7 billion (yep, that’s a “b”) while the company currently teeters on collapse with a market value of approximately $700 million and trading under $1 per share. So the stock is in the crapper but perhaps operationally the company is doing better? Nope, WeWork recorded a loss of $527 million in the fourth quarter of 2022 (better, however, than a year earlier when the company lost $803 million).  Revenue for the first quarter of 2023 is expected to come in well under analyst estimates and the cash burn for the year is pegged at $210 million.

The company is undertaking a financial restructuring that will involve its largest shareholder converting debt to equity and extending the maturity of its existing loans at higher interest rates no doubt. CEO Sandeep Mathrani—putting on his best game face—claims the company is “methodically executing his plan to achieve profitability.” Call me Groucho Marx and count me out of this club of financial chicanery. That said, you almost can’t blame CEO Sandeep as he was handed something unsalvageable and asked to conjure up a nearly impossible turnaround. WeWork was doomed from the start with an easily duplicable business model exacerbated by bad execution and insider grift.  The next update on WeWork will likely find the company in the bankruptcy bin. See you then.

Stribling, Dees. “WeWork, Now Trading below $1, on Verge of Financial Restructuring.” Bisnow, 16 Mar. 2023, www.bisnow.com/national/news/coworking/fresh-capital-infusion-for-wework-from-softbank-reportedly-in-the-offing-118131.
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Can We Get More Nuanced Numbers on NYC’s Office Vacancy? Now, We Can.

Published on March 17, 2023

Understanding the office occupancy rate in NYC is important to a host of various stakeholders and, until now, the numbers have been reported broadly without much nuance. That is, the return to office numbers have focused on a single market average which shows directional trends but fails to capture the difference between building classes. The company responsible, Kastle Systems, measures building entry swipes but it doesn’t cover properties owned or managed by Rudin Management, Brookfield Properties, Silverstein Properties, Rockefeller Group, Tishman Speyer, Boston Properties (formerly Boston Properties) and Related Companies. That’s a problem as these guys own some of the best-in-class office towers where many law firms, banks and financial-services firms call home. These tenants also have more employees at their desks than, say, tech, creative and media firms.

For a more accurate read of daily occupancy office numbers, REBNY (Real Estate Board of New York) recently issued a report that relied on Placer.ai, which uses location intelligence data to measure the movement of mobile devices in and out of office towers across the city. Specifically, it covers 250 towers of all classes, including many of the larger owners of Class A buildings. As a result, the numbers are more nuanced with Placer.ai and can measure differences in occupancy between Class A and Class B buildings and get more granular on office occupancy on any given day of the week or even times of the day.

Placer.ai could probably tell you which industries have the hardest working employees (investment bankers or corporate attorneys), measure the differences in occupancy of all buildings in an owner’s portfolio (and extrapolate from the data why some may be underperforming others) or determine which professions/businesses have higher occupancy levels to help owners strategize which tenant types to target. A few takeaways from the REBNY report include occupancy rates exceeding 50% of pre-pandemic levels for nearly two-thirds of all buildings and, more interestingly and not surprisingly, Class A buildings were at 66.3% of pre-pandemic levels while Class B buildings were only at 53.6% of pre-pandemic levels in 2022. We are in the early innings for sure but expect companies like Placer.ai to play a greater role in measuring key performance indicators for all asset classes and not just NYC office buildings.

Cuozzo, Steve. “Rebny’s New Return-to-Office Gauge Paints Bright View for ‘Trophy’ Towers.” New York Post, 26 Feb. 2023, nypost.com/2023/02/26/rebnys-new-return-to-office-gauge-paints-bright-view-for-trophy-towers/.
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Does Your NYC Skyscraper Have That “Je Ne Sais Quoi?”

Published on March 3, 2023

In a city like no other where bravado and ego are measured not by the size of your wallet or the quality of your ride, NYC developers duel over the size and amenity richness of their high-rise towers.

Take SL Green’s One Vanderbilt, NYC tallest midtown skyscraper, which stands 1,300 feet above the ground, has 73 floors plus an area on top with bars and something called SUMMIT, three levels of immersive space with mirrors, waves of color, shape-shifting visuals and mind-bending digital images.

Refusing to be outdone, Stephen Ross’s Related Companies, allows, the more adventurous among us, to scale the side of 30 Hudson Yards, the highest external building climb in the world. Daring climbers, fitted with harnesses, can traverse a series of open-air platforms and stairs slanted at a 45-degree incline over a course that takes about 45 minutes and culminates with a celebratory glass of champagne.

Never one to sit on the sidelines, Extell Development’s Gary Barnett, sees monsieur Holliday and Ross and raises the stakes. Earlier this week, he revealed plans for a power drill-shaped (and somewhat phallic) 56-story tower with a mix of hotel rooms, fine dining, shopping and thrill rides at 740 Eighth Avenue. One attraction envisioned is a 260-foot indoor freefall inside the high-rise, which is double the distance of Disney World’s already petrifying freefall drop.

Great views high in the sky of the world’s greatest city seem to no longer be enough, the market is now calling for death-defying experiences.

Rebong, Kevin. “Extell’s Theater District Highrise Lines up for Major Tourism.” The Real Deal, 22 Feb. 2023, therealdeal.com/new-york/2023/02/21/plans-revealed-for-extells-740-eighth-avenue-tower/.
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Office Space Vacancy Isn’t Just Bad for Landlords

Published on January 24, 2023

The selloff in the tech sector has been brutal but, somewhat underreported, is the ongoing troubles with the office market.  And it isn’t just the landlords who will suffer from low occupancy rates, high-interest rates, and punishing property taxes. The pain will ripple through municipalities, impacting city and school budgets as landlords are starting to contest—what they view as—bloated and unreasonable tax assessments on their properties.

According to CBRE, appeals of tax assessments are up 30% to 40% for those states that assess annually compared with a typical year before the pandemic.  If successful in their appeals, expect job and program cuts, defaults in the municipal bond space, and for city governments to shift their focus on residential properties in an attempt to offset shortfalls in tax revenues.  Certain cities are particularly vulnerable as nearly 10% of their tax base comes from a handful of the largest commercial property taxpayers (i.e., Boston, Detroit and Denver).

Another troubling sign is that about 10% to 15% of states don’t assess office values annually so the impact to city coffers—although inevitable—will be delayed. Perhaps one of the best ways to quantify the current pain in the office space is to look at the stock performance of two publicly traded REITS, Vornado Realty Trust and SL Green, each of which owns approximately 26 million sq. ft and 33.6 million sq. ft. of office space, respectively.  In the last five years, Vornado’s stock price is down nearly 70% and SL Green’s 65%.  Looking back the last twelve months is nearly as horrid for each of them and their stockholders.

Press, David Zalubowski/Associated. “Shrinking Office Building Values Are Becoming a Dilemma for City Budgets.” The Wall Street Journal, 13 Dec. 2022, www.wsj.com/articles/shrinking-office-building-values-are-becoming-a-dilemma-for-city-budgets-11670917430?mod=hp_featst_pos4.
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Pass the Dutchie Kemosabe: Native Tribes in New York State Take the Lead on Weed

Published on December 7, 2022

New York State may have legalized recreational marijuana but damn are they slow to dole out licenses to retail dispensaries.  They are only now about to start reviewing applications though they did grant cultivation (growing not selling) licenses in April 2022, according to Chris Alexander, the director of the New York State Office of Cannabis Management.  Still, the pace of getting retail licenses out the door makes one wonder if Mr. Alexander and his team are toking up instead of focusing on the necessary paperwork. No worries though, remote Native American tribes throughout the state are taking matters into their own hands. 

With fun names like “Devil’s Lettuce” and “Platinum Gushers,” tribes have, without state licenses, started selling marijuana out of shipping containers and makeshift stores.  As long as the sales happen on tribal lands, it is “outside [the] purview” of state officials so party on friends. Thinking ahead, tribal members Ross John and his son, Jay John, in Salamanca, NY are looking to book cannabis tourists at their White Pine Lodge and serve up such delights as weed-infused slushies, bong hits, and an assortment of edibles. Where there is opportunity, there is the “white man” and the clock is ticking for these tribal groups.  Soon dispensaries will open statewide—maybe as early as this year—and NY state will want its cut, taxing everyone up and down the supply chain.  Ultimately, the tribes will have to play ball and get on board or else…

Root, Jay, and Jesse Mckinley. “10 Gallons of Gas and a Free Joint: Tribal Pot Shops Thrive in New York.” The New York Times, 4 Oct. 2022, www.nytimes.com/2022/10/04/nyregion/marijuana-native-american-indian.html.
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Checking in on Office Space: NYC and Nationwide

Published on December 1, 2022

As concerns about Covid fade from the American consciousness, work from home (WFH) remains sticky and it’s impacting the office market. It’s been some time since we last checked in on the health of New York City’s office sector and, it turns out, all is not well.  As leases come up for renewal, companies are sometimes opting for smaller space, saddling landlords with millions of square feet in vacant space.  Attendance at office buildings in New York is less than half of pre-pandemic levels and a similar narrative is playing out in Boston, Atlanta, San Francisco, and other cities.

Worse still, more space is expected to hit the market in the coming months and years as companies like Meta, Salesforce, and Lyft lay off workers (more than 100,000 tech workers have lost their jobs this year and more layoffs are expected) and more than 100 million sq. ft. of new office product is expected to come online. Wall Street is anticipating a slump in this space as shares of large landlords are trading close to or below their pandemic lows, underperforming the broader stock market.

What options do landlords have with higher interest rates, low occupancy levels, and a pivot by tenants to smaller spaces in newer better-equipped buildings? Not many: all are hoping for better times but some are throwing in the towel, handing over the keys to their lenders while others are looking to convert office buildings into residential complexes, an expensive and time-consuming option.  Let’s look at some of the numbers:

  • The value of U.S. office buildings could plunge 39% in the coming years;
  • NYC collected $6.8 billion in property tax revenue from office towers in the year ending June 2022 (~9% of its total tax revenue) down from $7.5 billion in the previous fiscal year;
  • The market value of office buildings in NYC fell by $28.6 billion this year, the first decline since 2000; and
  • Office vacancy rates in downtown NYC are at a record high 20.2% and similarly high across the country (19.1%) with some markets like Chicago, Houston and San Francisco exceeding 20%.

With New York office space costing on average about $16,000 a year per employee, you can bet on employers continuing to downsize their space needs during the pending economic downturn. Dark clouds for office landlords are likely to persist for the foreseeable future. 

Eavis, Peter, et al. “Why Office Buildings Are Still in Trouble.” The New York Times, 17 Nov. 2022, www.nytimes.com/2022/11/17/business/office-buildings-real-estate-vacancy.html.
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NYC’s Conundrum: High Density But Still Too Few Units

Published on December 1, 2022
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News alert: there is a significant affordable housing problem in NYC and, sadly, we don’t have the brainpower to fix it.  Or perhaps the truth is more nuanced, no one capable of fixing the problem cares to join the legislative ranks to do so.  Countless development projects in high-density zoned areas in Manhattan where thousands of affordable apartments could have been created were not.  Instead, developers opted to build high-rise, low-density towers or, put more simply, big buildings with few units.  Urban planners say the developers are squandering precious few sites left while builders argue the cost of land and construction is too high for anything but luxury condominiums, without tax incentives and more favorable zoning. 

A few examples that highlight the issue include:

  • (i) 60 East 86th Street with 14 apartments (zoning allowed for 77 units)
  • (ii) 15 West 96th Street with 21 apartments (66 units possible)
  • (iii) 200 East 75th Street with 36 apartments (144 units possible)
  • (iv) 1165 Madison Avenue with 11 apartments (88 units possible)

City Councilwoman, Gale Brewer, asks “in a city that’s desperate for housing…how can you allow a builder to build fewer units” and that none of the newly built projects contain anything affordable is “boggling” to her.  The fact that she is dumbfounded and confused is telling but also disheartening that leaders like her can’t understand basic principles of capitalism. Make no mistake: for each of these projects, the developers played by the rules working within zoning regulations and in-place height restrictions. Force their hand and developers will build only what is economically viable. In this case, multi-million dollar condominiums that sell at a brisk pace to the uber wealthy where bigger units command premiums is what makes sense.  

There are proposals out there but they require legislators to work with builders (instead of demonizing them) and they include reinstating tax benefits and increasing density in exchange for affordable apartments or obligating apartments eliminated during demolition be built back.  To Ms. Brewer and others of her ilk, you can blame the developers or whomever, but your failures are entirely your own responsibility.  All NYC residents and especially those of little means deserve better from their so-called leaders. 

Chen, Stefanos. “Taller Towers, Fewer Homes.” The New York Times, 23 Sept. 2022, www.nytimes.com/2022/09/23/realestate/nyc-apartments-housing-shortage.html.
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A Sordid Little NYC Gem Hits the Market for $25 Million: The Liberty Inn

Published on December 1, 2022
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Downtown in NYC’s West Village neighborhood sits a 7,000 SF structure beside the West Side Highway.  It is the last hourly rate hotel ($95 for two hours and $155 for six hours in case you are in the area) in Manhattan’s meatpacking district—a relic with a rich history of sordid behavior. 

The hotel is billed as the “most sexiest” in the city (sophomoric and clunky to say nothing of the grammar) providing a sanctuary for bouts of afternoon passion, clandestine affairs and lunchtime quickies.  All activities that remain elusive to this humble author suggesting I may have picked the wrong profession. This kinky little spot was once known as the Strand Hotel, a boardinghouse for sailors. Reporters even once rented rooms to file reports about survivors of the Titanic when they arrived at Pier 54.  In the 1960s, it was known as the Hide-a-Way Motel (who names these things), which later shared space with a gay nightclub, the Anvil (where drag performances by the likes of Ruby Rims, Candy Stevens and The Famous Yuba entertained patrons). 

The Liberty is designed with a narrow purpose as evidenced by room designs and certain unique fixtures.  Certain rooms are bathed in red light, filled with erotic wall art, have hot tubs and ceiling mirrors presumably reflecting back at you all of your physical shortcomings and life’s missteps. You can even find “The Liberator” at the Liberty Inn, a black stump-like apparatus used for lovers to contort themselves into imaginative and physically challenging positions. 

The owner, Edward Raboy, who uses the alias Robert Boyd—and, why not, when in this line of business—is the son of the owner of the Hide-a-Way (it’s true apples stay close to the tree when they fall).  Raboy acknowledges the West Village has changed dramatically from its wilder days where ample drugs and meatpacking of all kinds was considered groovy.  In his view, the Liberty Inn no longer fits within the current context of the gentrified West Village (or does it) and, as Raboy explains “it’s been a fabulous run” but its time for him to run along and let the next chapter of the storied hotel be told.  

Vadukul, Alex. “For Sale: The ‘sexiest’ Hourly Rate Hotel in Manhattan.” The New York Times, 10 Aug. 2022, www.nytimes.com/2022/08/10/style/hourly-rate-hotel-manhattan.html.
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