NYC's Success Covers All the Bases

NEW YORK CITY—The superlatives come easily when the market displays as much strength as it's showing now, and Arthur Mirante, the first RealShare New York panelist at bat Thursday morning, covered all the big-picture bases. “I don't think the leasing environment has ever been any better in my 40-year history in the business,” began the principal and tri-state president of Avison Young, one of six industry leaders to take the stage at the Roosevelt Hotel for the annual Town Hall panel. More than 300 industry professionals attended the half-day conference.

From a development standpoint, Mirante noted that there are projects going up in Midtown South and Lower Manhattan as well as in the Hudson Yards zoning district on the Far West Side, generating a “spectacular” level of activity. On the sales side, he said, “The investment market has never been as hot as it is today,” a point also made later in the conference by Robert Knakal, chairman of Massey Knakal Realty Services, who said 2014 will go down in the record books for sales volume.

Yet if the city has climbed back from the downturn to the heights it surveyed in 2007, Mirante and other panelists also charted the differences in the view seven years later. “In the past, a lot of people thought the New York leasing market could not recover without a significant recovery of the financial services industry,” said Michael Happel, president of New York REIT. “That hasn't really happened: Wall Street has significantly fewer jobs than it had at the peak of the market.” Driving much of the growth, said Happel and other panelists, has been the TAMI sector: technology, advertising, media and information tenants.

“TAMI is not on a blip on the screen, as it was in the dot-com boom,” observed Ronald Lo Russo, president of the tri-state region at Cushman & Wakefield. And even with financial services casting less of a shadow than it once did, year-to-date office leasing activity in Manhattan has been 24 million square feet—comparable to an entire year's tally in a typical 12-month span, Lo Russo said.

Speaking from the perspective of a tenant, Mark Grinis, global real estate investment funds leader at Ernst & Young, illustrated how his firm exemplifies modern office-use trends. When Grinis is on the road, for example, he logs in and signals that his workspace is available for use by, say, another E&Y employee visiting the New York office. “What we're doing is making it very friendly to use office space more as a tool than as a headquarters,” he explained. It's one factor contributing to smaller footprints by large-scale tenants when leases comeup for renewal, Lo Russo pointed out.

On the capital markets side, Michael Higgins, managing director with the real estate finance group at CIBC World Markets Corp., noted “the banks have plenty of money to lend” for commercial real estate. However, he observed that when Basel III is implemented, it's likely to mean higher capital charges for loans with a high loan-to-value ratio.

That may have less of an impact than it would have had in a capital markets environment like we saw eight years ago. Happel said he hasn't seen any “reckless lending” lately, compared to 2006. Higgins agreed, noting that the most experienced players in commercial real estate “aren't looking for high leverage.” Norman Sloane, SVP and senior underwriting counsel at the Title Associates division of Stewart Title Insurance Co., moderated the discussion.

Kicking off Thursday's conference was a keynote address by Republican gubernatorial candidate Rob Astorino. The Westchester County Executive proposed measures including cuts in both the income tax rate—4% for incomes under $200,000, and 6% for those earning more—and the number of regulations that businesses have to comply with, currently at about 750,000.

Astorino cited a number of negative distinctions the Empire State has achieved or maintained under Gov. Andrew Cuomo. Among them, he said, it's the highest taxed and least business-friendly state, with the worst economic outlook. “That's the New York of today,” he said. “I think we can do much better.”