Ariel Schuster, SVP at Robert K. Futterman & Associates, predicted that any effect on consumer spending would be more evident outside of Manhattan than in the city itself. On the residential side, Terra Holdings' Gregory Heym said the big question would be whether people would "rush to make decisions" based on the anticipation of higher tax codes. Jeffrey Fastov of Goldman Sachs suggested that if Obama can actually deliver on his promise to shore up the economy, "that's great," while hospitality expert Ted Brumleve of Warnick + Co. said he was looking for "some consistency" in the markets. "We need things to calm down."
Titled "Residential, Retail and Hospitality… Momentum or Meltdown?," the panel suggested that while the three sectors were far from a meltdown, at least in the New York metro area, neither was there much momentum as the sectors continue adapting to the new, unsettled normal. Fastov, managing director and co-head of commercial real estate lending at Goldman, said there's a "tremendous amount of introspection" as lenders consider which clients are most beneficial to them and potential buyers are considering how to position themselves for the future. "People are saying, 'let me see some signs of life and then I'll come back.'" He later said, "Part of what needs to happen is an equilibrium across the markets before real estate looks attractive again."
Although the city is not yet in a recession, potential homebuyers are putting off decisions based on the fear of what's to come, said Heym, EVP and chief economist at Terra. The projected New York City job loss of 165,000 is "mild" compared to the layoffs seen in prior downturns, he said, although he added that the current downsizing could include a larger percentage of higher-income jobs than previously.
On the plus side, New York City is a more desirable place to live than it was in previous downturns, Heym said. "While we like the money that Wall Street generates, it's not the only thing Manhattan has going for it," he said. Moreover, "Developers in New York have been very smart about their developments."
Brumleve, director of development management services for Warnick, predicted that while hospitality has enjoyed "unprecedented growth" with 85 New York City hotel properties in the pipeline, "We're not going to see new starts." Projects that have already gotten their financing will be completed, said Brumleve, but there's no debt available for new ones. Overseas travel to the city could slide dramatically as the euro declines against the dollar, but Brumleve cautioned against cutting room rates to try enticing tourists. The hotels that dropped their rates after 9/11 are still trying to recover, he said.
He predicted an advent of "quieter, softer openings" on hotels, as owners seek to get income from projects that are not yet ready for 100% occupancy. Additionally, there will be a drop-off in renovation projects as national brands relax their franchisees' standards.
The current shakeout in retail hasn't produced too much New York-area vacancy, especially not in big-box stores, which aren't numerous in the city, Schuster said. He later noted that vacancy rates may rise after Jan. 1 as marginal retailers fail to survive the holiday selling season. National chains are focusing more on urban markets such as New York City, Los Angeles or Chicago, rather than suburban malls or lifestyle centers. Rents are continuing to go up, Schuster said, adding that landlords are giving some concessions to retail tenants but not necessarily in the form of breaks on rent.
Weiss, a real estate columnist for the New York Post, concluded the discussion by asking what the city itself should do, especially in terms of large, infrastructure-related projects. Brumleve called for the currently-stalled expansion of the Jacob K. Javits Convention Center to move forward, while Heym said that in spite of financing challenges, the big projects such as the Second Avenue Subway should also proceed. They'll be needed when the economy does rebound, he said, and if they're not in place, the city will miss an opportunity for growth. The panel was presented by the Association of Real Estate Women and co-sponsored by the New York chapter of the Appraisal Institute.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
