The Future of Real Estate with Eric Anton, Sr. Managing Director, Marcus & Millichap

Eric Anton discusses the current climate within Manhattan real estate and what to expect in the years to come.
Eric Anton, Senior Managing Director of Marcus & Millichap, discusses the current climate within Manhattan real estate, and what to expect in the years to come. Prior to the shock of COVID-19, multifamily living spaces and brick-and-mortar retail firms struggled, and these sectors continue to struggle as they are heavily reliant on in-person interactions. Contrary to what was experienced in past financial crises, New York’s high-end markets are struggling disproportionately more than their working-class counterparts.

Anton is not supportive of the current NYC political leadership at the municipal or state level due to various counterproductive policies put forth by these administrations. Rent-regulated spaces are no longer allowed to transition into the free market, directly contradicting policy that has been present for the past 20 years and which has caused a large exodus of investors from the area. Despite these counterproductive policies, Eric Anton is optimistic that foreign interest in New York City real estate will be a key driver in the future along with the City’s historic tendency to bounce back bigger and better following a crisis.

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Ryan Morfin:                    Welcome to Non-Beta Alpha, I’m Ryan Morfin. On today’s episode, we have Eric Anton, a partner at Marcus & Millichap. He is a broker in New York city, an expert through many cycles telling us today what’s going on in one of the world’s greatest cities in real estate markets. This is Non-Beta Alpha.

Speaker 2:                        I guess I didn’t know. I guess I didn’t know.

Ryan Morfin:                    Eric, welcome to the show. Thanks for joining us today.

Eric Anton:                       Thank you. Great to be here.

Ryan Morfin:                    Well, I miss our days drinking Vesper Martinis in Manhattan, but this’ll do, I’d love to pick your brain about Manhattan real estate. You’re one of the experts, you’ve been involved in a lot of transactions. Things have definitely changed over the last few months. Maybe you could tell us a little bit about what was happening at the end of 2019, early 2020 in Manhattan real estate, and then how the pandemic has put a monkey wrench in some of these transactions.

Eric Anton:                       Sure. So it’s been the biggest and fastest change I’ve seen in the industry in New York real estate for over 25 years. I would say the tippy top of the Manhattan market was in late 15, early 16, 2015, 2016, when a massive wave of Chinese capital and other foreign capital came into New York, and 2017 and 18 was kind of treading water, things were drifting lower, 2019 did slow up very much in New York city. And of course every asset class in New York is different. So in the summer of 2019, there were some very, very negative changes to the rent, the multifamily rental regulation laws. That put a damper on transactions and that collect value and that really soured lender’s appetite for multifamily, deals we’re still getting done, but volume went way down, I would say almost down by half compared to the previous year.

                                           So multifamily had already seen a slowdown, retail obviously it was under pressure for several years because of Amazon and eCommerce, just from a personal view, my family would get one or two deliveries a day, and when I was at the office, my phone would light up when I get a delivery at my apartment building. So I get ding, ding, and just before leaving New York city three months ago, I would get maybe 10 dings a day. Now, with the pandemic, I’m getting between 10 and 20 deliveries a day, my wife just loves it, and as you look across the retail landscape, it’s changing so fast. I think somebody said to me, we’ve seen five years of change in five months. It really feels that way with retail.

                                           So, the Bricks-and-Mortar Stores in New York, were suffering terribly from that competition, and now with the lockdown and the closures and the bankruptcy’s, it’s probably the weakest asset class, but it’s competing with the hotel industry. So in New York city, we were building hotels like crazy during the last three years. I think we delivered something like 25,000 hotel rooms over the last two and a half, three years. So the supply grew exponentially, but yet costs were growing as well. So the hotel industry was under pressure before the pandemic, and obviously with the shutdown, 80% of the hotels are either closed or being used as homeless shelters or housing for medical workers.

                                           So it’s been a real catastrophe for the hotel industry, but one bright spot in New York city, and this is really not Manhattan, but it is very strong in Brooklyn and Queens and Staten Island, and the Bronx, all four boroughs surrounding Manhattan, is the industrial and distribution business. So those properties have either retained their value or grown in value, and the development of new industrial is accelerating.

Ryan Morfin:                    Now that makes sense especially with the Amazon, logistics needed to deliver prime within 24 hours. So going to the multifamily, maybe could you cover it a lot of ground there, and thank you for that. So multifamily, right? A lot of unemployment starting to come, there’s this Cancel Rent movement. What do you think landlords are going to do for people who haven’t paid rent in Manhattan?

Eric Anton:                       So, it’s interesting back in 08 and 9 during the Great Financial Crisis, the high end of the market suffered the most, the working class neighborhoods and the working class buildings did okay, it’s flipped around now in that the working neighborhoods are suffering the most and the more expensive rentals, the luxury rentals are actually holding on, collections are pretty good on the high end. It’s interesting that during this period of time, very few people want to move or able to move. And in New York city, New York is a rental market, it’s the biggest concentration of renters in the country.

                                           So, it’s interesting in that the upscale neighborhoods are doing well. We don’t know if that’s going to continue after the summer. But collections on the lower end have been a negative, not as bad as I thought they would be. I would estimate 75 to 85% collections on the lower end and maybe 90 to 95 on the upper end.

Ryan Morfin:                    Interesting.

Eric Anton:                       This discussion of waiving rent, I don’t think that’s going to go anywhere. The city realizes, even though we have terrible leadership, and I think almost everybody across the country, universally agrees that our leadership in New York both the city, assembly and state is terrible, and the restrictions that they’re put in place and the way they dealt with the riots have been really bad. But, everybody realizes that the city needs to take in rent to operate.

Ryan Morfin:                    Well, so not a lot of people outside of New York know about some of the changes that I guess the state and the city passed on landlords. Can you touch a little bit about that policy that’s really hurt values.

Eric Anton:                       Sure, and to break it down in its most simplistic form, for 20 years if you improved your property, you could raise rents, and if you raise the rents with a certain amount and the tenant, which was regulated, left the apartment over a period of time, and through investing amount of money, you could make that unit free market unit. So in New York city there are free market units and they’re rent controlled units and rent stabilized units, and all these different programs at different regulations had restrictions. But for 20 years, it was the case that landlords would buy rent regulated units and invest money in the base building, as well as upgrade the units, the kitchens, bathrooms, et cetera, and they could raise the rents. Then after a certain period of time, if a tenant left and the landlord had put enough money into the building, they could then take that unit to free market.

                                           The most famous example is Mia Farrow, I think it was in the late 80s, she had a nine-room apartment on Central Park West, she was paying a couple of 100 bucks a month. So, she was a wealthy person living in the best neighborhood, paying almost nothing for a huge apartment. So, rent regulation during the last 30 years has created these bizarre outcomes. But luckily for, again, about 20 years, it was the ability to take these units from extremely low rents that couldn’t even afford to keep up the building and you could make them free market and you could make a profit as a landlord. So, in June of 2019, they changed this so that these rent stabilized units could no longer be made free market, which really crushed value.

Ryan Morfin:                    Yeah. That definitely changed I think a lot of the economic calculus for a lot of folks, Chicago is something similar too, they’ve changed the tax laws, and so you’ve seen people who had proforma budgets dissolve in terms of value and screwed up a lot of the transactions and multifamily in Chicago too. Have volumes gone down in terms of transactions?

Eric Anton:                       Volumes had just collapsed compared to 2015 and 16, I bet we’re at 20 or 30% of transactions. I think in the future, you’re going to see a lot of family businesses and longterm owners sell, we’re already starting to get calls from owners that want to sell their … maybe not the entire portfolio, but certain assets. In the case of a mom and pop owner, that maybe inherited a building and they own one building, it could be a very valuable building. We’re seeing a lot of people say, “You know what? I’m ready to retire and move to Florida, to North Carolina and get out of New York just because the regulations and the bureaucracy is so difficult here, and when you compound that problem and make it the case that you just can’t make a profit by increasing rents and taking these units to a free market, it’s disturbing to a lot of longterm owners.”

Ryan Morfin:                    Well, do you think there will be a policy inflection and they will cancel rent in the months to come?

Eric Anton:                       I don’t think so. I think we can’t cancel rents. I think the city is supposed to open up on a limited basis on Monday, June, was that 8th? So I think slowly but surely, you’ll see businesses open, you’ll see restaurants begin to start to open. The next phase will be two weeks later when office workers can go back to their own offices. So I hope that we’ll see improvement in the economy in New York, we’re lagging, the rest of our friends around the country at South Carolina and California, they tell me it’s as if nothing had ever happened in certain ways. But in New York, it’s a little quite depressed.

Ryan Morfin:                    Yeah. One of the things I’m worried about, I don’t know if you saw this yesterday, but the death toll in New York doubled in one day and it started to spike again, I think because of the protests, and it’s unfortunate time, it’s important to [voice 00:11:12] discussed of what happened, but people aren’t taking the social distancing in the middle of the pandemic seriously. So, I’m worried there’s going to be a whole wave of new shutdowns that’s going to further set us back, but speaking of office property types, question for you is, Manhattan is known for its skyscrapers, right? And just dense working conditions.

                                           Question for you is, do you see that companies from a letting new space standpoint or are big companies looking to change their work environment and office buildings? I mean, I’m showing a slide here where there was an open call center, almost the entire company got sick, 43 workers tested positive because they had an open call center, a floor plan. What are landlords and tenants talking about today as it relates to office demand in the future?

Eric Anton:                       So, I think everything is going to change for the next couple of years. You’re going to see design affect every office building. You’re going to see companies distribute their personnel differently. Right now you can’t buy plastic sheeting because it’s just sold out, clear plastic barriers between desks. So, companies are going to mandate that their employees sit further apart. The days of, 25 year old sitting two feet apart from each other, 10 or 15 or 20 at a desk, that’s going to go away. I think the whole social and that social coworking business is going to change radically.

                                           I think, and it’s interesting, I’ve read studies before the pandemic that analyze these coworking and these desks where so many people sit together, and the efficiency is terrible. People get distracted, they can’t focus, the noise, the distraction, even when you put your earbuds in, you see all this activity in front of you, you can’t focus on your work. So I think that’ll be a good change, I always frowned upon putting people so close together to do their work, but you’re going to see more cubicles, more private offices, bigger conference rooms, so people can spread out. You’re going to see office buildings mandate certain times of the day that people can come and go. It’s not going to be so open and free to get in elevators. And all these operational rules are being drafted right now.

                                           The city is still closed, most office buildings are closed, but within two or three weeks, you’re going to start to see them open up, and all of these different protocols will start to be, as well as cleaning protocols. So there’s going to be a massive investment in cleaning elevator buttons, cleaning lobbies, bathrooms, all the public areas are going to be scrubbed several times a day.

Ryan Morfin:                    Well, and also HVAC, right? PTAC and looking at the air distribution through a building, we’ve put up UV filters in the air ducts here. Our landlord didn’t we did, but to try to kill viruses, are landlords going to, you think, make that investment as a pack you think, or do you think tenants are going to have to do it for their own space?

Eric Anton:                       I think the smart landlords will make that investment. I think they’ll be able to attract tenants by advertising that they’re cutting edge in terms of cleaning, and HVAC, et cetera. So, just like every challenge, there are going to be super smart entrepreneurs and health conscious companies that take advantage of this in a good way, and attract the best tenants. I think it will be challenges for the class B buildings that are owned by small owners that don’t have the capital to invest immediately in all of this. That could be the case that tenants are given free rent or other benefits if they put the money into their own space. So I think in New York city, because it’s so big and so diverse, you’re going to see everything, every shade and every variety of this.

Ryan Morfin:                    So do you think the tenants are going to … do you think the big tenants are going to take a lot more space? And do you think some companies are just going to reduce space and just tell people they can work from home? Or do you think there’s real efficiencies for having everybody in one place?

Eric Anton:                       I think you’re going to see, again, you’re going to see all of the above, certain types of businesses can operate away from the office. I personally hate working from home, I love going to the office, I love seeing my team, my business is a social business, I want to meet clients, I want to look them right in the eye. I had a funny thing happened last week, I was on a call with 30 of my colleagues, we do a monthly Zoom call now around the country. And as I’m presenting a project, my landscaper buzzes by me and waves at me, and it’s so loud, I just lost total concentration. So, I love going to the office, and I know a lot of people feel the same way. Others don’t, and they’ll probably try and find jobs that allow them to work either part time at home or fully at home.

                                           I think there will be an additional space required from tenants that want to distance their employees. So you’ll see an increased demand in square footage per person. You’re also going to see certain number of companies lease or buy satellite offices, so that many of the commuters can work one or two or three days a week near their home. So in Manhattan, that would be a Westchester, Southern Connecticut, New Jersey, Northern New Jersey. So you may see demand for suburban office space increase, we’re already seeing a little bit of it, not an avalanche, but I think as this lockdown lifts, you’re going to see all these different types of solutions.

Ryan Morfin:                    Yeah. So you’re [inaudible 00:17:30] on the office space, you’re in New York, WeWork Canada imploded last year, what is the real estate community say about WeWork in what happened, people scratching their heads, or did they see this coming?

Eric Anton:                       I think the guy that absolutely started coming maybe four years ago, and I was talking to him, was Tony Malkin. He’s the president of Empire State Realty, that’s the company that owns the empire state building, and I think they own about 8 million square feet across Midtown in Manhattan. They also own some buildings outside of the city. He called it a scum, he said that any landlord that gives control of their space to WeWork or WeWork type is crazy because you’re losing connection with … losing the dialogue between tenant and landlord. He thought it was a Ponzi scheme. Last week he was on a webinar and he took victory lap because he certainly was right.

                                           I think, again, because of this virus, you’re going to see the entire makeup of the coworking system change. It’s here to stay, it’s going to be around forever. I think there’s always going to be a demand for small flexible space, but, again, the days of piling people on top of each other in a 20 square feet, that’s gone.

Ryan Morfin:                    So, switching gears to the hospitality. So you guys built a lot of hotels in New York, New York’s a great place to visit, tourism is huge part of the economy. The hotel industry is on life support, how long do you think … what is the inside perspective of real estate professionals, what of the recoveries, how long is it going to take for it to come back?

Eric Anton:                       I think it’ll take quite a few years. I think hospitality is really hit, as we [inaudible 00:19:24] et cetera, they’re all developing protocols to clean their buildings. But I know you are going to see, because I’m personally working on maybe a half a dozen of these transactions as we speak, buildings that … hotel buildings converted to other uses, primarily residential, but for instance, we’re working right now on a hotel, we have a developer that wants to buy the building and convert it to a medical hotel. What does that mean? People that have knee replacements or hip replacements or plastic surgery or any number of operations would then go. This particular hotel is located very near several large hospitals in Manhattan. So they would go and recover and be served food and have rehabilitation services available in the building.

                                           So I think you’re going to see a lot of adaptive reuse for many of these hotels, principally, the pre-ward hotels that were expensive to run needed to be upgraded anyway, I think a lot of those buildings will be taken out of service, renovated, converted to residential or converted to multifamily, perhaps condominium, but probably rental. We’re working on one hotel now that’s extremely large, and we have a development group that thinks they can convert it to residential and make a big profit. So, by doing that, you get out from under some of the union costs, which are crushing in New York city, union hotels struggle to make any money before the pandemic, now it’s very tough.

                                           So, I’m the chairman of our Global Capital Group at Marcus, which we travel around the world and we bring capital back to the U.S. we’re not looking to do transactions overseas, but we’re looking to attract investment and developers and buyers from overseas to the U.S. and we are seeing interest from particularly Japan and Korea in purchasing extremely high quality hotels. They’ve been unable to purchase these types of assets in New York for what they thought were reasonable prices during the last three or four years, and now, with every asset class repricing, the Japanese especially have very longterm view. So, if they can buy a hotel at a 25% discount from last year, they tend to hold their assets longterm. So we are seeing demand from overseas in hospitality, but it’s going to be a rough road.

Ryan Morfin:                    Yeah, that’s a good question. So, you get to travel around and talk to international investors and look at the capital flows. So China’s been a big buyer of real estate but, in your travels in China, is there a worry that future aggressive policy of beyond trade war would slow down that capital or put that capital at risk if it continues to come here, what’s the dialogue between Chinese investors today and people who have assets for sale?

Eric Anton:                       So I think the way to view it, Chinese is the private investor, that’s looking to do a smaller investment, a million dollar apartment, a $10 million shopping center or something like that versus the sovereign wealth funds, the big SOEs Chinese companies, big public companies that are controlled by the government. All of those companies are very concerned about [Sephia 00:22:53] which is the American review process to determine whether or not a transaction is in the best interest of America. So that concern is growing, I can tell you whenever I go to China and I meet with wealthy people, people that travel, people that own businesses, every single one wants to come to the U.S. every single one wants to buy an apartment here, everyone wants their children to go to good schools in the U.S.

                                           So, I think the demand from China will never end, it’s simply the restrictions, and because the government is trying to put capital restrictions on investment, I’m afraid that once they remove those or lessen those restrictions, you’ll have a wave of more Chinese money coming over here because they want to get out. They love America, they love the freedom to own in the U.S.

Ryan Morfin:                    Yeah. What about the Middle East? Have they slowed down? I know a few years ago there was a big trend of merging, Middle East money going to China. Are Middle East investors still looking to deploy aggressively here in the States.

Eric Anton:                       I would say everything has slowed down over the last month and a half, two months, for sure. But no, they haven’t slowed down, they still love investing in trophy, trophy and hotel properties, and office buildings. So they’ve been very active, recently a Middle East group came in and bought a brand new building down in Soho. They purchased it vacant with a local operating partner, it turns out Microsoft had leased the entire building. So they did well on that, but now that capital is still coming over quite a bit.

Ryan Morfin:                    So, in 2018 and 2019, there was a lot of hype about Amazon’s second headquarters. It looked like, New York city, Long Island city had it in the bag, for people who weren’t so close to it, what the heck happened, and how big of a devastating loss was this for New York city?

Eric Anton:                       It was a terrible loss for New York city, we’re talking about 25,000 jobs averaging over $120,000, which is a tremendous, tremendous blow to New York city, three or four politicians got together and were able to snowball their opposition to it and kill the deal and just scared Amazon, and Amazon pulled out. Terrible for New York, terrible precedent for all cities. The tax abatements that were being discussed were very minor compared to the tremendous wealth that would have been created here. So, very sad that that happened. Interestingly enough, Amazon just recently purchased the former Lord & Taylor flagship store on Fifth Avenue and 38th Street on an 800,000 square foot building.

                                           It was previously owned by WeWork. So Lord & Taylor had store there for a 100 years. They ran into trouble, this is pre-pandemic, this is two years ago. They ended up selling the building to WeWork. WeWork started construction, WeWork ran into terrible trouble of [inaudible 00:26:14] but luckily they were able to resell the building to Amazon for basically what they paid for it, maybe a little more. So that shows the strength of Manhattan and it shows that people still want to be here. Amazon is proceeding with that project, and so you’re going to see Amazon continue to lease space in New York city, but there’s not going to be that campus type develop.

Ryan Morfin:                    No doubt New York is a place people want be, it’s just the density and the quality of the market. So, speaking of these master plan communities in development projects, one that’s been huge is Hudson Yards, maybe you can talk a little bit about the success or maybe the bad timing, given the pandemic, Hudson delivered a huge amount of square footage to the New York city market, for people who aren’t as avid New York watchers as you and myself, maybe can give a little history of the project, what it means to the city. What’s going on with Hudson Yards?

Eric Anton:                       If you go back to when I first started working in New York city, this was just a desolate area, completely desolate, every conceivable crime and vice was taking place over there, 20 years ago, there was a plan to move Yankee Stadium to that spot. And that morphed into potentially having Jets football teams play over there, that didn’t work out. Then it morphed into bringing the Olympics there. All of these plans failed and a concept was crafted to create a mixed use office, residential, entertainment, retail complex, it was put out to bid, the RFP was one by [inaudible 00:28:02] company is one of the biggest real estate companies in the world, and it’s been an incredible success. So part of it is built over the train tracks over the New Jersey transit and Amtrak tracks that the head into Jersey.

                                           So this is on the far west side of New York, it’s a massive project, it’s more than 20 million square feet of mixed uses. It’s been a fabulous success pre-COVID, so many famous companies, some of the best companies of the world moved there, law firms, technology companies, Facebook signed a 1.5 million square foot lease. L’Oreal Coach, you’re talking about the best companies in the world. So the office space has done extremely well. The residential was just selling the condominium units, were selling up until this pandemics. We’ll have to see what happens with the residential. The retail is the real challenge. So the retail is comprised of a mall and Neiman Marcus. Neiman Marcus now just went Chapter 11, and just yesterday an article came out that related who owns the buildings is considering converting part, maybe all of the Neiman Marcus back to office space.

                                           How you convert a retail property like that to office space, it’s going to be tricky. I’m sure it can be done, but obviously this is terrible wrench in the project, thrown into the project. This was classy trophy mall with spectacular spaces. I’ve been in it, and to have the main anchor file bankruptcy and potential [inaudible 00:29:52] it’s tragic. But I think, if they have to convert to the office, they will, it’s a tremendous project. All the buildings are incredibly cutting edge, it’s really like a new section of the city.

Ryan Morfin:                    Yeah. I mean, its beautiful architecture.

Eric Anton:                       Incredible architecture, incredible artwork, public spaces, it’s really incredible, and it’s done. And now the shift is back to Grand Central. So a year and a half ago, the zoning was changed to increase density around Grand Central, which is Dead Center in Manhattan. And so you’ve seen JPMorgan and some other companies invest in Grand Central. So you’ve got these two focal point of Manhattan now, and up until the pandemic, the class B office buildings in between, which I call the Midwest, were starting to garner interest because the smaller companies could locate there and serve as the big companies, the Facebook and the big law firms and the big banks and the JPMorgans.

                                           So now we’ll have to see what happens with the pandemic in terms of density. I personally think that it’ll take maybe a year to get over this until people are calm and feel safe. And once there’s no more virus, hopefully it goes the way like SARS, it came and it went and it’s gone. I think if we get six months to a year of it being gone, people will then be comfortable moving back into dense work environments.

Ryan Morfin:                    Do you think the Western Yards or is that second phase of building, are those going to get delayed?

Eric Anton:                       Yeah, I think it’ll definitely be delayed. We’re going to have to see where office demand is, vacancy rates are going to go up, rents are going to come down. It’s going to take time to get back to where we were, but the history of New York is that we recede and then we grow bigger and better than before. So I remember in dot-com bubble of, that was April 2000, April 2000 we had a big pushback, everyone thought, “Oh my God, things are never going to come back to where they were.” They did, and we had 9/11, people thought, “Oh, people are never going to work in tall buildings again.” We’ve now built super tall buildings that dwarf the average building back up back 20 years ago, the Great Financial Crisis, people thought New York is done, the financial center is done, it was never, it was not done, things got bigger and better.

                                           So I think this is a challenge, but we’ll come back, New York will come back, but we definitely need some good leadership and we definitely need some reforms in terms of taxes, union rules, union costs. We have to be more competitive for companies both big and small to make it here in New York.

Ryan Morfin:                    Not a lot of people talking about this, but I think the city municipal finances aren’t doing well. And then with all the in-dislocation in real estate, property prices, most likely coming down a bit. Do you see or is there a conversation around city hall about some distress coming on city services, making New York city, maybe a tougher place to live? Because I mean, you live in Manhattan, I know you’re not there now, but the protests, the police union is probably getting fed up with a mayor that doesn’t support them, budgetary problems from maybe the misallocation of resources, when we built the Javits Center up for a field hospital, nobody used it. What do you think the municipal finances are going to look like towards the end of this year in New York city?

Eric Anton:                       Yeah, it’s not a pretty picture. I think before the pandemic, the state was $6 billion in the hole, New York city was, I think, spending 30% more per year than it did six years before. So the mayor and the governor just have been spending like crazy, they’ve been hiring like crazy. The administrators, the levels of bureaucracy are just unsustainable, and so I think and I still think the mayor and the governor are not realistic in terms of cutting now costs that need to be cut. They’re still looking for a federal bailout that I don’t think it’s coming because I think the red states and leading senators, they don’t feel comfortable bailing out New York, New York’s bad behavior and bad spending habits. So I think it’s going to be a big challenge, I really think we need new leaders to come in, roll up their sleeves and make New York more efficient.

                                           I can give you examples of wastes that are staggering from the city and the state. That’s a great example. We build the hospital and nobody used it, brought that ship in and practically nobody used it. And meanwhile, we had sick COVID patients going back into nursing homes, spreading the disease resulting in thousands of needless deaths. It’s just been … New York has really never faced such a crisis. I was here in 9/11 and it was terrible. My oldest friend was killed by the terrorists, and so that was personal to me, but just in terms of business, closing the entire city for so long or boarding it up and then not defending the retailers from these riots and allowing crime to go the way we’ve done and having no bail, no bail. So that every time a looter is arrested and thrown in jail, the next day is back out on the street, it’s terrible. I mean, I think we’re learning and we’ll change it, but it’s been rough for New York.

Ryan Morfin:                    Well, calling Bruce Wayne or Anthony Scaramucci to come run for mayor, perhaps you definitely need a new type of leader in New York state and New York city I think. Well, going back to just transaction volumes. So they’re way down, if I’m an owner of an office building today or an apartment building, and I’m coming to you to sell my property, what kind of pricing adjustment do you need to communicate to me for resetting my expectations in this new environment that we’re in?

Eric Anton:                       Yeah, we’re really … these are tough conversations, but I always err on the side of just telling the owners the truth. And so cap rates have probably increased by a 100 to 150 basis points. I would say retail, the last year has probably gone 200 basis points. On a price per foot, everything is repricing lower, there are investors out there, there’s a ton of dry powder, unlike 09, 10, there’s tremendous capital ready to jump on distressed situations or provide rescue capital or recapitalize partnerships that are broken. So the good news is I think we will bounce back faster than the last couple of recessions, if you look at what happened yesterday, the job creation, instead of losing 8 million we gained two and a half million. That’s a staggering number. The stock market yesterday went up almost 800 points.

                                           We’re almost where we were [uplist 00:37:28] is I think just where it was at the tippy top. So a lot of companies are doing well and the stock market is a predictor of the future. So, at Wall Street and the investment community feels like things are going to get better fast. I hope they’re right. I think Manhattan is going to take time, but I think the rest of the country could bounce back really quickly. So in terms of pricing, obviously every deal is different, but they can … office buildings with large vacancies are really going to take a hit, buildings with credit tenants that are strong, should be okay.

                                           As I said, industrial is a bright spot in the market, multifamily is going to suffer. But just as it happened in past recessions, the condominium prices will come way down. Many people will rent for year two or three to see where prices stabilize. So, the multifamily market in New York just is incredibly resilient, even though this is a tough time, I think, it won’t go down as much as some predict.

Ryan Morfin:                    One concept that I know you’re an expert in, I know your wife does a lot, in the past with pop-up retail, what can you tell us about … what is pop-up retail for our viewers? And do you see it as a future trend forthcoming?

Eric Anton:                       Yeah, I think it’s a big component of the retail industry now, back 10, 15 years ago, it was kind of frowned upon, it was viewed as a discount sales, selling junk, merchandise that nobody wanted that sort of thing. Then after the recession of 09, landlords worked to create energy and activity in their vacant spaces, it was so much vacant retail back in 09 and 10. And so you had much more upscale concepts come to take short term leases at excellent locations, Fifth Avenue, Soho et cetera. Then you had a whole explosion of concept retail. So I remember in Times Square, MasterCard took space to promote a new type of credit card, and then you would have car companies showing off their latest models and then leaving after a month or two.

                                           So, you had all kinds of interesting short term pop-ups that created energy for the brand and created a little bit of revenue for the landlord, and so that continues. With the lockdown, it’s not continuing yet, but it will definitely bounce back once things open up. Before the pandemic you had pop-up restaurants, you had pop-up chefs that came and had a restaurant for a month. Obviously that’s tough because you got all that cooking, HVAC but, definitely I think the pop-up business will come back and every challenge creates new ideas and new creative businesses. So it’ll be fun to see all the different uses of space. One thing that we’re seeing is, there’s so much retail space, we’re over retail in this country and in Manhattan, there’s a lot of side street retail that is not tremendously attractive space.

                                           We’re starting to see conversion of retail space to office space. So imagine instead of coming into the lobby and going up the elevator and touching all those dirty buttons, et cetera, you just walk right into your space. We’re going to see a little bit of that. I don’t think that’ll come to the avenues where still the retail is more valuable than office space, but less attractive retail space will be converted to office space.

Ryan Morfin:                    Interesting, yeah. Now, I think it’s going to be interesting to see how many people want to go back to work given the congestion of these elevator banks. That’s real, I think, existential question for office investors. What new mega projects are on the horizon and what new neighborhoods are starting to bloom in the next year or two, you think in New York city?

Eric Anton:                       So, the biggest concentration of development was again that Grand Central neighborhood. So JPMorgan is at this moment demolishing, it’s the largest intentional demolition of a building in the history of the world. So their former headquarters at 77 Park is being demolished. The only larger demolition was the World Trade Center when it was knocked down, sadly, but they’re planning on building, I think it’s a 90 story tower and that’ll be their world headquarters. That’ll probably be the most cutting edge building in the world. Three blocks to the south, Michael Dell with some other partners purchased the hotel at the corner of 42nd and Lexington Avenue, that’s the Hyatt hotel. The idea again, is to demolish that and build a massive office building, I think two and a half million square feet, so that would completely change that neighborhood.

                                           Directly across the street from that is the Chrysler Building, Aby Rosen of RFR just bought that building, is going to completely get renovated and upgraded, and I believe he’s making a club and the top space. So Grand Central is on the move, hopefully that all happens in the next five years. Moving outside Long Island city still has massive development potential. The site that would have been the Amazon is currently being rezoned for, I think, up to 12 million square feet of space. So [Weehawken 00:43:05] city, which is right across the river from Manhattan, and about seven minute subway ride, will continue to grow. In Brooklyn, the Gowanus area is a massive redevelopment project. So there are many areas that once the city gets its confidence back, once Wall Street gets it’s feeling of growth back, there’ll be development.

Ryan Morfin:                    It’s interesting [quanta 00:43:32] So, I’ve got a sister that lives there, when she told me she was moving there, I’m like, “What are you thinking?” I mean, it’s a super fun site, but there is a lot of redevelopment going on there. I mean, do you think it’s a safe place to live?

Eric Anton:                       Crime was going down every year up until about 18, 19, I think we saw a spike in crime. Now we’re seeing a massive spike in crime. It’s too early to tell, it’s really too early to tell. With job loss, with economic distress, comes homelessness, comes more crime. I was in Manhattan yesterday, and I saw an uptake in the homeless problem. I drove around Midtown and it’s sad because when I first moved to New York, it was rough and there were a lot of homeless, not everybody remembers the squeegee men, but yeah, guys would come up to your car and demand money, they’d throw something on your windshield and then clean it and demand money. It was terrible, quality of life was awful.

                                           Mayor Giuliani put an end to all that and he gave cops the authority to remove people from parks and subways and living on benches. Unfortunately right now we’re going backwards, crime is rising. Hopefully, when the economy opens up, things will get better.

Ryan Morfin:                    Speaking of New York city’s mayors, Giuliani was a good one, Bloomberg was actually a good one, I think. Why do you think he hasn’t really been able to gain traction in national politics?

Eric Anton:                       Well, I think nationally he’s not very likable, he’s extremely liberal for the majority of the country, he’s anti-gun, his track record of being kind of a nanny mayor does not fly across the country. It’s interesting, he’s a business guy, right? He’s a billionaire and he made money, he was always in business. When he was a mayor, some things terrific and some things not so great. So as a business guy, he didn’t really save for a rainy day, he didn’t really take on the unions. So it’s funny, a business guy would be expected to do those two things, but his vision for the city is rezoning, almost half the city was tremendous, and that created incredible wealth and growth and safety and a new New York. So in terms of zoning and crime, he did great on crime.

                                           Crime fell almost every year I think that he was mayor. He was mayor for 12 years. It was almost a straight line down. So here’s a business guy who was really more like a crime fighter and a zoning real estate person. But in terms of taxes, he raised taxes way too high, didn’t save for a rainy day, didn’t take on the union and their rules. Education unfortunately, didn’t do a great job in the education, spent a fortune, but the quality of the testing didn’t come back well. So, I think a mixed message, I liked what he did for real estate, obviously, so for me, he was a great mayor.

                                           But I’d like to hear him now that New York is suffering. I haven’t heard one statement, I haven’t seen one interview. I don’t know where he is, he’s not in New York. I mean, he should be front and centers saying, “We need law and order, we need to stop these riots. Peaceful protest is fine, but rioting and destroying the city is not fine.” He should be out there, I don’t know where he is.

Ryan Morfin:                    Yeah. Yeah. Now, it’s unfortunate to see injustice create a whole series of injustices to small business owners. Well, what can you tell me … where are the silver linings for you? What makes you optimistic about America and New York city over the next two to three years?

Eric Anton:                       Well, I’m always optimistic about America. I think, as I mentioned, I travel a lot around the world and everywhere I go, people don’t hate America, people don’t think we’re bad. People love America and want to come here, and they want to invest here. I spoke yesterday to a CEO of, probably, the most luxurious luxury hotel chain in the world. They have two of the most famous hotels in the world. And he said, “Without America, we can’t survive.” Hotels in France and Germany and Italy and the UK, he said without the U.S., we were not going to make it, we need you guys to come. When I go to Asia again, as I said, everybody wants to come to U.S., everybody I mean, all the wealthy people want to own a home here. They want their kids to be educated here if not stay here.

                                           So I’m optimistic about America and New York city. What brings me optimism is I’ve been doing this for a while, and after every crisis, there’s always a new batch of investors, developers, creative people that rise, and so that’s exciting and good to see. The wealthy families that own a lot of real estate, they’re never the ones that are cutting edge, they’re never the ones to step back into the market and be the buyers, they’re owners, they have big portfolios and they’re great for New York, but they’re not the new wave of entrepreneurs. So I think what gives me hope is that I’m sure we’ll see people from all over the country, moving to New York to take advantage of this disruption and create new business and new activity.

Ryan Morfin:                    And this is a question that … a lot of the people that could afford this comment, New York had great families like the Vanderbilts, Rockefellers [Carnies 00:49:13] I mean, people came in and really built amazing, beautiful architecture. What’s the view from some of the major family offices that live in New York city about building beautiful public spaces, reinvesting back into longterm infrastructure. I mean, Stephen Ross has done a great job with Hudson Yards, but it’s not really like a Grand Central type of landmark. I mean, does anyone talk about that in the real estate circles at these large family office levels?

Eric Anton:                       I think. Well, I think they did actually a great job at Hudson Yards. They built the vessel, which people love and walk around that thing. It’s interesting, I think it’s like a 15 story building structure that you can walk around, and they built the cultural center. In terms of new museums or new cultural interests, Barry Diller and his wife, Diane Von Furstenberg are actually building an Island off the West Greenwich Village coast. It still hasn’t opened yet, I think that was a 100 million dollar investment. It’s like a park and you get to it over a bridge, a little bridge, you’re going to walk to it, and it’s a cool, very cool looking thing.

                                           So, it’s just one that popped into my mind, I’m sure there are others, there are all kinds of cutting edge, smaller cultural events and things. But it’s challenging right now because of the social distancing. Broadway has closed till September, museums are going to be under pressure because they’re closed and nobody can go, who’s going to donate to the Philharmonic if they can’t go, who’s going to donate to the ballet, if they can’t go. That’s the biggest challenge. But New York, there’s nothing like [inaudible 00:51:00] in terms of culture, there’s nothing like it in the world [crosstalk 00:51:05]

Ryan Morfin:                    Any books you’re reading through the summer that are helping shape your views of where we’re going in the future?

Eric Anton:                       Not so much in the future, I’m reading a book about a SEAL, Can’t Hurt Me, I think it’s called, I just started it, it’s kind of an interesting book to read during difficult times. This guy had every challenge in life and overcame it through the first chapter of his childhood. It’s tough right now to be optimistic, but we have to be.

Ryan Morfin:                    Yeah, David Goggins is an amazing guy, he’s good to follow on social media. He’s working on a big project right now. I’m trying to get him on the show, but I’m a huge fan of that book, Can’t Hurt Me. Yeah, I have met him once, he’s intense, intense. Eric, I appreciate you sharing some of your wisdom about New York city and what’s going on and hope to have you back here to the show maybe in the months to come and definitely please stay safe and take care of yourself.

Eric Anton:                       You too, thanks so much.

Ryan Morfin:                    Thanks Eric. Bye-bye. Thank you for watching Non-Beta Alpha. Before we go, please remember to subscribe and leave us a review on Apple podcast and our YouTube channel. This is Non-Beta Alpha. And now you know.

Speaker 2:                        Get busy time, get busy time. Get busy time.

Speaker 4:                        All price references and market forecasts correspond to the date of this recording. This podcast should not be copied, distributed, published or reproduced in whole or in part. The information contained in this podcast does not constitute research or recommendation from Non-Beta Alpha Inc., Wentworth Management Services LLC, or any of their affiliates to the listener. Neither Non-Beta Alpha Inc., Wentworth Management Services LLC, nor any of their affiliates make any representation or warranty as to the accuracy or completeness of the statements or any information contained in this podcast and any liability therefore including in respect of direct, indirect or consequential loss or damage is expressly disclaimed.

                                           The views expressed in this podcast are not necessarily those of Non-Beta Alpha Inc. or Wentworth Management Services LLC and Non-Beta Alpha Inc. and Wentworth Management Services LLC are not providing any financial, economic, legal, accounting or tax advice or recommendations in this podcast. In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by Non-Beta Alpha Inc. or Wentworth Management Services LLC, to that listener nor to constitute such person a client of any affiliates of Non-Beta Alpha Inc. or Wentworth Management Services LLC.

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