30 newyork| october12–25, 2020
NEWYORKONTHEBRINK...OFSOMETHING...
poverty. Like 9/11, it is a mass-casualty
event and a psychological trauma. As in the
1970s, the city government faces a fiscal cri-
sis with tax revenue projected to plummet.
And it is all wrapped around an unprece-
dented crisis of authority, which confounds
any attempt to organize a response.
“We presume that since New York has
been the epicenter for as long as we can
recall, that there is an inevitability to that
fact,” Spitzer told me. “And yet there isn’t.
This is the first moment when I seriously
worry about the city’s place—economically,
culturally,socially—becausethesocialfab-
ric of the city is being torn apart.”
Spitzer led us to West 35th Street, where
concrete mixers were churning outside his
development site. “See the foundation
walls?” he said, as we peered through a little
window in the plywood barrier surround-
ing the construction. “That is going up 50
stories, and a year and a half thereafter, this
building will be occupied.” Phase one of the
project is a residential tower. Phase two is
the office building; it will need to sign an
anchor tenant in order to go forward. For
now, that part of the site was occupied by a
white tent: a covid testing center.
Construction is one of the few industries
that have continued mostly unabated, but
history shows it to be a lagging indicator.
Real-estate projects take years to design,
finance, and build, and they can be over-
taken by unexpected events. Spitzer said he
was “shoring up the bulwarks” at his com-
pany, slowing down future developments
until the economy strengthens. “If there’s a
10 percent drop in office demand,” Spitzer
said, “it’s going to ripple through the mar-
ket in a very real way.”
In past crises, the city has tended to build
its way out of its problems, offering substan-
tial subsidies to developers and corporate
tenants to revive Times Square and recon-
struct the World Trade Center. When the
2008 crash hit, the city spent hundreds of
millions of dollars to backstop the finances
of Hudson Yards, ensuring that the most
expensive real-estate development in Amer-
ican history would continue forward.
Government officials saw projects like
Hudson Yards as necessary engines of the
city’s prosperity. “If you believe that growth
is good, Hudson Yards is spectacular,”
Spitzer said. Launching new office con-
struction when almost no one is going to
offices every day may seem ludicrous, but
that is the way New York’s political class has
always approached the process of recovery,
assuming that the city—and demand—will
inevitably rebound. That premise is now up
for question. The longer all those skyscrap-
ers remain empty, the less essential they
seem. At the same time, a new class of pro-
gressives is successfully crusading against
corporate power and megadevelopments.
As the largest contributor to the city’s tax
base, and a major campaign contributor,
real-estate developers have grown accus-
tomed to having sway over issues of eco-
nomic development. But the insurgents
were opening the Overton window and
shoving them right out.
As a Democrat and a developer, Spitzer
was stunned by the reversal. “What’s
wrong with building a building?” Spitzer
asked, as we watched a crane lift a piece of
steelupthefaceofthenewPfizerhead-
quarters. “Where did this city come from?”I
f the entire real-estate industry
is filled with anxiety, there’s still a
hierarchy of distress. The multi-
generational family companies,
like Spitzer’s, tend to be less heavily
leveraged, which should allow
them to ride out the pandemic. (Or
so they say—they’re extremely pri-
vate companies, so who knows?)
The public real-estate companies
are more exposed to market forces.
SL Green Realty, which opened a
$3 billion office tower next to Grand Cen-
tral in September, has seen its stock price
fall by nearly half since the pandemic hit,
and its latest SEC filings warn that the “se-
vere disruptions” from covid could con-
tinue to depress rents.
More imperiled still are the adventurous
investors—the ones who are building condo
towers catering to foreign billionaires or
who borrowed heavily to buy high on specu-
lative trends. Spitzer broke down the math:
“If you bought a building presuming that
you’re getting paid $100 a square foot—pre-
sumed the next year the rent was going to be
$110, went to a bank and borrowed based
upon the $110, and then suddenly your
rents go down to $70 and you need $80 in
rent just to pay your mortgage and operat-
ing expenses—you’re finished.”
Also finished, in all probability: anyone
dependent on restaurants, shopping, or
tourism. Jared Kushner’s family firm, for
instance, is in danger of losing the retail
space it owns in the old New York Times
Building on West 43rd Street. The state of
the hotel industry, which has come to almost
a complete halt, is ruinous. “How long can
people stay submerged without running out
of oxygen?” asked Vijay Dandapani, the
president of the Hotel Association of New
York City. Around 140 of the city’s 700 hotels
have been rented to the city as homeless
shelters, Dandapani said. Many have closed,
and he estimates that “well over 100” will
never reopen. Broadway theaters, a major
tourism driver, are dark. The industry’strade association announced last Friday that
it was shifting the target date for reopening
to the end of the spring; a source familiar
with the plans said even that was unrealistic,
given the unique challenges presented by
live theater. “Believe me,” he said, “we are far
from theaters being opened by June 1.”
Office landlords are in a comparatively
insulated position, since the industry prac-
tice is to sign long-term leases. But some
are more vulnerable than others. In recent
years, many older buildings have been
repositioned for co-working, which has
beendevastatedbythepandemic.Many
small firms and start-ups have been unable
to pay rent. “There’s been a lot of pain, a lot
of unpleasant conversations,” says a land-
lord with a large number of troubled start-
up tenants. “It’s a weird responsibility for
me. You’re dealing with hundreds of these
people. You don’t have any real informa-
tion about how to do it. On the one hand,
it’s not my job to be a philanthropist, and
I’m not their partner. On the other hand,
it’s in my interest for them to survive.” He
says if there’s “realistically zero or close to
zero” chance of renting the space for the
foreseeable future, “giving them a big rent
break might be psychologically scarring
but totally rational.”
“If they don’t come up with a stimulus
package now, the smaller tenants are all
going under,” says Jeffrey Gural, a promi-
nent office landlord who told me that, like
many landlords, he is now willing to nego-
tiate. “The market has changed, and I have
to accept that.”
For the large corporate tenants that
populate Manhattan’s premier office build-
ings, there is less flexibility. “One of the
great fictions out there right now is that
leases contain trapdoors,” says Mary Ann
Tighe, the head of the New York region
office for the commercial brokerage CBRE.
Short of declaring bankruptcy, as Neiman
Marcus did, there is little way for tenants
to extricate themselves from their legally
enforceable leases.
That hasn’t stopped some companies
from trying. Condé Nast recently told the
New York Post it was shopping around for
new space as it asked its landlord at One
World Trade Center to bring its rent “into
line with current market conditions.” (The
negotiations appear to have gone nowhere.)
In July, the law firm Simpson, Thacher &
Bartlett sued its landlord for $8 million in a
dispute over rent of its unoccupied offices.
There has been an increase in “shadow”
office space available for subleasing—
around 14 million square feet currently,
according to CBRE—although its share of
the overall available market, 25 percent,
has not yet reached the glut levels seen