Bloomberg Businessweek - USA (2020-12-21)

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Bloomberg Businessweek December 21, 2020

evenlowerthanNewYork’s.

Landlordsarehopefultheirbuild-

ingswillrefillwhena sufficientnumber

ofpeoplehavebeenvaccinatedagainst

Covid-19,buteventhenit won’tbebusi-

nessasusual.Companieswereoften

willingtopayrisingratesaslongasthey

couldsqueezemorepeopleintoless

space.IntheCovidera,workerswon’t

wanttocramtogether,andbusinesses

mightbereluctanttoinsistonit.“That

meanseverysquarefootis worthless,”

warnsNicoleGelinas,a seniorfellow

attheManhattan InstituteforPolicy

Research,a thinktankinthecity.

Withemployeeseagertocontinue

socialdistancing,companieswillsurely

allowgreaternumberstoworkfrom

home, creating further downward

pressureonrent.Manyarealreadyditch-

ingtheirexpensivespaces.Accordingto

therealestatecompanySavillsPlc,New

Yorktenantsdumpedmorethan2.5mil-

lionsquarefeetofsubleasespaceonthe

marketintheyear’sthirdquarter,a num-

berunseensincetheGreatRecession.

Then there are the larger issues

hovering over New York City. An

unemploymentrateof13%inOctober.

Looming evictions. Rising crime.

Forecastsofwidespreadsmall-business

failures.A projected$9billionrevenue

shortfall.“It’sgoingtobea toughcou-

pleofyears,”saysKathrynWylde,pres-

identofthePartnershipforNewYork

City,a nonprofitassociationofthecity’s

businessleaders.

Sucha climateisobviouslya chal-

lengeforRosenattheChryslerBuilding,

buthisturnaroundplanwascompli-

catedevenbeforethepandemic.RFR

andtheSignaGroupwereabletoacquire

thebuilding fora mere$151million

becauseitspreviouscontrollingowner,

theAbuDhabiInvestmentCouncil,had

paidanoverlygenerous$800millionfor

90%ofit in 2008 andwaseagertoget

out.“Theylosttheirshirts,”Rosensays.

Nowheandhispartnershavetobe

carefultheydon’twindupshirtless,

too.Heconcedesthat theChrysler

Buildingisoperatinginthered.The

reason:AlthoughRFRandSignacon-

trolthebuilding,theyhavetopay

was the lowest for any of the 10 major
metropolitan areas surveyed by Kastle
and well below its national average of
27%. “New York was hit harder [by the
virus]thananywhereelse,”saysMark
Ein,Kastle’schairman.“Therewasshell
shockandextremegovernmentpolicies
totrytogetit undercontrol.It justnever
camebackfromthat.”NewYork’sreturn
ratewaslessthanhalfthatofDallas,
where38%ofemployeeswerebackat
theirdesks,thelist’shighestratio.
This is making New York’s most
powerful landlords anxious. Some,
suchasScottRechler,chiefexecutive
officerofRXRRealtyLLC,whichowns
someofthecity’smostprominenttow-
ers,havecalledtenants,urgingthem
tosummontheir employeesbackto
theoffice.Rechlerarguedinearlyfall
thatbusinessesshouldbesteppingup
duringthepandemicthewaytheydid
afterSept.11,whenit wasconsidered
patriotictocontinueworkingandshop-
pinginManhattandespitetheshadow
ofterrorism.“Itfeelswiththisvirusthat
manyofthecompanieshavesurren-
dered,”hesaid.Now,withthesecond
waveofinfection,he’sstoppednudging
tenantstoreturn.Hiscitybuildingsare
only10%full.
Marc Holliday, CEO of SL Green
RealtyCorp.,whoseholdingsinclude
OneVanderbilt,hasalsophonedten-
ants.“ManyofthepeopleI speakwith
overthecourseofthedayarenoteven
inthecity,”hesayswithobviousfrus-
tration.“They’rejustgone.”Corporate
executives,hesays,tellhimtheyfear
anonslaughtoflitigationif theylure
employeesbackandthere’sanoutbreak.
Hollidaysaysthataslongastheyfollow
federalguidelines,theirlegalexposureis
minimal.Evenso,SLGreen’sbuildings
remainlargelyempty.
Notalldevelopersacrossthecoun-
tryhavebeenasboldwithtenants.
“IdoubtthatI couldinfluenceGoogle
and Facebookto come back,”says
Michael Covarrubias, CEO of TMG
Partners,a largeBayArealandlord.
SanFrancisco,henotes,orderedthe
closingof “nonessential” offices in
November. The area’s return-to-work
percentage in early December was 13%,

LosAngeles

Austin

Dallas-FortWorth

Houston

Philadelphia

Washington

Chicago

Manhattan

MidtownManhattan

SanFrancisco

0%

-50

-100

Change in office card swipes*inmetroareafromFebruarybaseline

space available

2/5/20 12/9/20

*INDIVIDUALS USING KEYCARD, FOB, OR SECURITY APP ACCESS. **AS OF Q3 ’20. DATA: KASTLE SYSTEMS; SAVILLS

Year-over-year change

in rent per square foot

Currentrent**

◼◼$25-40 ◼◼$40-55

◼◼$55-70 ◼◼ $70-85

Dallas

HoustonAustin

Los Angeles

Philadelphia

Washington

Chicago

San Francisco

San Jose

New York

+6.8%

+5.3

+1.4

+0.7

+0.6

+0.3

-1.2

-4.3

-5.4

-6.6