Swig on Real Estate Markets Reopening

It's nice to be back, and I'm in my office and working and it's uh, I'm more optimistic certainly than I have been in a long time. Well, that's what I was curious, because we talked. We caught up in I think December, around the holidays, and so here we are a couple of months later. Um, are you seeing more people come into your office? Are you've see more people come into some of the properties that you own? Tell us kind of the trends that you're hearing. Well, it's, um,

it's beginning to happen a little bit. Yes, UM, I would say the average right now in New York City of occupancy, you know, people going into the building not least per se is about twelve percent maybe, so it hasn't changed all that significantly. However, Um, the activity level that we're seeing in terms of commercial in terms of tenants starting to look and starting to become more active, and certainly on the residential front, it's is active. It's

has been since you know, the past six seven years. Um. So that's a good sign going forward. So i'd say a new deal transaction volume is starting to pick up. I don't know if you heard the quote from Jamie Diamond. We caught up with him are at Hammond did and you know he's talked about remote work will reduce the need for commercial real estate. You agree with him? I

don't entirely. And then for two reasons. Um. First, I'll qualified by saying I think that some I think the idea of working from home is something that is part of our workforce today and has not been had not been previously, So that part I agree with him. However, I don't know that it's going to translate directly into

into a less amount of office space being occupied. Um So whereas people there was Stanford University did a study, uh, just before covid um, which was interesting saying that about twenty of the people said of the workforce around the United States said they would be interested in working from home one day a week, and there was about thirty that said not a chance. Um. That I think would be very interesting to see where we are today, certainly, um, but I think one day a week somewhere in there

people will be working from home. I think it's somewhat efficient to do that. Again, if you have a lot of emails one day and you want to work from home and answer them and not have office distraction or telephone distraction, Yes, it's good. Working from home is a factor and will continue past the covid um pandemic when we recede from that. However, that doesn't mean that we're going to translate into fewer amounts or less amount of

square foot is being occupied. And the reason is because I think the trend since nine seven has been going to you know, more compact, more jammed together offices. From you know seven was about three fifty square feet per person and we dropped down to about a hundred and seventy square feet per person. I think that trend is going to be moving the other way, because I think health and safety and traffic flow is going to increase in terms of it's important. So um, you know, taking

our temperatures going in during flu season. I think it's going to be part of everyday life. I think having occupancy of a little bit more space per person is going to be a part of our lives. So I don't see it translating into taking that much less space. Listen, you're you know someone who I can tell love New York like I do. I think that's safe to say.

And it kind of kills me when I like drive down an avenue and see though how much real estate you know, especially retail space, and not a surprise, I guess, um, but it's rough to see so much boarded up and empty. And I do wonder what's what's the downfall? I mean, is there the commercial real estate market? Does it come undone? Or are you starting to see the private equity investors and other investors, I don't know, are you know, looking

at some distressed properties? Are you looking at distressed properties? Well, yes we are. We're looking at to stress properties both commercial and residentially. UM, but specifically with the retail UM. Retail has been devastated, absolutely, no question about it. Retail depends on massive street traffic, people going out and feeling safe, all of which has not happened. But we are now

with the third vaccine that's been cleared. Um, we're looking at a summer where you know, we're going to have a very high percentage of our population inoculated against the vaccine. And I think, well, people will be starting to go back out. Now, what's going to happen is what has happened, it's going to continue to happen is rents for retail is going to are going to continue to drop, and

they have dropped. Um. Retail tenants have been hurt, and I think we're going to end up with a game of musical shares where tenants are going to be moving from one place to the other. And yes, it's going to take time to get the restaurants back up and operating, but they will come back up and they will be operating, and next the hotels will start getting back up and operating.

And it's not going to happen in a month, but it's certainly going to take you know, it's gonna take six months, seven months before this stuff starts really coming back. But the energy level of people and the frustration level of people who have been inside for a long long time that want to get out and want to go do something is clearly they're led by the young population.

If you go look in Miami right now, for instance, which is a different environment completely and and I won't give an opinion you know of Governor to Santos and what is what he's doing versus Governor of Cuomo in our state, but the restaurants nightclubs are heavily populated. Whether safe or not is another thing, but it just tells you that even in the middle of the pandemic, people's desire to go out and want to go do something

is certainly there. So I think it comes back. Is there though, an ultimate fall out a long term impact impact on New York though? Or is it just a case of we're going to be using space differently? UM? I think the ultimate There is a long term impact, I think on on the hotel industry, particularly because the hotels have been closed for quite a long time. And um,

I think the impact is on two fold. One. I think the management unions have to work together because under the contracts with the union contracts hotels couldn't open up partially because the contracts said that they can. You know, if you open up, you have to have a certain number of staff. I think it was not thought about for a pandemic environment. So I think that will change and allow for you know, it would have allowed for

hotels to partially open but didn't. And to UM, there are a lot of hotels that just may not make it. And I think they may be converted into residential or some alternative space. So you know that, and and they are very dependent also on the airline industry and travel. So UM, I think that's the last piece that starts to come back. I think that the residential market is certainly coming back right now. It's very very active. UM. We we had you know, we had over forty contracts

signed over four point four million dollars last week. We haven't seen anything like that since August of two thousand fifteen. Coming back or what is that people in New York just getting more space for a better price, or what is it? Well, it's a combination of everything. UM. At first in January and the beginning of a little bit of February. UM, what you saw is a lot of buying in one bedroom and studios. Because to get on the Merry Go Round when it was traveling quickly, um

to use uh you know a little bit of a phrase. Um, it was very difficult and you jumped off. If you had jumped on and you missed, it hurt. Right Now the Merry Go Round slowed down a little bit, so you can jump on a lot easier. So a lot of first time buyers are coming into the market right now and getting a chance and where they buys one bedroom, two bedrooms, a part of the studios and one bedrooms. But we're now seeing is a lot more activity on

all the levels. I think the lagging part of the marketplaces three bedrooms and and that inventory is built up, um, you know, significantly from being one of the hottest product types to being one of the lowest. To come back right now, Hey, one thing I wanted to ask you, and we caught up with our Emily Chang. She's marking ten years of Bloomberg Technology her broadcast. A lot has

happened in the tech world in the last decade. What about what you're seeing on the West coast, Um, what's going to be the lasting impact of COVID let's say on on the San Francisco area or the Silicon Valley area. Do you play in the California market as well, But we're just talking about that this morning in a family meeting that we had. Um. You know, it's it's very interesting that the technology companies have been based out in

Silicon Valley right just south of San Francisco. And what had been happening for the past ten years is that the major companies have had to provide free bus service, luxury liner type service for all their staff to go to Silicon Valley. Um. And because all the young staff wanted to live in a central city, I wanted the energy of the city and all that. So I don't

think that's going away. Um Um. So the residential population and the and the and the pan for living in a you know, a very very dynamic environment isn't changing. And some of this and the tenants have moved into into San Francisco. We my family signed a lease with the Sana Corporation for over three square feet in a new building that was just built and and they are you know, putting in tennant improvements actively and looking to

occupy this summer. So I'm cautiously optimistic, all right, crossing my fingers, and that you're gonna have to come back soon because they're running out of time. Can be well, nice to catch up with you. Ken Swig, President of Swig Equities,