How E-Commerce Is Changing Commercial Real Estate

Real Estate Summit. It's in partnership with a Global form and we are in the Latti New York Palace in Midtown Manhattan. And who knows more about real estate in New York and really around the world. I don't know who except Larry Silverstein. He is the chairman of Silverstein Properties and he joins us now. So seeing thanks very much for being with us. You know, I was looking

at the background. I'm wondering if you know, when you first started out in real estate from Brooklyn with your father, did you never imagine that you'd be building four seasons properties and the World Trade Center and all these buildings around the world. Did you ever imagine that this is what real estate would become? Never in a million years, it was beyond beyond, beyond visualization. What brought you into

the industry, what made what attracted you to it? Well, I saw a I saw something that that seemed exciting, and at the early stages I functioned as a real estate broker. But it became obvious to me that the money wasn't in brokerage at that time, it was much more in ownership. And so with time I said, be decided somehow we had again moved moved towards owning real estate and ultimately developing real estate. And that's where we are today, Mr Self Furstein. I want to talk about

the World Trade Center site. I know that you had a lease in the World Trade Towers ninety year lease right ahead of September eleventh, and then after that you've devoted yourself to really rebuilding the site. Um, and the tower that now has become really headquarters for media, for modern media in some ways. Um, where is that? How how well occupied is that? And um? What do you envision for that whole region going forward? Well, first of all, we've least about six six plus million feet of space

in the buildings down there, and there's more to go. Um. And certainly media is a very significant occupant of space in that part of the world. Media technology the tammy, the tammy areas um and so it's a finance is still there, but is not the dominant factor in Lower Manhattan today as it was not very long ago. I don't think of media though, is having the same degree

of money as finance. Uh. We see media companies going at a business left and right, So I have to wonder, uh, you know, what the sustainability of this trend is, and uh, what your optimism is that there could be more businesses that come either to New York, saying Amazon coming to the tower, which I'm sure you would be excited about, or others. Given the high cost and uh, some of the challenges to the industry. You know, the high cost

is certainly there. But one of the things that you can do when you're building new buildings is building too those buildings the latest in technology and provide for tremendous dentification of real estate, so you could put more bodies, more people into the same square footage that then existed years ago. And so the the economics of new construction, while it may sound more expensive, is actually becoming much more efficient and less expensive for square foot of occupied space.

What's the biggest mistake that people who want to get into real estate make. I think they consistently underestimate the amount of capital required to do more money than you think invariable. That like a story for life though, well certainly children, right indeed, But you know, one of the thing I wanted to mention is the negotiating prowers because you're you were not the you were not the selected as the person to take on World Trade Center, Right,

that was correct? How did that happen? Well, the winning bidder UH was a public company and they ran into all kinds of problems when it came to negotiating at lease with the Port authority. Port authority asked to do certain things, which is a public company that had difficulty doing. UH, as a private entrepreneur, had no difficulty with at all, and so it just became a question of time until they realized it was not going to work. They dropped out,

and then we came along and closed it. So right now we're broadcasting from midtown, but I know they you yourself are moving from midtown UH to downtown, and that makes me wonder, especially as I pass empty storefronts, do you think that the shot that that this sort of tide has shifted from midtown and that downtown will see an even bigger resurgence. You know, we're we're in an era where um e commerce is playing an increasingly important role, and so people are buying more today online than they

have had before. UM. I think it's I think what you're gonna see is a is a diminution in the number of branch stores UM than we've had in the past. UM. And so retail will adjust um to this reality just as they've always adjusted in the past. They're going through some more difficult times now they'll figure it out. Well. But what does that mean for all the commercial real estate? What does that mean for all the storefronts that have been empty? I think with time rents and some of

those shops will come down. Some of those locations will come down. I think that the locations might find themselves being used differently. We see food today uh far far greater dependability on a need for food, and so you see you see restaurants popping up all over the place. And the truth of matter is younger people, for some reason, they don't like to cook any more. They like to

eat it will give you a few reasons. And so uh you find we find restaurants uh increasing in frequency and presence, uh, and so many cases those shops will will be replaced by food of one type or another, and so fast food lots, so fast food, so forth, different types of foods. It's a it's a fascination. You'll have that uptown as well as downtown. They'll certainly seeing

it downtown. There's no question of that. Based on what you know or have heard about the President's efforts for a tax reform, what can you tell us about your views on tax reform and is it necessary? And what would it do if indeed we do get some kind of tax reform? Well, Uh, it's it's totally premature uh to be able to opine on the ramifications of this thing, because you don't know what state, what status it's going

to have. Uh. You're needing far more definition of a most specificity uh than you can't than we have today to be able to give you a concrete answer to that question. So you don't you don't even pay attention to the noise. It's there's a lot of noise at this point. Uh. It will become more more less symbolic and more meaningful as the days go forward real quickly. I'm wondering, from a foreign investment standpoint, how concerned are you about curbs on China money leaving the country and

what that would do to us real estate. Well, there's certainly a diminution on the amount of money that can come out of China into America. But at the same time, there's such vast amounts of wealth has been created around the world, So much of that wealth is coming to America as a safe haven. And so the first place finds itself is usually New York and then it starts fanning out to a Jamaica urban centers around the country. So I think we're gonna do just find here. Larry Silverstein,

thank you so much for joining us. Larry Silverstein's chairman of Silverstein Properties, incorporated in New York City, and he is a lion of the real estate industry, certainly in New York as well as around the world. I want to turn our attention to uh real estate, in particular the security around that real estate in a place like New York City. And here to join us is Governor

David Patterson, the former governor of New York. So I'd love to to get your sense on the cost of some of these anti terrorism measures that are being increasingly taken in New York City and from your perspective, whether they have been uh ashiant to adequately protect us. Well, we were just talking about that in a session and my colleague Jeff Murdler, who was one of my appointees to the Port Authority, talked about the fact that the new one World Trade Center, the first seven floors don't

have any people on it. They're concentric layers of concrete, and that um the reinforcements dwarf what existed on Towers one and two at the World Trade Center uh years ago. These are massive amounts of money and extra billion dollars was spent just on security alone at the World Trade Center and is now being replicated uh at you know

other edifices that are being developed around the city. Can I just play Devil's Advocate for for just a moment, because all of this security, while at the macro level, we understand that it may be necessary, but it is in a sense non productive spending. In other words, it's concrete as you just describe, it's many layers of security at the same time that we have municipalities going bust. So is there a contrast between what we are securing, which seems to be deteriorating in some cases, and the

amount of money that is being spent on security services. Uh, that is a brilliant question. It's a sacrifice in many respects what we're finding. Let's think about it. Two years ago in France there was an attack on a restaurant, and then, uh, one month after that, in December of twenty fifteen, there was an attack on a holiday party that was actually in a in a you know, regular office building, So terrorists could read a lot of havoc, but not even going near the World trades. And they

can do it in the subway system. There's no way we could secure seven miles of track in the New York City subway system. So your point is very well taken. But I guess psychologically, if there was another attack on one of the major buildings, the Empire State Building or Madison Square Garden, on one of these places, the person everybody would say is why didn't someone do something about it? Governor Patterson, I wonder if you could enlighten us about

whether it's underappreciated. How many potential threats have been thwarted to New York City and how many threats you're aware of that were imminent that didn't happen. I'm aware of about of UH for every one UH situation had happened. Friends, when I was governor, there was a bombing um on Street. UH.

It didn't it wasn't effective. But what had occurred. But I told the group this morning that I was told there would be an attack on the New York subway system during the Thanksgiving holidays in two thousand and eight. And you know what. My staff came in my office today before Thanksgiving and they were all looking down, they were glum. I thought, oh my god, we've got another

September eleven situation. And it turned out they wanted to tell me about the attack in Mumbai when they blew up the hotel and in India, and um, it was a horrible situation, terrible tragedy. We sent supplies from New York State. I felt guilty of others, but I was relieved that New York had been spared. They are all types of threats that we never know about. We have to thank our New York City Police Department, the state

police in our national government for their successes. Can you just speak a little bit about the threat the fiscal threat to states and municipalities. We've got a potential bankruptcy right now at Hartford, Connecticut. Yeah, it's overwhelming. UM. There was the little uh city Pritchard, Alabama. There was the municipality in near Orange County in California. UM, we are going, uh, We're uh. Governments are spending more and then they had to because of all types of myriad problems that exist

now that then existed before. There's no doubt about that. And we're going hopelessly back into debt and I hope that's not another prelude uh to a government crisis like we sew in two thousand and eight. Do you think that's possible? I mean, from leaving out finance, I think just from a government perspective, the amount of debt that's being run up by cities and states is incredible. Right here in in in New York. At one time, about ten years ago, the m T A was the fifth

largest debt or in the country. California was number one, New York State, New York City with two and three, Massachusetts number four and then the m t A. It's as if they are a state, and so the point is that, um um, we don't manage money right the way we should. Well, I want to thank you for your service to the state and to the country. Former Governor of New York David Patterson joining us here at the Global leaders in Real Estate Summit for Eisener Emper

and partnership with I Global Form. You're listening to Bloomberg. We are broadcasting live from the Eisener Emper Global leaders in Real Estate Summit. It's in partnership with I A Global Forum, and we're broadcasting from the New York Palace Hotel in Midtown Manhattan. Joining us now is really our host for the whole morning. I want to appreciate it. Thank you very much, Charlie Weinstein. He is the chief

executive of Eisener Emperor. Thank you for having us, Thank you for having thank you for covering us this morning. And good morning Lace and him. Great to be great to be be here. You know. One of the time I wonder if we could just jump right in. I want to understand a little bit more about the Center for Family Business Excellence, because I think that many people who either own companies or are equity holders in either private companies or in real estate deals. This is something

that you're trying to build for them. Center for Family Business Excellence is um a new initiative that we've started at the firm. Lisa Stewart is the executive and our firm who's responsible for family uh, family businesses, and family business. Center for Family Business Excellence really has its focus on the challenges that family owned businesses and privately held companies have on succession, planning and transition, and Lisa has been

doing this for twenty years. We're very excited to be able to bring this initiative to our clients, and especially in the real estate industry where family owned real estate provides a challenge for leadership trains issue. You know, as we were talking before this segment, one thing that struck me was that the main topic of the day is

somewhat different than I thought it would be. I thought it would be about taxes, frankly because of the tax plan that was released by President Trump, but it sounds like that's not the that's not the case. In fact, it's actually the technological revolution that's kind of underpinning the real estate market right now? Can you give us a

sense of what that is? Absolutely? And so it's very interesting because we are a leading accounting and advisory firm, but even eisener Amper has morphed into a technology focused term and that's impacting real estate in so many ways. And so if you think one way in particular would

be blockchain. And so what's coming in blockchain is going to have a tremendous impact on title and ownership, mortgage recording, um, all of these things that perhaps were impacted in the meltdown in two thousand and eight, those are going to be impacted in a big way by blockchains. So when you say impacted, does this mean that there's going to be more profits or sort of a fewer costs attached to purchasing a home with a mortgage or does that

mean that it's just going other places? I mean, what's the significance of this for buyers of real estate? To me, the significance is transparency. And when you have transparency, you have more effective and efficient markets, and we will see the lowering of risk and we will see more investment

dollars come into this sector as risk gets lowered. All right, now, I know you wanted to move away from taxes, but I'm sorry, I'm just gonna have to focus you there because I know, for example, that you are one of the attendees at the White House at a Business Council meeting with President Donald Trump, and of course taxes is

in the headlines right now. What if you could speak about this idea of succession planning and the estate tax for businesses and then maybe just segue if you can into the whole then thirty one exchange uh business, because that may be on the chopping block at least that's

according to some people in Washington. Well, so a state tax if and there are very few details out yet in terms of tax reform and what impact it's going to have, Uh, the state tax will go away, and so that will change, um if if the proposals are filled in the way that that they're spoken about now,

a state tax will go away. That will have a significant significant impact on succession planning for families especially, And so we're looking forward to more details coming out and hopefully we will see some changes in the estate tax. Um In terms of specifics, ten thirty one exchanges limitations on business interest deductions, all of these things are going to have a major impact. It's a little bit uncertain at this point if they're actually going to go through.

So let's here, what's your expectation. You look skeptical. Um, I believe that will have tax reform, but uh, interest groups are lobbying already. I think the plan is to keep details light until the proposal is ready to be voted on interest groups so hard at work. Well, I'm wondering from the mortgage interest deduction standpoint, whether you think

that could potentially be on the chopping block. Certainly sounds as though they're going to keep it for individuals, but business interest deductions sound like they're going to be limited. And if that's the case, that will have an impact on corporate real estate and real estate investment. In other words, commercial property values could deteriorate pretty rapidly. Absolutely. Is there a misnomer about the industry that people do deals for tax reasons? I mean, is taxes a secondary issue or

the primary? I'd like to think tax planning is your friend, and so it's a component of every aspect of deal making in real estate, and savvy real estate investors take advantage of the opportunities in the tax code as it stands today. UM, it'll be interesting to see with tax reform, if we have tax reform, what those opportunities will be going forward. That's our business. Charlie Weinstein, thank you so much for joining us and for having us here today.

Charlie Weinstein's chief executive officer of Eisner Amper, which is based in New York and facing a pretty rapidly changing landscape for at least the underbelly of the real estate industry. As so many industries are facing disruption from technological advances. The bond market is experiencing a bit of a sell off, at least the US government bond market. You are seeing, uh, some of the risk your markets rally a little bit.

I want to bring in Mark Branch, chief strategist at Hilltop Securities in Bloomberg Profit for our Bloomberg view site up Mark, thank you so much for joining us, and I want to start with should we care about this selloff in the bond market or will this just be a buying opportunity like all of the other small blips upward in bond yields. I think it's a buying opportunity. Lisa.

The technically the lines in the sand or to sixteen and two thirty two were right at the high level of the support resistance line at two point three to eight as we speak. And I think the our yields of the United States, even though we're the largest economy, the strongest economy, or so much higher than European yields, as long as the central banks keep printing money, which they are way more than the fetters talking about cutting back,

I think you'll stay low. Well, Mark ran if you if you'd stay low, what happens in December if the Federal Reserve raises interest rates, I think the yield curve just flattens further. We've seen a huge flattening over the last year. As you know, phim better than anybody, and and Lisa, you both know that how many people have come into the media we're going to have three to yield on the tenure and it just has not taken place,

and I don't expect it to anytime soon. Well, you know, I think that one change in the equation could be a tax plan, and President Trump did unveil his proposal yesterday, at least the outline um and there's some speculation that the sell off that we're seeing is an expectation that the federal deficit will deepen. Therefore, even if we don't see the growth, we will see uh, some inflationary pressures, or at least we'll see that the US is becoming

less credit worthy. How much do you buy into that argument? Um, there's no question so that the cause of the markets to sell off the last few days has been the president's tax plan. I do not think the country's going to become less credit worthy. It just depends on how much growth you think we're going to see from lower taxes to upset this and uh, I think the growth will there will be growth, and you know what the number is is very difficult to tell, but I think

that's the offset for the tax cuts. And also, of course people will have more money to spend, which should be a positive for the economy. Mark, can you tell us a little bit about demand from institutional clients right now? What are they looking for? Yeah, the institution, the big institutional clients and Ideal with quite a number of them directly are outside of the box, if you will, out

of the box. But what they're looking for, they're they're not getting enough yield and traditional public investments, and most of them were doing privates in the debt market, or private equity or real estate. They're doing all kinds of things to try to lock in yield because they cannot get it in the public debt markets. Well, you talk about locking in yield, does that lock in their money

because of limited liquidity in many of these investments. Well, a lot of these big institutions, especially the life insurance companies, don't need much liquidity. There. You have a longer time horizon and the yield that they're getting the cash flow

is much more important to them than uh liquidity. So Mark, you are saying that, Um, there sort of seems to be this tense balance here between a commentative monetary policy globally as well as your expectation that the tax proposal would potentially increase growth in thus inflation and thus potentially longer term yield being higher. I'm just wondering what's the range here, what's the lowest that the tenure treasury could go in your opinion in this environment, and what's the

highest that the yield could go. Well, you know, it depends on external factors such as North Korea blowing some jetting in America out of the sky. You'd see it two yielding about three minutes uh. Short of something going very wrong, you're probably looking at a two oh six on the low side and two fifty two or so to fifty three on the high side. I do not think that there's any way given the amount of money that the central banks are printing. The issue here, Lee says,

you have to follow the money. The fat is talking about a very minor cutback uh in their balance sheet, while at the same time, the eleven central banks of the world, according to Bloomberg Dad or now about twenty one point four trillion in assets and it's growing at about three million a month. So as long as the central banks globally or adding keep adding money to the system, you're not going to see any big reversal and yields. In my opinion, just quickly mark Grant once again. December

rate increase from the Federal Reserve. Yes, I don't think so. I think that they're gonna look at the economy and stand pad though I'm certainly in the minority opinion. We'll have to see what happens. Thank you very much more, Our chief a strategist from Hilltop Securities He's based in for La Florida. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.

I'm Pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramowits one before the podcast. You can always catch up worldwide on Bloomberg radioh