Leaving New York City

[LearningMachine]

I dont know how much one can take from the current situation other than simply acknowledging that some of these things already existed and will just progress with time. Covid is only a short term headwind. But the larger trends of high taxes in some of the places, anti business policy, and now violence...are bad, but will too pass.

 

The current opportunity depends on your time horizon, and big baller status. Guys who answer to no one and who have shown to be opportunistic, like Flatt, Bezos, Zuck, etc.... theyre active and buying. They see that things will go back to normal, eventually. But other than that, who is going to pull the trigger today? If you're a Sr VP and heading up the division responsible for managing RE and signing leases, no way in hell you're going to be the guy who signs a lease in the middle of a pandemic; raging civil unrest, unprecedented violence, and widespread lockdowns... how do you explain that to your boss, who then has to explain that to the CEO, who then has to answer to the Board, who then has to answer to short term centric shareholders?

 

Everything really makes sense within context. Its not surprising, its an easy opportunity, but I dont think it will be get rich quick.

 

Regarding Zuckerberg, I'm assuming you are referring to office real estate decisions in Bellevue and Manhattan.  Things don't have to go back to normal, eventually, for those decisions to make sense for Facebook's desire for young talent.  At the same time, I hope you are also not ignoring that Zuckerberg has announced that 50% of Facebook employees will be WFH permanently.  From talking to Facebook employees, they are saying 50% doesn't apply to engineering and highly paid folks, all of whom are allowed to apply for permanent WFH processing.

 

Regarding Bezos, I'm assuming you are referring to office real estate decisions in Bellevue, Manhattan and D.C.  Those decisions were made at a time when Bezos hadn't yet heard about his competitors offering WFH policies.  Amazon has always been the last one to care about employees.  The only thing that causes them to care is when they start to lose people to competitors.  Now, Amazon is starting to walk away from Seattle real estate.

 

Regarding Flatt, I'm not sure if I would put him in the same bucket as Bezos and Zuckerberg.  He has an incentive to pump up things. Not impressed by their head-stuck-in-sand type comments I heard a few months ago about denying anything is going to be different.

 

So, I think saying that everything will go back to normal, eventually, is a little simplistic.  We need to look at the reasons driving them, and those reasons may still be consistent with things not going back to exactly the way it was.

[LearningMachine]

I think Bill Gates probably has the best most-reasonable prediction:

 

"My prediction would be that ... over 30% of days in the office will go away," Gates said.

 

https://www.weforum.org/agenda/2020/11/bill-gates-pandemic-covid-coronavirus-work-travel-business-digital/

 

That has impact on residential housing immediately next to most-desirable office buildings that do survive.

 

[Gregmal]

WFH is highly overblown. Sure, it will continue and progress. But you miss the fact that it may be in the interests of many of these folks to tout worker friendly "choices" surrounding WFH. That doesnt mean people will want it. People have loved city centers for as long as there have been civilizations. Young people want bars, clubs, restaurants, and lots of sex. This only happens in the cities. Or put another way, it doesnt happen rurally, and unless you're looking to boink soccer moms, doesnt happen in the burbs. The cities from a real estate perspective are trophy assets. Its supply and demand. With the degree to which capital is gushing into every corner of the universe, even a reasonable demand decline is more than offset by lower rates and greater number of dollars chasing fewer and fewer available assets.

 

If you want to make an excuse for why guys like Bezos, Zuck, Flatt, etc are buying, fine. I'd prefer to just take it for what it is. It isn't one guy being an outlier...its multiple people and firms who are known for being savvy and opportunistic, doing so. If nothing else its proof of the above. Rich get richer, have more money to deploy....so they deploy it. Brookfield has a whole lot more capital to pour into these assets, and so do a lot of other HNW individuals, institutions, etc. Its the same reason you're seeing shopping centers and retail properties in prized locations selling at record prices, despite a much more dire narrative surrounding them. If anything thinks 5 years from now you see NY RE trading hands at $300 sq/ft....youre simply out to lunch.

[LearningMachine]

WFH is highly overblown. Sure, it will continue and progress. But you miss the fact that it may be in the interests of many of these folks to tout worker friendly "choices" surrounding WFH. That doesnt mean people will want it. People have loved city centers for as long as there have been civilizations. Young people want bars, clubs, restaurants, and lots of sex. This only happens in the cities. Or put another way, it doesnt happen rurally, and unless you're looking to boink soccer moms, doesnt happen in the burbs. The cities from a real estate perspective are trophy assets. Its supply and demand. With the degree to which capital is gushing into every corner of the universe, even a reasonable demand decline is more than offset by lower rates and greater number of dollars chasing fewer and fewer available assets.

 

If you want to make an excuse for why guys like Bezos, Zuck, Flatt, etc are buying, fine. I'd prefer to just take it for what it is. It isn't one guy being an outlier...its multiple people and firms who are known for being savvy and opportunistic, doing so. If nothing else its proof of the above. Rich get richer, have more money to deploy....so they deploy it. Brookfield has a whole lot more capital to pour into these assets, and so do a lot of other HNW individuals, institutions, etc. Its the same reason you're seeing shopping centers and retail properties in prized locations selling at record prices, despite a much more dire narrative surrounding them. If anything thinks 5 years from now you see NY RE trading hands at $300 sq/ft....youre simply out to lunch.

 

Gregmal, we don't have to think in extremes, but can try to handicap in a rational manner. 

 

I'm not saying NY RE will be trading hands at $300 in five years. I'm also not saying that young people won't like to be in cities for dating, etc.  I'm not sure why you are assuming that is what I am saying.

[Gregmal]

I kind of assumed that, along with your quite bearish tone because that is what you had conveyed in some other threads. I think in the ESRT thread you were talking about $100-$200 sq/ft.

 

The thread is about NY, and if those couple things return, ie nightlife, entertainment, etc...so will the people. They do have an interest to get crime down, although there's tended to be cyclical trends with that, and it is not uncommon for there to be high crime during periods of economic disarray. Those issues shakeout, and you'll be seeing record prices again. Similar areas will likely see similar progression. If this isn't what we are talking about, then I dont now what we're doing in a thread about folks fleeing NYC.

 

So if we are talking about this as an investor, there's really not a whole lot of "risk" posed to NYC or major city hubs, by WFH. The risk is that the drivers that make the city attractive go away...this is a low probability risk IMO.

 

If we are just talking in general about a hiccup in terms of demand...so what? Thats what cycles are.

 

If it isn't any of the above, then I am not quite sure what you are saying.... If anything, I think WFH is a ticking time bomb for suburban office space. Although anecdotally, I've been able to WFH since 2014. I've leased 5 different offices during this time and still pretty much did a hybrid 3/2 type of thing. I was still paying the full rent. Most offices in non prime locations regularly operate at below 100% occupancy and have had no problem gradually raising prices either. Either way, cities will be fine. The question is when, not if.

[LearningMachine]

I kind of assumed that, along with your quite bearish tone because that is what you had conveyed in some other threads. I think in the ESRT thread you were talking about $100-$200 sq/ft.

 

The thread is about NY, and if those couple things return, ie nightlife, entertainment, etc...so will the people. They do have an interest to get crime down, although there's tended to be cyclical trends with that, and it is not uncommon for there to be high crime during periods of economic disarray. Those issues shakeout, and you'll be seeing record prices again. Similar areas will likely see similar progression. If this isn't what we are talking about, then I dont now what we're doing in a thread about folks fleeing NYC.

 

So if we are talking about this as an investor, there's really not a whole lot of "risk" posed to NYC or major city hubs, by WFH. The risk is that the drivers that make the city attractive go away...this is a low probability risk IMO.

 

If we are just talking in general about a hiccup in terms of demand...so what? Thats what cycles are.

 

If it isn't any of the above, then I am not quite sure what you are saying.... If anything, I think WFH is a ticking time bomb for suburban office space. Although anecdotally, I've been able to WFH since 2014. I've leased 5 different offices during this time and still pretty much did a hybrid 3/2 type of thing. I was still paying the full rent. Most offices in non prime locations regularly operate at below 100% occupancy and have had no problem gradually raising prices either. Either way, cities will be fine. The question is when, not if.

 

Yes, I handicapped on ESRT, got in below $5.50 and got out at $10.  Thanks to your and pupil's contribution to that handicapping as well.

 

Because someone was talking about Seattle in this thread, I went along. When trying to handicap residential prices next to Microsoft, Amazon, Facebook and Google in Seattle area, I'm saying there will be some negative impact to prices in real life as a result of Bill Gates' prediction of more than 30% of days not being spent in office anymore (which I agree with), and there will be some positive impact to residential prices in exurbs in Seattle area. 

 

I agree with you that young people will not leave cities.  I hope you will also agree that young folks also don't have to live next to their employer anymore.  Some can live in the middle of Seattle next to bars cheaper than for living next to Facebook, Amazon, Google or Microsoft.  Some family folks can live in exurbs with water view cheaper than for living next to headquarters.

 

Looks like you also agree with Bill Gates' prediction, and that's why you are saying suburban office real estate might be in trouble.

[Gregmal]

I kind of assumed that, along with your quite bearish tone because that is what you had conveyed in some other threads. I think in the ESRT thread you were talking about $100-$200 sq/ft.

 

The thread is about NY, and if those couple things return, ie nightlife, entertainment, etc...so will the people. They do have an interest to get crime down, although there's tended to be cyclical trends with that, and it is not uncommon for there to be high crime during periods of economic disarray. Those issues shakeout, and you'll be seeing record prices again. Similar areas will likely see similar progression. If this isn't what we are talking about, then I dont now what we're doing in a thread about folks fleeing NYC.

 

So if we are talking about this as an investor, there's really not a whole lot of "risk" posed to NYC or major city hubs, by WFH. The risk is that the drivers that make the city attractive go away...this is a low probability risk IMO.

 

If we are just talking in general about a hiccup in terms of demand...so what? Thats what cycles are.

 

If it isn't any of the above, then I am not quite sure what you are saying.... If anything, I think WFH is a ticking time bomb for suburban office space. Although anecdotally, I've been able to WFH since 2014. I've leased 5 different offices during this time and still pretty much did a hybrid 3/2 type of thing. I was still paying the full rent. Most offices in non prime locations regularly operate at below 100% occupancy and have had no problem gradually raising prices either. Either way, cities will be fine. The question is when, not if.

 

Your figures are an exaggeration above, but yes, I handicapped on ESRT, got in below $5.50 and got out at $10. 

 

When trying to handicap residential prices next to Microsoft, Amazon, Facebook and Google in Seattle area, I'm saying there will be some negative impact to prices in real life as a result of Bill Gates prediction of more than 30% of days not being spent in office anymore, and there will be some positive impact to residential prices in exurbs in Seattle area.  That's all, no extreme statements.

 

Thats hardly a controversial statement then and Id even agree with you. There will be some softness and suburbs/rural will benefit. Thats already occurring. But I also wouldn't underestimate the desire of people otherwise priced out of an area to be waiting for the opportunity. I dont think its Gates prediction but rather supply and demand at work. However longer term, the question, and investment opportunity I think is pretty clear. What happened following the GFC where masses of folks were evicted/foreclosed? When the forecasted "new normal" was that everyone and their mother would be renters from now on. An unprecedented wave of private investor/institutional money came in and snapped up homes in desirable but out of favor areas. And its been nothing short of a home run for them. I wouldn't confuse the current covid hysteria where people are literally forced to WFH and daily occupancy rates are like 20% as a new normal. Two years from now most people who were working in an office will still work from at an office. Not just younger people; you dont think the average middle aged married person with kids doesnt cherish the break from that? Or the single, middle aged person not quite young enough for dating apps to be appealing? Where do they get social interaction? The distortion often emerges when there are irregularities and imbalances. Not a whole lot different than when we had an excess supply of stocks in March. The pendulum is always swinging. Sometimes it is fairly straight forward/easy to step back and simply determine whether we are in or out of favor, and then look at what needs to occur to get to the other side. In relation to the thread topic, for NY, its opening back up businesses, getting crime down, and probably looking in the mirror as far as tax policy goes. Pulling shit like they did with Amazon certainly didnt help, but I dont think thats something they can get away with doing repeatedly, and sooner or later they'll see that.

[Cigarbutt]

Not just NYC, I noticed a massive exodus of Seattle as well. Just check redfin listings for Seattle. Lots of listings, especially condos, with hardly any buyer taking a tour.

Make sense though. Large city with many renters, large population of young and single people and high cost. But I bet Seattle suburbs are white hot.

I'm throwing 700k cash offers at 3bed/1bath 1,000 sq ft houses  in the east bay of San Francisco. I'm not even competitive apparently...

Suburbs have largely lacked the price appreciating that Appartement or houses in the city areas had. I lived in Long Island and now in Boston area and in both cases, houses were still below ~2005 prices.  I think RE in thr city core might have doubled with8b the same time frame. If this trend reverses, it could have a long way to go, but I somehow doubt that it will.

Actually good bay area suburban housing has been on fire since a couple of years after the GFC. The suburban city of Burlingame (17 miles south of San Francisco) has seen a 2.5X price rise for single family homes in the last 10 years (Dec-2010 to now). That is annualized appreciation of nearly 10%. If you take last 25 years for this suburb that number comes to about 7.5% annualized which is rivaling S&P returns (without dividends reinvested of-course).

https://www.zillow.com/burlingame-ca/home-values/

For comparison San Francisco (SF) has appreciated "only" 2X in the last 10 years for single family homes (7.5% annualized) and about 4X in the last 25 years (for a return of 6% annualized).

SF Zillow:

https://www.zillow.com/san-francisco-ca/home-values/

SF Case Shiller:

https://fred.stlouisfed.org/series/SFXRSA

Thank you patience_and_focus, that was intersting (i like the SF area).

i recently finished the traditional communication round to US acquaintances (most graduated in the late parts of the last century) who happen to form a relatively reasonable representation of the US territory. Covid was the big topic but, every year, it seems that the 'mood' tends to be related to trends in the stock market and, especially, real estate.

i thought the following interactive tool was interesting (national, regional etc)

https://www.visualcapitalist.com/20-years-of-home-price-changes-in-every-u-s-city/

-----)Back to the "Leaving New York City topic"; i like NYC too and the real estate market there went through Covid like a walk in Central Park but it seems to me anybody interested by NYC real estate in a big way should consider reading chapter 2 (pages 55-112 1996 edition) of The Trouble with Prosperity,  written by Mr. James Grant. The chapter concludes with the 1995 40 Wall Street acquisition.

[thepupil]

I love that chapter, but don’t quite understand the relevance other than “office RE values can fall very low / are very cyclical over long periods of time”; is that your point?

 

[Cigarbutt]

There is no embedded 'forecast' either for an individual looking for a specific property or real estate investments in general.

It's looking at various scenarios and remembering that cycles can last a long time (both good and less good).

 

It's fascinating to see that real estate values (including NYC, residential and commercial, as far as i can tell) have diverged from inflation trends for some time now and there are (may be) very good explanations for this. It seems to be though that (very) low interest rates are a key driving force and i wonder if that's good or bad or whatever.

 

To paraphrase Mr. Grant, skyscrapers are the architectural expression of optimism, and no bookkeeper is likely to frustrate the way of progress.

 

 

[patience_and_focus]

https://www.visualcapitalist.com/20-years-of-home-price-changes-in-every-u-s-city/

 

This is pretty cool resource. Thank you!

[Gregmal]

Goldman to Florida!

[fareastwarriors]

Goldman to Florida!

 

https://www.bloomberg.com/news/articles/2020-12-06/goldman-plots-florida-base-for-asset-management-in-a-blow-to-nyc?srnd=premium

[fareastwarriors]

Renters return to Manhattan, driving 30% gain in new leases in November

 

https://www.cnbc.com/2020/12/10/renters-return-to-manhattan-in-november-driving-30percent-gain-in-leases-.html

[BG2008]

Renters return to Manhattan, driving 30% gain in new leases in November

 

https://www.cnbc.com/2020/12/10/renters-return-to-manhattan-in-november-driving-30percent-gain-in-leases-.html

 

People got bored in the boondocks, demand is elastic, young people can't stand living with their parents and want their freedom/get laid

 

 

[BG2008]

Renters return to Manhattan, driving 30% gain in new leases in November

 

https://www.cnbc.com/2020/12/10/renters-return-to-manhattan-in-november-driving-30percent-gain-in-leases-.html

 

People got bored in the boondocks, demand is elastic, young people can't stand living with their parents and want their freedom/get laid

 

Sounds like a thesis that could endure.  Enclosed malls, won't touch them with a 10 foot pole.

[Guest cherzeca]

as I walk the streets of NYC, plenty of moving tucks with boxes going in, not coming out

[BG2008]

as I walk the streets of NYC, plenty of moving tucks with boxes going in, not coming out

 

This winter is going to be tough.  Let's see what happens when people get vaccinated.  If people don't move back in summer or fall of 2021, I will have to change my mind.  NYC is not enjoyable in the current form, well obviously. 

[sleepydragon]

I live in suburb CT.

Met a few new people in our town recently.

All moved from NYC.

It’s driving our local real estate mkt to a bull market.

Many houses that haven’t  been sold for a couple of years are sold at top prices.

Some NYCers who were renting and couldn’t buy anything at NYC came here and bought a house in a month.

 

[BG2008]

I live in suburb CT.

Met a few new people in our town recently.

All moved from NYC.

It’s driving our local real estate mkt to a bull market.

Many houses that haven’t  been sold for a couple of years are sold at top prices.

Some NYCers who were renting and couldn’t buy anything at NYC came here and bought a house in a month.

 

Definitely have been hearing a lot of that lately.  Long Island, CT, NJ, etc.  I think there are 2 factors at play.  1) No vaccine at the moment 2) the average age in the city is likely higher at the moment 

 

I think there is a natural purge going on where it hasten the family of 3-4 to buy a house.  I still do think that the city has a lot of elasticity.  Again, let's see what summer of 2021 leasing look like. 

[Cardboard]

Once Donny and Rudy come back it will improve.

 

Hang on guys!

 

Cardboard

[Gregmal]

As soon as spring arrives and along with it, the 20-something year old chicks in short skirts w/ their tits out....people will remember what made NYC great!

[Spekulatius]

As soon as spring arrives and along with it, the 20-something year old chicks in short skirts w/ their tits out....people will remember what made NYC great!

 

Plastic surgery?

[BG2008]

As soon as spring arrives and along with it, the 20-something year old chicks in short skirts w/ their tits out....people will remember what made NYC great!

 

Plastic surgery?

 

I think you are thinking of Texas and California

 

But to Greg's point, I distinctively remember back in 2005, I was failing at my first gig and my coworkers and I was sitting outside during the spring.  It has been a brutal winter and we had a 55 degree day and was the first sign of Spring.  All a sudden, the ladies dressed up and all of our hormones started raging.  Thanks for bringing back a fun memory from 15 years ago. 

[fareastwarriors]

Ken Moelis Gives His Bankers Blessing to Move Wherever They Want

 

https://www.bloomberg.com/news/articles/2020-12-11/moelis-gives-his-bankers-blessing-to-work-wherever-they-want?srnd=premium