26 Aug SharkStreet Radio on 970AM TheAnswer: “New York City Property Value”
Bill Staniford 4:08
Good afternoon, New York. It’s great to be here with you today we’ve got an excellent show for you. This show is going to be all about what is going on with commercial real estate in New York City, and we’ve got an old friend of mine that’s been on here he is, he is one of the most well known people, for real estate data in the city. He’s got a storied background, and we’re going to see if he is on with us today Adrian Mercado is the Chief Information Officer of B6. How are you doing today Adrian?
Adrian Mercado 4:46
Great Bill, How you doing?
Bill Staniford 4:47
I’m doing incredibly well, it’s, it’s great. So, so how is COVID affecting you is is are you doing alright are you coming to the city what’s going on?
Adrian Mercado 4:58
So far, knock on wood where the family’s doing well. We left our me living in Brooklyn, that’s the beginning of March, to go up to Connecticut, and we’ve been here ever since. We’ve been to the city a few times, meaning into Brooklyn. I’ve been back to the office yet, unfortunately,
Bill Staniford 5:21
yeah no I mean I just went back to the office for the first time last week and, and it was weird. It was just incredibly weird so. So let’s do a little bit about your background, where you come from, how you got into real estate data in particular. Again I you know, I think, first you know caught wind of you back when you were with Massey Knakal, and then can you take us from there?
Adrian Mercado 5:44
Sure, yeah, you know I joined Massey Knakal to start their research group coming from secondary mortgage security background. During the Great Recession. And that was sort of a you know back then there was no market reports or data to really understand what’s happening in the market so I went around to really use secondary markets like Dallas City, Oklahoma and try to uncover what’s happening to make judgments on valuation. So we did a deal like that in Brooklyn, with Massey Knakal and they asked me to come on board and start that research group and so we did that through the acquisition of Cushman and Wakefield in 2014. And from there, start headed up a joint task force for Cushman and Wakefield on data and tech around the world with a focus on data governance, trying to figure out where all the data lies in this was sort of four acquisitions that happened. And that really took me over to Urbint where I met you. Formally, that was able to work with you.
Bill Staniford 6:51
Yeah, no I mean that was a that was an interesting project people should be aware of it I mean that was, you know, Adrian and I work together on a project with this company called Urban stands for Urbint intelligence. And we, we did a pretty sophisticated machine-learning artificial intelligence project with Con Edison, to help them identify specific properties in New York City that were susceptible to gas explosions. So that was a really fascinating project but since, since then that company was repositioned to directly service the utility space, and you know i don’t want to speak for Adrian but that’s when we both went back to real estate right?
Adrian Mercado 7:29
Real Estate’s where my heart is that it’s really, you know, it really opened up my eyes a bit more into what else is really lacking from technology perspective, you know, real estate is an interesting market to try and build technology for because for the most part it’s a well capitalized market with a lot of really smart people there’s not your disruption is really in efficiencies. It’s hard to tell somebody who’s making quite a bit of money that they are inefficient. So, you know, that, that was an interesting sort of,
Bill Staniford 8:04
You know, one of the one of the things I tell because I you know, as, as do you, I also advise people in the in the real estate technology space and we can talk about the Alero advisors in a bit. But one of the things that I advise people coming into the space is to understand where they come from and the fact that the people that have been operating in this space they’ve been operating in this space for a very long time and they make a lot of money so anything that you’re going to do is going to incrementally increase their their efficiency and their profitability. It’s not like you’re going to be coming in and say oh you know you weren’t making a ton of money before and now you are
Bill Staniford 8:42
So you want to talk about Alero. Um,
Adrian Mercado 8:47
yeah so when, when I left Urbnit I sort of took a step back and wanted to just really find the right projects. I wanted to work on and during that time, I started Alero advisors which really focused on helping real estate brokerages across asset spectrum, and other real estate companies and actually got into some advising work had companies on the product. Just really trying to understand pain points and trying to help identify with those pain points where and where technology could help have more of an impact in the business rather than sort of what we’re just talking about these incremental increases. So, that was, that was a really great time. That was working that we were working on and during that time to project with B6 came about, which is where I am now.
Bill Staniford 9:43
Right, so we should said we should set this age for that right so um so B6 is a company that was started by Paul Massey and and you of course our partner in the company. And, and I’m assuming most people are aware Paul Massey ran for mayor of New York last time out. And so, so tell me about you know what what the thought process was about starting B6 and how you guys are trying to differentiate yourself in this space.
Adrian Mercado 10:10
Yeah, I think you know.
So, number one, there was some unfinished business from Massey Knakal in terms of opportunities and what we were doing, specifically that the business model that we had, which was a neighborhood focused model. Landlord representation only really sort of aligning our interests with our clients in that respect. We wanted to bring that model to a national platform service in urban markets in the US. We wanted to compliment sales agents with mortgage advisors to really provide that true advisory sort of capability on the capital market signs are slightly more clients. As you know, refinancing and reconditioning is much more active in portfolios and perhaps some. And then finally really wanted to infuse that old business model with technology and really help the cause, you know, I think it’s important to distinguish sort of what technology, versus product is right in our, in our respect, we’re less about building interfaces and building tools, and more about building data and data science, and really trying to take all the data that’s out there, there’s so much real estate data, generally fragmented really connecting putting it together and surfacing opportunities for agents and for clients faster than anybody else can in the market. So that’s what we really focus on is really getting that data understanding is drilling down and developing insights that can be actionable.
Bill Staniford 11:48
And what about the asset classes which ones do you focus on or do, and also talk about regions specifically.
Adrian Mercado 11:55
Yep. So we’re, we’re more geographically focused. So, do we do look at assets, all across the board. I would say that probably our sweet spot is multifamily and development sites. But we do a lot of, especially nowadays a lot of industrial. That seems to have been in the last 24 months are really really hot market for New York, relative to the rest of the market. But we really focus on on geographic location. So, you know, an agent in midtown Manhattan isn’t going to be focused on new distribution facilities, per se. Maybe somebody in one of our territories might
Bill Staniford 12:42
Yet and we’re going to be talking a little bit later about the report that you that you have that came out that’s referencing the first half of 2020, but before we get there and before the break. If people want to find more information about B6, where can they go Where can they get the information how can they get in touch with you?
Adrian Mercado 13:02
You can go to www.b6realestate.com. It’s probably the best place for you to contact me directly, my emails, [email protected]
Bill Staniford 13:17
Yeah, so, so, again, like, like I said at the other side of the break we’re gonna get into it more heavily but just, you know, as a, as a tease in, you know, we’re, we’re looking at some, some pretty unprecedented devastation in the real estate spaces, is that correct I mean we’re talking about, you know, transactions, lower or as low as they’ve been since, since the Great Recession, is that correct.
Adrian Mercado 13:42
It’s tough out there.
Bill Staniford 13:50
Yeah, I mean, it looks, you know that’s one of the things I mean it’s incredibly tough out there and people really need to understand that the, the real estate industry itself is going to have to pull itself up. And this is, you know, we’re, we’re going to we’re going to talk about the nuances of things that are impacting the real estate space, in particular, but, you know, one of the things that I’ve been heartened by is the real estate space sort of leading the way in in coming back to the office and trying to, to show people that they can actually get back to the office and that does make sense but, you know, ultimately, the numbers have not been good right so and i know I know B6 doesnt focus on all this, in particular, that’s important to point out, but only about 8% are the numbers and that was from the partnership of New York City is showing that people have started to come back into New York City offices, which is devastating I mean that’s that’s that’s simply devastating for, you know, not just business in general but all of the business that rely on those those business people that are coming into coming into the space and spending their dollars foods restaurants, everything is getting hit. So, you know, what do you think there’s any given area that’s been particularly hit by by COVID, or is it just blanket across the across the whole spectrum
Adrian Mercado 15:16
It is blended across the whole spectrum. I will say that I think Manhattan’s in particular is going to be very hard to go around comparing the two boroughs. The Last Great Recession. You saw sort of the opposite of that where the boroughs were hit much harder. So, commercial real estate wise, then Manhattan this go around the dynamics involving offices, you just mentioned that impacts so many businesses, and even the residential sector in Manhattan is…is going to be tough. you know when you don’t have people in offices, who’ve been spending money during lunch during happy hours going to shows afterwards. Wanting to want to work. You know, it sets up an unprecedented scenario that is going to be a long time in the making sure that the cover.
Bill Staniford 16:15
Right. Okay, well, stay tuned for some more work that we’re going to really get into, into the numbers on the other side of the break, and we’re going to be right back in a couple of minutes. Hang in there.
Bill Staniford 18:24
And, welcome back to SharkStreet. We are here with Adrian Mercado. Adrian is the Chief Information Officer of B6 commercial real estate firm. And so, so we’re going to get into this report that has been generated by B6 and Adrian probably had a lot to do with it. And, you know, we’re talking about everything that’s happened so far this year you want to just give us an overview of how the first half of the year went.
Adrian Mercado 18:57
Yeah, the first half of the year started out relatively positive from 2019, given the rent regulation launchings and the effect that it had on the market. So we were coming into 2020 1st quarter seems to be positive. That obviously all change with COVID and the lockdown city in the second quarter. The second quarter numbers, reached all time lows or near all time lows. You saw just 170 transactions city live in the second quarter, put that into perspective. That’s the second lowest total since 2005 sort of this new era of real estate in the city.
Bill Staniford 19:42
Can you can you talk a little bit about the psychology behind the transaction fee so okay so it is, you know, COVID hits, and all these property owners. I guess they’re, they’re trying to understand the ground is obviously shifting beneath them. Right. And so they just lock up is that is that what happens or how does this, how, what is the psychology behind the transactions being frozen?
Adrian Mercado 20:11
It’s a combination. It’s a technical perspective and a psychological perspective, the technical perspective was that you couldn’t get to closings. There was no way to actually close the transaction especially if you’re around the due diligence phase entry to buildings. Inspect mechanical things like that just weren’t you couldn’t do it. So that put a lockdown on a lot of properties that may have transacted. The psychological effect was exactly to what you said. People are unsure of what was happening in the market out so long. This lockdown would be, what the effects of COVID would be so a lot of people took the position. If they were able to to pull back. So, we saw a lot of listings, come up come out of the market. We saw people who were going to go into the market hold off. Nearly, the only the only thing that we’re able to transact in the second quarter were either property that hard deposits and finish due diligence.Or people who absolutely had to sell. And so, they probably needed in some instances, renegotiate the terms on the, on the sale to get that close
Bill Staniford 21:27
Yeah, I mean I just find it fascinating the whole concept right so everything is going along as canceled there’s probably deals that have been happening for a significant period of time, then all of a sudden COVID breaks and, and then people want to rethink those deals that they’re currently operating in, and then everybody else is, you become sort of a gambler. And you’re you’re placing your bets on how long the the pandemic is going to take what is that what’s gonna happen in particular, it’s just fascinating.
Adrian Mercado 21:59
Yeah. I think what a lot of people have to realize is transactions that close the second quarter, were probably initiated in the third quarter of last year. Right. So, these are deals that sales are always a laggard in terms of understanding the market. We are saw that but that’s sort of four out and also the pricing of the fields, and so you saw a significant drop in price per square foot but as an example from the first quarter of the second quarter. Probably evidenced by the the trading that we’ve done on those deals that were set to close.
Bill Staniford 22:37
So, so let’s talk about the price per square foot because obviously and, and based on the, on the report that you gave me in that I was looking at the, the rent regulation law changes that took effect and that was back in 2019 affected the price per square foot, but I’m assuming you know, how do you compare the rent regulation rules that affected it as opposed to COVID and mixing it together How do you break that out or do you?
Adrian Mercado 23:06
I think they’re intertwined, right, I think. I think what happened was, you saw a pretty significant freeze and multifamily sales are slow down I should say multifamily sale that the second half of last year. That was directly. As a result of the rent regulation laws that took place. What you did see in the first quarter of the year was a increase in multifamily sales. So what that led us to believe was that people were repositioning their business plans, people were getting comfortable with the new reality of rent regulation. B is not at the same levels and the transactions would not have returned at the same level that they had before regulation, but you can see that people were definitely shifting the business plan and one of the sort of key benefactors of that transition was you saw a large increase in small mixed-use properties, especially in the boroughs. So, those small properties have a couple of advantages right they have, they had income diversification across their retail, and the residential. And a lot of those properties aren’t subject to rent regulation laws. So sign increasing those smaller properties and start packing to those, those smaller properties being sold as opposed to larger multifamily deals. Now with COVID impacting retail quite dramatically.
I don’t anticipate you’ll see that trend continue.
Bill Staniford 24:38
What about the moratorium of evictions that’s been coming down from our governor, and and how did it How is that affecting the psychology the numbers, what’s going on there?
Adrian Mercado 24:52
So I think you have to put that and couple that with banks, sort of, allowing people to either extend terms on their loans during this period sort of backlog, if you will, a mortgage so a lot of the banks that a lot of owners that we’ve talked to in the banks have allowed them in the near term for either mortgage payments or reduced mortgage payments tack that onto the end of the loan. So, I think, you know, you haven’t seen too too much in the way of sort of the eviction moratorium or the lack of rent paid affecting multi families yet. I think you’ll see that as we move on extended to the end of the year when banks aren’t going to eat sort of extending and pretending, or they’re going to be asking. Some of these folks to to move off their books,
Bill Staniford 25:58
B6 is lending right?
Adrian Mercado 26:03
We’re, we’re a mortgage broker, so we are there actively involved in helping our clients find the best financing outcomes that we can.
Bill Staniford 26:15
Okay, I mean do you do you know how this flows through because i mean it’s it’s it’s you know it’s interesting to me is confusing to me I understand that you know there’s. If the governor steps in and says okay so we’re not going to do any evictions, even if you don’t pay your rent and then. So in, and there doesn’t seem to be relief for the property owners, the property managers, they, they don’t seem to get relief but even if they do, or if the banks are extending credit to them, then how does it impact them. And, you know, ultimately the this music has to stop. And what are your projections on foreclosures?
Adrian Mercado 26:51
Yeah. So I think, you know, landlords specifically multifamily landlords. In this case are under a lot of pressure. Right. You have the rent regulation laws that reduce their revenue potential. You had increasing taxes. You had increasing, water and sewer expenses. So reducing your NOI, quite a bit.
And then you had sort of the impact of COVID rehab would further reduce revenue from people who aren’t able to pay their rent.
Tough time to, to be a landlord in that respect.
Bill Staniford 27:36
I simply I you know I talk a lot about on this show about being a defender of the real estate space and trying to let the, the average person understand what these property owners are are actually going through and I just find it I find it insane. Of all the different things that they have to juggle whether you’re talking about the rent regulations the eviction moratorium COVID. There’s going to be liabilities associated with that what steps do they have to take if some resident in your property gets COVID does that open up a liability for you. Does that liability decrease the value of the property, on and on and on these things have to be calculated by potential investors, and it says hard for me to imagine that anything gets done in this day and age, but you know, we’re going to be right back with Adrian Mercado from B6 on the other side of these message we’re going to get more granular we’re going to get into the Boroughs and we’re going to talk to you soon be right back.
Bill Staniford 30:47
And welcome back to SharkStreet. Good Saturday afternoon to everybody out there we are with Adrian Mercado he is the Chief Information Officer of B6 real estate here in New York City. Adrian we were just talking before the break, about liabilities associated with this and again, like I’ve heard this, but I don’t I don’t really have any, any data. If somebody in if you’re a property owner, and somebody gets ill within your property. There’s an argument to be made that that property owner that manager has to take certain actions in order to ensure that other residents in that building in that property. Don’t also become ill. And have you have you heard anything about this?
Adrian Mercado 31:37
You know there’s been some brief conversations around it, I think. Not much is known I think it’d be a difficult. Number one, it’d be a difficult thing from the libality but number two very difficult thing for a property owner to have to manage. I think on the office side is where you see this conversation happening more than multifamily.
Bill Staniford 31:59
See, you know, the way the way I see this thing rolling out is that anyone can sue anyone for any reason, and the way I see it happening is that what’s going to end up is that the property owners and managers are going to have to take certain precautions certain steps like some basic minimum of ensuring that their residents are not infected. Other, otherwise they open themselves up for liability that that’s that’s how I think it’s gonna roll. Any, any thoughts on that?
Adrian Mercado 32:33
I think on the office side, it’s where that conversation will happen more often. Because there’s, you know, there are so many sort of public areas within Office Space, I think, you know, more old buildings that don’t have amenities. May in this case be a little bit easier to manage. I think the amenity the building so it’s where you potentially run into issues like that
Bill Staniford 33:00
Yeah you know it’s interesting how…
Adrian Mercado 33:02
you’re seeing, you’re seeing a lot of people, a lot of managers closing down, sort of, publicly many statements.
Bill Staniford 33:09
Yeah, I mean one of the things that I think about, as you know if you’re a business and you think there might be some liability of bringing your, your workers back into the office well then you’re not going to be pushing to get them back into the office right because you don’t have any sort of transparency, but the difference is, is if you live somewhere. You’re it’s not like you have a choice right you have to come back, or you have to, you live in your spot. And I mean I guess there’s more of a choice about going to work than there is about where you live and that’s the only thing but anyway, let’s move on. So, do you have any thoughts about distress, or do you think that people are going to start building funds for distress at this time and start looking for buying opportunities?
Adrian Mercado 33:57
Yeah, in distress. Yeah, unlike the Great Recession, where distress, really didn’t hit New York City, especially as the levels as expected. So, I think you’re going to see a lot of distress in the marketplace I think initially it’s going to start with loan sales, I think, banks are going to be selling pools of mortgages, or individual mornings to get them off their books. So I think that’s sort of where the first sort of beachhead of the stress is going to happen. And I think as those properties are able to move off of off of banks balance sheets, and you’ll see that second wave which will be the foreclosure aspects but just much quicker way I think we started anticipating just real distress and real deals in the distress market begins to happen towards the end of the year. I think of small it’s going to be a huge, huge dictator on that. Yeah, there’s a lot of external forces obviously with concerning real estate, you know what’s gonna, what’s the Blasio going to do right now not letting businesses, especially restaurants sort of go half capacity like the rest of the state bar work is going to return in the fall. Is there gonna be a second wave in the fall. All those things are going to have a major impact on where distress goes and how rapidly distress happens in terms of the marketplace.
Bill Staniford 35:25
Yeah, no doubt okay and so one of the things you said earlier is that you said Manhattan you believed is going to get hit hardest which means that. By default the other boroughs are going to get hit less correct?
Adrian Mercado 35:40
Yeah, I think if you look at the boroughs right the boroughs are, for lack of a better term, more like bedroom communities right you have more homeownership. You have people who can’t move out of New York. I think that’s one thing that a lot of people sort of see these numbers 400,000 people left in New York City majority those people left Manhattan majority those people had to leave that is not so much the case for the remaining millions of people who live in New York City. So those neighborhoods, probably see less distress. Again, depending on what happens with the larger economy, and people’s ability to pay rent, obviously the huge dictator of this but in terms of vacancy in terms of pricing I think the boroughs would be hit less. We also have property and asset diversification in the borough’s right industrial properties are still selling, they’re still going to be selling and probably even, you’re gonna see pricing increase in on industrial land, and distribution center, specifically type buildings because think about it, everybody’s ordering Amazon packages to their to their front doors and everyone’s working from home so those distribution centers are going to are going to go for premiums.
I think you’ll see that.
Bill Staniford 37:07
So what about which boroughs, are you most interested, I mean let’s start with the Bronx, I mean, what, what can you tell us about the Bronx that you find interesting?
Adrian Mercado 37:19
So I think the Bronx because the Bronx had never really sort of come into the same pricing increases that the other boroughs did during this run up into 2017 2018, the bronco has really attractive pricing. Even in today’s market. I think you’ll see, you know, multifamily and mixed use still sell in the Bronx, well positioned assets. Well, I think development in the Bronx will still continue. If you’re bullish on New York over the next five years or so. The Bronx is a good place to look for development opportunities so I think the Bronx won’t be as severely impacted in terms of pricing.
Bill Staniford 38:07
Okay. So, I mean, and. And then, so let’s shift over to Staten Island, I mean do you focus on Staten Island all that you know and I feel terrible about Staten Island, you know, I used to I used to care about Staten Island but it’s a little bit different than the other boroughs. Any thoughts I’m…
Adrian Mercado 38:23
I’m gonna pretend like I lost you there…
Bill Staniford 38:29
I know I mean listen, I’ll talk about Staten Island, so you know, look, it’s Staten Island is, to me, it’s much more like Long Island it’s much more of a residential community. And it does operate and perform differently than the rest of the boroughs. So you know, we’ll just leave it at that, let’s let’s switch over to Brooklyn because I know that’s an area that B6 focuses on, I know that’s an area that you folks who talked a lot when you were at Massey Knakal and Cushman and Wakefield what’s going on in Brooklyn?
Adrian Mercado 39:03
So I think, you know, the Brooklyn is, is going to be impacted it’s such a large multifamily sector, I think you saw. You saw rent regulation impact and I think rent regulation will impact, Brooklyn more than totally potentially. I think a lot of the opportunity to multifamily in Brooklyn was repositioning assets from stabilized property to free market. Now that that’s gone. I think you’re hard pressed to find opportunities like that. That being said, there are other ways that some of these neighborhoods within Brooklyn can really actually maximise on the rent regulation laws. So, whereas before you know you could turn, you could remove a rent stabilized tenants, make some improvements to the, to the unit and get market rents, you know, now you have to start combining, there’s one way to sort of debt free market and that’s the combined units. And so, there’s the ability to do that and a good portion of the multifamily sort of stock in Brooklyn, specifically in specific areas like I think Bushwick or Crown Heights is an interesting place for that to happen.
Bill Staniford 40:24
Okay, we this way I’d like I’d like you to go in more detail there because that that is news to me. So there’s ways that you can avoid the rent regulation rules by combining units. Is that right?
Adrian Mercado 40:41
There are there are ways that you can turn a stabilized product into free market product. One of them is by combining units there’s a bunch of different sort of checkpoints that have to go into that this is an oversimplification of it but there is an opportunity for investors to do that, to convert units into bigger, bigger footprints, reduce the number of units within a building, and get that through market status.
Bill Staniford 41:13
So the mechanism here is not necessarily the combination of the units but by the overall decrease in the number of units within a given building?
Adrian Mercado 41:23
Yes, decrease in footprints there are some restrictions are around, around size those units, I believe, but that’s the general gist.
Bill Staniford 41:34
Okay, and then. Okay so, so let’s say in Brooklyn like is there is there specific neighborhoods in Brooklyn that you’re either bullish or bearish on give and take, is there is there any, like, how do you how do you like from a strategic position, how do you how do you splice and dice Brooklyn up?
Adrian Mercado 41:57
I think you look at Brooklyn, Northern Brooklyn right that’s Greenpoint Williamsburg Bushwick that sort of area. You know, I think, in that market it’s gonna be an interesting market to see in the coming years, even without COVID, because the amount of units are set to go online, still planning to go online in those markets is rather high right so you’re going to see a compression of rental rates out there and you just buy the stock increasing. What’s going to be interesting. I think this sort of as a side note here one thing that I think a lot of people don’t bring up is this COVID is a prolonged period. A lot of apartments that have been built in the last few years have been built with smaller footprints on the unit, right, they’ve been more micro-style apartments. Right. And that is something that people aren’t looking for right now. You’re seeing that, you know, there’s some rental activity happening is happening in the two-bedroom three bedroom, sort of market, one bedroom studios in typical. A lot of sockets coming online so
Bill Staniford 43:05
Yeah I mean listen this is, this is an incredibly complicated environment to be trying to navigate at this point in time because I fully hear you right if it’s if it’s too small of a unit you don’t want to be there during COVID but if we come up. If the problem goes away and then all of a sudden, you know you want the small units again, incredibly hard to manipulate okay we’re going to be right back with the final segment with Adrian Mercado right after these messages, hold on.
Bill Staniford 44:57
And welcome back to SharkStreet. We are here with Adrian Mercado. Adrian is the Chief Information Officer of B6 real estate here in New York City, and we were just talking about, you know, well, the entire situation in Brooklyn. We’re going to start talking about Manhattan in just a couple of seconds but before we get off there, you know, as far as the rent regulation rules that have that have gone to effect I mean they really in the history of it goes back to the 1970s and and the concept was that there was a sort of a housing and emergency because there was less than what they said 5% vacancy rate so there there was 95% occupied. And I personally believe but you know the numbers the official numbers aren’t going to come out for a while I personally believe that we’re well above the 5% vacancy rate, do you believe that to Adrian, do are you in that boat with me?
Adrian Mercado 45:55
I don’t think we’re there yet. I think we will be, I think, October, when the rental season. The Fall rental season is done and we’llsee. Here, I think we will over that number Yeah…
Bill Staniford 46:07
Right, and then and so in that actually once you get over that number. The the entire premise of rent regulation goes away. And I mean I’m thinking, because you know I’ve been, I’ve been calling for better leadership and in this environment and I think that, placing a moratorium on these rent regulation rules in this time period would be great it would be a great signal to the real estate industry, which generates so much revenue for us. You know, and I just I wish the the industry would come together and start talking about this more, you know if you have any thoughts on that go ahead if you want to avoid the politics, you know, you can do that as well.
Adrian Mercado 46:48
No, I think, I think, you know, rent regulation, the rent regulation laws. I think I’ve shifted over time and what their intended use was right like I think now it’s more about controlling or allowing for folks who work in the city, to be able to live in the city. I think the rent regulation laws that went into effect started out well-intentioned. I think their application and their consequent law was misplaced and misguided and had some negative effects I think you know a lot of people don’t realize is like any other group of humans. Landlords aren’t a monolith, right, the majority of landlords in New York City on 1 to 3 buildings. Right. They have no, they have a regular job you know they own these buildings and send in their family neither dad bought it or the mother bought it, they own it now, they bought one one building five units. And those are the folks that are getting severely impacted by this. Yeah, it’s not so much, you know, these I think these laws and sort of the impression of what a landlord is are sort of the big names that you can think of. But really, in reality, the majority of landlords are smaller, you know, Mom and Pop, small businesses really
Bill Staniford 48:02
Now, listen it’s it’s an actually, it’s a great point and I think the entire industry the real estate industry is completely misunderstood. And, you know, most people focus on these these multi-billionaires The, the really big players, and they try to generate rules and regulations that sort of, you know, the concept is to sort of go after though those multibillionaires but what ends up happening with these regulations invariably is it hurts the little guys and and that’s what’s going to happen here right the little guys are the ones that are going to get wiped out and the big guys are going to buy up all these distressed assets, and you’re going to have a higher concentration and it’s just super unfortunate and again I insist, I talk about this a lot on the show. This is a misunderstood industry and people do need to wake up and understand what’s going on because the real estate taxes, the money that comes off of the real estate the jobs that are created, it supports everybody all of the union workers teachers firemen you know everybody the hospitals, they’re all supported by the real estate industry and people do need to understand that. Okay so so let’s let’s let’s focus on the Big Kahuna Manhattan. And I’d like to get into sort of the minutiae of it. Are there any you know specific neighborhoods and micro-neighborhoods in Manhattan that you are particularly interested in or seen some, you know, interesting data come out of?
Adrian Mercado 49:30
I think, generally right just sort of set the stage. Look at Dollar volume in the city right in Manhattan, typically generally generated by office transactions. And don’t see too many office transactions happen in this remainder of the year. You go back to 2015 at the height of the market $77 billion around the city was originated in sales, 60 billion taxes from Manhattan.from that office. Now fast forward 2020. We’re at 7 billion, mostly from the first quarter. So looking at probably 10 to 12 billion for the remainder of the year the total 2020 number, which puts you below the 2010 threshold, not as bad as 2009. You remember 2009 2009 in Manhattan less than $4 billion in activities. So, we have to put some of these things into perspective, I think. Now that being said, you know, obviously all eyes are on the office sector. And all eyes are on what’s going to happen with people coming back. If people start to come back, quicker than anticipated. I think you’ll see some activity start to happen, start to see some retail open back up, right, and that’s all sort of, it’s hard to talk about Manhattan without talking about everything all at once because of course such an ecosystem that we can all stems from office occupancy.
Bill Staniford 51:02
Yeah, I mean, listen, I, you know, I’ve got I’ve got opinions on this. I you know I want your opinion so so again the latest numbers on this is 8% of all service workers have gone back on the highest percentage was in the real estate space for obvious reasons I think the the people that work in commercial office, they have to get back and show everybody else how it’s done. That’s their responsibility. But you know, I work in the tech sector as you well know and and my team’s not coming back, we’re not going to be the ones to to lead the way. Unfortunately, and you know what I found I was forced as a CEO of a tech company. I was forced to evaluate those people that were available or that that were, you know, working from home and how well they perform the efficiency of people working from home, and I found out that you know what most people can work from home pretty efficiently and I’m assuming I’m not the only one that came to that conclusion. If that happens, then what happens?
Adrian Mercado 52:02
I don’t, I don’t think it’s a matter of efficiency. Right, I think, work from home is here to stay in some degree. It gives it gives workers flexibility in their lives right. That being said, I think it’s the psychological aspects, people want to go back to be with their friends to deal with their co-workers to have sort of the social life that I personally anecdotally know a lot of people are craving. That being said, to your point, you know, having to sort of justify going back into an office environment before these therapeutics are in place is a really hard sell. Yeah, you know, our guys, we opened our office about a month ago, on a staggered schedule to maintain social distancing. A lot of people said they were coming in, not a lot of people have a dozen says they’re not out and about in the city sort of conducting business which being in real estate you have that flexibility to be in Brooklyn, one hour and then the next. But yeah, I think there’s still a lot of concern around the viability and safety of the office space itself.
Bill Staniford 53:17
Right. I mean, listen, you’re a C level executive and and you’re the one that’s telling people to come I’m not telling people to come in, I’m saying I’m telling them look you want to come in you can come in if you don’t want to come in, don’t come in because you know if he gets sick I don’t want that on my head I’m assuming everyone feels the same way,
Adrian Mercado 53:33
A comfort level, you have to leave the comfort level up to your employees.If they’re not comfortable coming in, then that’s their decision, and be respected.
Bill Staniford 53:45
Okay, so let’s get into we only have a couple of minutes left on, I’d love for you to point out areas and neighborhoods in Manhattan that you’re excited about or interested in are you thinking they get hit particularly hard.
Adrian Mercado 53:59
Well, I think, you know, the. I think what’s happening with the social unrest and specifically what’s happening sort of Times Square, Chelsea. I think you’ve seen quite a reduction in rents, you know anecdotally, I’ve had a couple of friends who have actually moved apartments in that area. And we’re paying 50% less than they’ve been advertised. So, you’re gonna see some, some interesting things happen there. I think, you know, it’s a tough one to call Manhattan, it really is.
Bill Staniford 54:37
Do that. I mean you brought up the social unrest so I’m gonna go after it i mean do you do you think that’s a big issue now I mean I’ve heard things or I’ve read been reading articles about the Upper West Side we’ve got homeless problems up there. You know the Upper West Side is is well known for being, you know, a great place to raise a family people aren’t interested in that anymore. I’m assuming the social unrest is going to be impactful.
Adrian Mercado 55:03
Yeah, I think, I think it definitely is a, is a factor short term factor. I think the homelessness is probably more of a you know a couple of things it’s city management difficulties with that way and it’s also probably the will be the impacts of COVID on lower-income families who can’t afford rent right so right. Look at it both ways I think clearly you know crime is up in the city. And that is always going to be a factor of how quickly things get back to prosperity if you will, I think, you know, I think that needs to be addressed.
Bill Staniford 55:52
Yeah, listen I I have to agree with you there. I mean that listen I you know I I was and I tell everybody I was here, I was here in the in the mid-80s, I was here in the early 90s I was here when we were the murder capital of the country I was here when there was 2600 murders in 1990, you know, and I don’t want to see that happen again. And, you know, it’s it’s a bad climate for the police and until I think the political environment changes where people start respecting our policing. I mean I think the police are actually retiring at greater rates. I don’t think they’re policing as aggressively because they don’t feel, or they feel that their job their livelihood their families are at risk. And I think that needs to change. And, you know, again, we’ve got it we’ve got a very bad situation with with COVID and but the the homelessness was was happening. Before this, So, Adrian. You know, I just want to wrap it up again like how do people get in touch with you. And B6?
Adrian Mercado 56:51
You can go to our website, www.b6realestate.com I’m available via email at [email protected]realestate.com.
Bill Staniford 57:02
Awesome. And listen, you know, this is something I’ve been talking to Adrian and maybe we’ll bring him on a quarterly basis to get an update of what’s happening in New York. And this was this was a great overview of everything and I appreciate you being here. And, and certainly sticking up to the real estate industry so everyone enjoy the rest of your weekend and we’ll see you next week.
You can watch the full episode here: https://youtu.be/zhM5c_Fk8WY