WEBVTT - What It Really Takes to Convert an Office Building Into Apartments 0:00:10.160 --> 0:00:14.000 Hello, and welcome to another episode of the Odd Lots podcast. 0:00:14.080 --> 0:00:15.720 I'm Joe Wisenthal. 0:00:15.280 --> 0:00:16.360 And I'm Tracy Alloway. 0:00:16.520 --> 0:00:19.720 Tracy, I think everyone sort of knows that in many cities, 0:00:19.720 --> 0:00:22.080 but definitely in New York City, there's sort of this 0:00:22.200 --> 0:00:26.800 weird like there's two simultaneous real estate problems and they 0:00:26.800 --> 0:00:28.520 sort of compliment each other in a weird way. 0:00:28.640 --> 0:00:31.360 Right, Okay, So rents are too high, there's a shortage 0:00:31.400 --> 0:00:34.600 of housing, and we have a bunch of empty office buildings, 0:00:34.760 --> 0:00:37.479 and there's a sort of obvious solution, which would be 0:00:37.760 --> 0:00:40.320 take all the empty office buildings and convert them into 0:00:40.440 --> 0:00:44.320 preferably affordable housing. And yet it seems to be very 0:00:44.320 --> 0:00:45.400 difficult to do that. 0:00:45.159 --> 0:00:47.080 That sounds super easy, just like, oh, we're going to 0:00:47.159 --> 0:00:48.639 turn these offices into homes now. 0:00:48.680 --> 0:00:52.519 Just they've been like an open plan trading floor something 0:00:52.600 --> 0:00:53.080 that's nice. 0:00:53.159 --> 0:00:55.320 It sounds you know, put up some walls so people 0:00:55.360 --> 0:00:56.600 have some privacy. 0:00:56.280 --> 0:00:56.960 Okay, but on it. 0:00:57.080 --> 0:00:59.080 Actually, this reminds me when I was at university. I 0:00:59.080 --> 0:01:01.640 had a friend who lived in a warehouse in London 0:01:01.720 --> 0:01:05.120 and they built their walls out of cardboard to segment it. 0:01:05.880 --> 0:01:07.640 Hopefully that's not what we're doing here. But on a 0:01:07.720 --> 0:01:11.400 serious note, there are a number of difficulties, it seems, 0:01:11.440 --> 0:01:14.119 in doing this, and there are sort of physical ones 0:01:14.240 --> 0:01:17.399 around the actual layout of these former office buildings, but 0:01:17.400 --> 0:01:21.520 there's also regulatory financial and I hear people talk about 0:01:21.560 --> 0:01:24.240 it in a sort of abstract manner, But today I 0:01:24.240 --> 0:01:26.000 think we're going to dive into them in a little 0:01:26.040 --> 0:01:26.720 bit more detail. 0:01:27.000 --> 0:01:29.399 Right, So it is, you know, we joked around, but 0:01:29.480 --> 0:01:33.080 it is everyone says it is very difficult to convert 0:01:33.120 --> 0:01:36.600 an office into a residential building. But we're getting you know, 0:01:36.640 --> 0:01:39.080 the opportunities there, but we really understand, like what are 0:01:39.080 --> 0:01:41.920 the constraints, what are like the real physical constraints, and 0:01:41.959 --> 0:01:45.040 how big is the opportunity because in theory, like clearly 0:01:45.120 --> 0:01:47.360 more can be done, but like how much are we 0:01:47.480 --> 0:01:48.960 like moving? Can this move the dial? 0:01:49.080 --> 0:01:50.320 Is like a really interesting question. 0:01:50.440 --> 0:01:52.320 Yeah, And the other thing I kind of struggle to 0:01:52.400 --> 0:01:55.360 understand is New York itself is a city with a 0:01:55.440 --> 0:02:00.680 long history of carving up older buildings into new types 0:02:00.680 --> 0:02:03.800 of apartments, and so I wonder why it seems to 0:02:03.840 --> 0:02:06.120 be so much more of an issue this time around. 0:02:06.400 --> 0:02:09.120 Well, I'm very excited because today we do, in fact 0:02:09.200 --> 0:02:11.480 have the perfect guest. You know, lots of people have 0:02:11.520 --> 0:02:14.640 been talking about this question really, you know, since the 0:02:14.680 --> 0:02:17.760 pandemic struck, but our current guest has been working on 0:02:17.800 --> 0:02:20.160 it for a long time, since well before it was 0:02:20.280 --> 0:02:21.320 trendy to talk about. 0:02:21.320 --> 0:02:22.920 So the perfect guest we're going to be speaking with 0:02:23.280 --> 0:02:24.000 Joey Khalaily. 0:02:24.320 --> 0:02:27.040 He's the managing director of the Van Barton Group, which 0:02:27.040 --> 0:02:30.160 has been involved in the office to residential conversions for 0:02:30.200 --> 0:02:32.840 about a decade. So, Joey, thank you so much for 0:02:32.880 --> 0:02:33.360 coming on. 0:02:33.280 --> 0:02:35.320 Odd lots, thank you very much, Thank you for having me. 0:02:35.520 --> 0:02:38.040 What do you do at the Van Barton Group? 0:02:38.240 --> 0:02:41.720 So I'm within the asset management group and we oversee 0:02:42.120 --> 0:02:44.920 essentially the execution of the business plan once we acquire 0:02:44.960 --> 0:02:46.600 assets different buildings. 0:02:47.800 --> 0:02:50.240 So I'm going to start very broad, but then hopefully 0:02:50.240 --> 0:02:53.200 we can sort of get more into like each one 0:02:53.280 --> 0:02:57.120 of these difficulties or problems. But what are the constraints 0:02:57.320 --> 0:02:59.960 around converting office buildings to residential? 0:03:00.280 --> 0:03:04.400 Yeah, for starters, it's it's the zoning. So is the 0:03:04.440 --> 0:03:07.960 building that you're looking at within a zoning zoning district 0:03:08.000 --> 0:03:10.079 that allows for it to be converted? 0:03:10.200 --> 0:03:11.799 Okay, that's number one. 0:03:12.240 --> 0:03:16.320 If that checks the box, there are essentially a whole 0:03:16.320 --> 0:03:18.760 list of things that you go through and for me, 0:03:18.840 --> 0:03:23.320 and when I evaluate these, the structure and the light 0:03:23.400 --> 0:03:25.440 and air and the possibility of light and air and 0:03:25.440 --> 0:03:29.560 bringing that in to create residential units and ceiling heights. 0:03:30.040 --> 0:03:33.040 So on a on a kind of concrete floor to 0:03:33.720 --> 0:03:37.080 the underside of the structure above, what is that height 0:03:37.480 --> 0:03:40.880 And if that height is less than a certain distance, 0:03:41.920 --> 0:03:43.920 say if it's less than nine foot six or or 0:03:43.920 --> 0:03:47.280 if it's nine feet then once you factor in all 0:03:47.320 --> 0:03:50.080 of the MEPs, the mechanical systems that need to go 0:03:50.160 --> 0:03:50.960 in above. 0:03:51.320 --> 0:03:53.360 It's just like plumbing, electric. 0:03:53.040 --> 0:03:56.480 Sprinkler, electric, all those things that need to go in 0:03:56.160 --> 0:04:00.720 the ceiling above. Yeah, then you drop your ceiling down. 0:04:00.960 --> 0:04:04.200 And if that goes below eight feet, really that makes 0:04:04.240 --> 0:04:07.480 it very difficult to do, especially in New York, where 0:04:07.600 --> 0:04:09.960 you're not going to be able to market units that 0:04:10.080 --> 0:04:13.280 have a finished ceiling less than eight feet. So the 0:04:13.320 --> 0:04:16.360 ceiling height after the zoni district is one of the 0:04:16.360 --> 0:04:17.000 most crucial. 0:04:17.680 --> 0:04:21.080 So let's say, Okay, there's a building, it's in an 0:04:21.160 --> 0:04:24.240 area that can be zoned. Theoretically, the zoning allows for 0:04:24.279 --> 0:04:27.640 the conversion. Some would calls you up. I say, Joey, 0:04:27.640 --> 0:04:29.960 come check out this building. How long does it take 0:04:30.000 --> 0:04:33.279 for you to like size up whether it's even worth 0:04:33.360 --> 0:04:35.640 exploring further? You walk into the building and like, what 0:04:35.680 --> 0:04:38.599 are you looking for? Broadly and hoping to see on 0:04:38.640 --> 0:04:39.400 that first? 0:04:39.400 --> 0:04:42.960 That first walk through very quickly ten hours really, Yeah, 0:04:43.080 --> 0:04:46.080 you can go through it and see the ceiling heights, 0:04:46.480 --> 0:04:50.360 the depth of the floor plate, the actual floor plan 0:04:50.960 --> 0:04:53.560 and the depth of that, and then the structure. Because 0:04:53.600 --> 0:04:57.239 if the depth is great and it works out, then 0:04:57.440 --> 0:04:59.839 you wouldn't need to do any structural reconfiguration. 0:05:00.440 --> 0:05:02.480 And the depth just means, like you know, like here 0:05:02.520 --> 0:05:05.919 we're in the Bloomberg offices and we have this like 0:05:06.120 --> 0:05:09.640 huge newsroom which is very nice, but like space in 0:05:09.680 --> 0:05:11.599 the middle of that would not make for a good 0:05:11.640 --> 0:05:13.640 unit because it would not be exposed to any windows. 0:05:13.640 --> 0:05:13.960 Correct. 0:05:14.120 --> 0:05:17.479 Correct, You'd have to make structural modifications to the building 0:05:17.920 --> 0:05:19.080 to be able to make that happen. 0:05:19.360 --> 0:05:23.080 So I think one of your famous conversions is downtown 0:05:23.200 --> 0:05:26.640 one eight Water Street, and you solved that depth problem 0:05:27.240 --> 0:05:31.080 by basically creating a sort of like inner atrium courtyard. 0:05:31.120 --> 0:05:31.480 Is that right? 0:05:31.560 --> 0:05:34.120 Yeah, we ended up cutting a thirty foot by forty 0:05:34.120 --> 0:05:36.880 foot hole in the center of the building. Wow, twenty 0:05:36.920 --> 0:05:40.599 something stories went all the way and that created a 0:05:40.640 --> 0:05:43.800 courtyard essentially for light and air to come down on 0:05:43.839 --> 0:05:47.080 the inside. And then there were studios and two or 0:05:47.080 --> 0:05:49.880 three bedrooms that had their bedrooms up against that. 0:05:50.880 --> 0:05:52.920 What was it that made that plausible? 0:05:53.040 --> 0:05:53.120 So? 0:05:53.240 --> 0:05:55.479 Okay, so you see it's called the floor plate is 0:05:55.520 --> 0:05:58.520 the term, and this is like sort of yeah, okay. 0:05:58.400 --> 0:06:00.160 So you know if we're on the six floor or 0:06:00.600 --> 0:06:03.440 floor of a building, yeah, that's the floor plate. 0:06:03.279 --> 0:06:06.800 The horizontal slice of the building. So this what it 0:06:06.839 --> 0:06:09.240 was one eighty Water Street. Correct, Okay, So one eighty 0:06:09.279 --> 0:06:12.599 Water Street in its previous version did not have like 0:06:12.640 --> 0:06:15.120 a suitable floor plate, but you understood the oppor that 0:06:15.160 --> 0:06:17.200 there was an opportunity to cut a hole in it. 0:06:17.480 --> 0:06:20.200 Correct it It had a suitable floor plate at one 0:06:20.240 --> 0:06:23.800 point in time for the office use right, right. For 0:06:23.880 --> 0:06:27.600 residential it did not, and in evaluating that, came up 0:06:27.600 --> 0:06:30.240 with the plan of cutting that hole in the center. 0:06:30.360 --> 0:06:32.000 Can you just talk a little bit more about that 0:06:32.040 --> 0:06:35.000 hole cutting, Like how did you sort of recognize that, yes, 0:06:35.240 --> 0:06:40.120 it's only it's currently only capable for offices, but actually 0:06:40.120 --> 0:06:42.000 we can make the mouth work if we cut a 0:06:42.000 --> 0:06:44.040 giant hole down the center of a building. Talk a 0:06:44.080 --> 0:06:45.560 little bit about that evaluation. 0:06:46.040 --> 0:06:49.320 So with with a lot of things, just about everything 0:06:49.400 --> 0:06:52.880 is possible, but it would cost a lot of money. Yeah, 0:06:53.000 --> 0:06:56.039 so you have to evaluate the structural modifications that it 0:06:56.040 --> 0:07:00.680 would take to create that and ultimately what you're going 0:07:00.760 --> 0:07:02.560 to do with that building at the end of the day, Yeah, 0:07:02.600 --> 0:07:05.240 create the residence is how much money you're going to 0:07:05.240 --> 0:07:08.159 get on the rent and then eventually sell that building 0:07:08.200 --> 0:07:11.640 one day. And so when you evaluate that, especially in 0:07:11.680 --> 0:07:15.640 that courtyard area, what's the spacing of the column days 0:07:15.680 --> 0:07:18.560 from column to column and does it allow for enough 0:07:18.600 --> 0:07:21.800 space to be able to cut that in without really 0:07:21.840 --> 0:07:26.600 cutting out any other structural steel columns or supports, which 0:07:27.480 --> 0:07:30.840 when we cut that out, we still had to reinforce 0:07:30.880 --> 0:07:34.840 the rest of the structure and do quite a bit 0:07:34.920 --> 0:07:35.240 of that. 0:07:35.920 --> 0:07:39.080 So when you're looking to convert an office building to 0:07:39.360 --> 0:07:43.280 apartments or something like that, how much of what you're 0:07:43.320 --> 0:07:47.640 looking to do is based on I guess people's preferences 0:07:47.680 --> 0:07:51.480 on where they live versus regulatory requirements about well, you 0:07:51.520 --> 0:07:53.480 have to have so many fire exits and you have 0:07:53.560 --> 0:07:56.320 to have this number of windows and that sort of thing. 0:07:56.680 --> 0:07:59.160 So we look at it. We look at it if 0:07:59.240 --> 0:08:03.400 Vanbardon much differently in terms of you have to obviously 0:08:03.520 --> 0:08:06.040 look at the code requirements and have to build that 0:08:06.080 --> 0:08:09.360 within your plan, but we take it much further in 0:08:09.440 --> 0:08:11.000 terms of we have a little bit more of like 0:08:11.040 --> 0:08:15.320 a hospitality approach to our multi family buildings or residential buildings, 0:08:16.040 --> 0:08:19.120 in that we look at the entire life cycle of 0:08:19.160 --> 0:08:22.040 the day and the resident and really put ourselves in 0:08:22.040 --> 0:08:24.960 the shoes of the resident and not just in twenty 0:08:25.000 --> 0:08:28.840 twenty three, but in twenty thirty three and beyond. So 0:08:28.880 --> 0:08:34.000 we try and incorporate as much technology and components that 0:08:34.120 --> 0:08:37.559 set this building up so that it's very much marketable 0:08:37.960 --> 0:08:39.400 at every point in time. 0:08:40.240 --> 0:08:42.520 Can you talk a little bit about you know, again, 0:08:42.640 --> 0:08:47.520 I'm thinking about finding the right contractor the right construction 0:08:47.640 --> 0:08:50.400 company that even knows how to like cut a hole 0:08:51.120 --> 0:08:53.400 in the middle of a building, which seems tricky, Like 0:08:53.440 --> 0:08:55.040 I imagine that's not something that. 0:08:54.960 --> 0:08:56.640 Every construction company can do. 0:08:56.880 --> 0:08:58.800 Yeah, but can you talk a little bit about like 0:08:59.160 --> 0:09:01.200 who how many entities out there that can do that? 0:09:01.480 --> 0:09:04.360 And then maybe like, all right, the costs in twenty 0:09:04.440 --> 0:09:06.719 twenty three for that, I assume are really a lot 0:09:06.800 --> 0:09:08.959 higher than when you started on one eighty Water Street, 0:09:08.960 --> 0:09:11.839 both due to inflation and supply chain constraints. Can you 0:09:11.880 --> 0:09:16.320 talk a little bit about sort of operational constraints of Okay, theoretically, yeah, 0:09:16.360 --> 0:09:18.880 this is a cut holeable building, but actually getting someone 0:09:18.880 --> 0:09:19.240 to do. 0:09:19.160 --> 0:09:22.400 That, Yeah, you have to find the right team members. 0:09:22.640 --> 0:09:24.520 And since we've been in the space for a while, 0:09:24.840 --> 0:09:28.280 we've kind of brought on board and continued to work 0:09:28.320 --> 0:09:30.800 with for the majority of it, I'd say probably seventy 0:09:30.840 --> 0:09:33.080 percent of our team members or repeat team members. 0:09:33.440 --> 0:09:36.120 So when you say team members, these are contractors, yeah, 0:09:36.160 --> 0:09:38.120 and people you work with and some look got it. 0:09:38.160 --> 0:09:44.440 Okay, we have the vision and know how to execute. 0:09:44.840 --> 0:09:48.720 We bring on our consultants and our other team members 0:09:49.000 --> 0:09:52.200 to really evaluate those nuts and bolts pieces of cutting 0:09:52.240 --> 0:09:55.280 the holes and doing those things and be the experts 0:09:55.320 --> 0:09:59.120 in their field. And finding the experts is difficult, and 0:09:59.200 --> 0:10:03.200 it takes years to create that team that you're comfortable 0:10:03.240 --> 0:10:05.800 with to cut a hole in a building and know 0:10:06.120 --> 0:10:08.959 that everything is going to go as Yeah. 0:10:25.720 --> 0:10:27.720 I wanted to ask you a little bit more about 0:10:27.720 --> 0:10:30.880 the financing because all of this, you know, cutting holes 0:10:30.880 --> 0:10:33.960 in the middle of the buildings sounds very expensive. And 0:10:34.040 --> 0:10:36.640 it does seem like a lot of the office conversions 0:10:36.679 --> 0:10:40.960 are often aimed at a sort of premium segment of residential, 0:10:41.040 --> 0:10:43.360 and this has been one of the criticisms. Yes, so 0:10:43.640 --> 0:10:46.480 how does that fit in with the decisions on whether 0:10:46.600 --> 0:10:48.839 or not to go ahead for these projects, Like is 0:10:48.880 --> 0:10:50.840 it just a fact of life that you have to 0:10:50.920 --> 0:10:53.560 create more expensive apartments that are going to pay for 0:10:53.600 --> 0:10:56.840 this or could you do this on a more affordable basis? 0:10:57.720 --> 0:11:01.640 You could do it both ways, right, Ultimately it comes 0:11:01.840 --> 0:11:04.719 down to what your basis is in the building when 0:11:04.720 --> 0:11:07.360 you purchase it, and if you have a low enough 0:11:07.400 --> 0:11:09.480 basis when you when you buy that on a per 0:11:09.480 --> 0:11:13.280 square foot basis, and knowing we've done this a while, 0:11:13.320 --> 0:11:16.640 we know what it'll take to convert a building. So 0:11:16.720 --> 0:11:20.360 if that basis is a certain amount, we layer in 0:11:20.400 --> 0:11:22.520 the amount that it takes to convert it, and we 0:11:22.640 --> 0:11:24.080 know at the end of the day where we're going 0:11:24.160 --> 0:11:25.920 to end up on a per square foot basis and 0:11:25.920 --> 0:11:29.400 are all in basis, and so you can determine based 0:11:29.440 --> 0:11:32.880 off of that initial basis which way it really needs 0:11:32.920 --> 0:11:35.880 to go. So if the basis is a certain amount, 0:11:36.440 --> 0:11:39.040 say if it's you know, three four, five, hundred dollars 0:11:39.120 --> 0:11:41.120 a foot. If you're buying a billion five hundred dollars 0:11:41.160 --> 0:11:42.880 a foot and it's going to cost you five hundred 0:11:42.880 --> 0:11:45.600 dollars to convert, you know you're in one thousand a foot. 0:11:46.000 --> 0:11:48.800 That's a pretty hefty price today, and so you know 0:11:48.920 --> 0:11:52.760 that you would have to get very high rents market 0:11:52.840 --> 0:11:56.160 rate rents to be able to make that pencil. If 0:11:56.160 --> 0:11:59.680 you're able to purchase the building at a much lower basis, 0:12:00.000 --> 0:12:02.520 it gives you much more flexibility and then you know, 0:12:02.559 --> 0:12:06.240 layer into it the need in my opinion, for legislation 0:12:07.160 --> 0:12:10.600 to be able to make that easier and so then 0:12:10.679 --> 0:12:13.920 you can target different segments of the market, so it's 0:12:13.920 --> 0:12:17.280 not all at the luxury end of the spectrum. 0:12:17.760 --> 0:12:20.880 So just on that basis, what is the exit You 0:12:20.920 --> 0:12:24.760 mentioned legislation and my understanding is there is, or maybe 0:12:24.760 --> 0:12:28.040 there was, some tax credit support for doing these kind 0:12:28.080 --> 0:12:30.880 of conversions. Can you lay out, like, what would you 0:12:31.040 --> 0:12:33.680 expect to see in terms of government support for doing 0:12:33.720 --> 0:12:34.800 this at the moment. 0:12:34.679 --> 0:12:39.360 So as of now, there isn't any incentive, but you know, 0:12:39.360 --> 0:12:43.959 there were debates in New York state legislator to incorporate 0:12:44.040 --> 0:12:48.160 some sort of tax abatement as part of this and 0:12:49.120 --> 0:12:51.720 for that tax abatement, there'll be a certain amount of 0:12:51.840 --> 0:12:55.719 units within that converted building that would be affordable. I 0:12:55.760 --> 0:12:58.960 think that's fantastic. We need that. That'll help the housing crisis, 0:12:59.480 --> 0:13:02.839 and that'll that'll target a market that really needs that 0:13:03.160 --> 0:13:06.880 housing that is not there. Another end of it is 0:13:07.600 --> 0:13:09.560 the date. And I don't know if you've heard about 0:13:10.440 --> 0:13:14.199 the date within zoning being able to kind of convert 0:13:14.200 --> 0:13:19.240 buildings as of right, So downtown in the financial district 0:13:19.280 --> 0:13:22.120 south of Murray Street, who was in the early nineties, 0:13:22.320 --> 0:13:25.559 they changed that date to nineteen seventy seven. So buildings 0:13:25.600 --> 0:13:29.840 in specific districts south of Murray Street that were built 0:13:30.280 --> 0:13:34.320 prior to nineteen seventy seven, you could convert those as 0:13:34.360 --> 0:13:38.240 of right completely to residential and it could be market rate. 0:13:38.760 --> 0:13:41.000 Here in midtown it's nineteen sixty one. 0:13:42.160 --> 0:13:45.120 What is the basis of these dates, Like I don't 0:13:45.200 --> 0:13:48.400 quite understand, Like what is it about a building? 0:13:48.520 --> 0:13:50.319 What happened in nineteen sixty they were like. 0:13:50.320 --> 0:13:53.880 Whya building in nineteen sixty five? They're uncomfortable with offering 0:13:53.960 --> 0:13:58.080 the carte blanche some what's some of the intuition or logic, 0:13:58.160 --> 0:14:00.000 but behind some of these constraints. 0:14:00.559 --> 0:14:04.040 It's it's very much arbitrary, okay, And at that point 0:14:04.080 --> 0:14:07.800 in time, yes, it worked to help alleviate some of 0:14:07.800 --> 0:14:12.200 the vacant office space in the Financial district. But the 0:14:12.200 --> 0:14:15.520 way that that really needs to be and the Mayor's 0:14:15.559 --> 0:14:19.360 Task Force and others have been a proponent for, is 0:14:19.480 --> 0:14:22.640 changing that date to nineteen ninety for. 0:14:22.600 --> 0:14:23.920 Instance, why even have a date? 0:14:23.960 --> 0:14:27.320 Why not just say if the market says, you know, 0:14:27.800 --> 0:14:31.440 it's doable, and if the market would value this particular 0:14:31.480 --> 0:14:34.200 plot of land more as housing than as office, like, 0:14:34.200 --> 0:14:35.880 what is the logic behind having a date? 0:14:36.120 --> 0:14:38.840 So there are a couple of things with that one 0:14:39.040 --> 0:14:42.080 they proposed in nineteen ninety with a rolling date. So 0:14:42.160 --> 0:14:45.560 then as you know, in twenty fifty, we don't have 0:14:45.600 --> 0:14:47.520 the same problem, and we're saying we need to change 0:14:47.560 --> 0:14:51.320 the date. So it always always cycles out. But one 0:14:51.360 --> 0:14:54.760 thing within zoning and changing some of the districts, say 0:14:54.920 --> 0:14:59.720 in Chelsea some of the manufacturing areas, they're only zoned 0:14:59.720 --> 0:15:03.880 for man manufacturing right now. An issue of just changing 0:15:03.920 --> 0:15:07.640 that to residential is and they need to study this 0:15:07.680 --> 0:15:09.000 and they really do, and they need to put the 0:15:09.040 --> 0:15:10.880 time in on this. And I don't think it's a 0:15:10.880 --> 0:15:13.280 good idea just to flip the switch and allow for 0:15:13.360 --> 0:15:17.280 residential to go immediately without studying do we have enough 0:15:17.280 --> 0:15:21.000 schools and hospitals and markets. All of those things are 0:15:21.040 --> 0:15:27.160 the components of why there is a date in these areas. 0:15:27.080 --> 0:15:30.800 Interesting, So just on the idea of maybe getting more 0:15:30.880 --> 0:15:33.800 government support, more tax credits, a loosening of some of 0:15:33.840 --> 0:15:36.800 the restrictions. One of the criticisms that you hear in 0:15:36.840 --> 0:15:40.840 New York specifically is that property developers already make a 0:15:40.880 --> 0:15:44.280 lot of money, and while this might help on the 0:15:44.320 --> 0:15:48.880 housing front alleviate the housing shortage, we're basically giving them 0:15:48.960 --> 0:15:52.240 even more money. What would be your response to that 0:15:52.400 --> 0:15:55.000 or how could you alleviate some of those concerns. 0:15:55.520 --> 0:15:58.200 Yeah, I think it's easier to say that from the 0:15:58.200 --> 0:16:03.760 outside looking in. Butultimately, the risk that we're taking on 0:16:04.440 --> 0:16:08.160 in converting these buildings and making these investments is our risk, 0:16:08.200 --> 0:16:09.560 and we should get paid for that. 0:16:10.040 --> 0:16:12.400 It's not to say is it a risk though in 0:16:12.440 --> 0:16:15.520 New York if you make a bunch of really nice apartments. 0:16:15.000 --> 0:16:17.400 Like sure, it is always it is always a risk, 0:16:17.480 --> 0:16:20.080 no matter what. And yes, New York is a fantastic market, 0:16:20.120 --> 0:16:22.560 and you know the best market in my opinion, to 0:16:22.920 --> 0:16:25.720 ever do this, because not only that, you know, we 0:16:25.800 --> 0:16:28.760 feel strongly many people feel strongly about the market here 0:16:29.080 --> 0:16:31.800 and residential and multifamily. So yes, it is it is 0:16:31.840 --> 0:16:33.600 a great market to do it, but there is still 0:16:33.720 --> 0:16:36.520 risk with it. There are cost overruns that could potentially 0:16:36.520 --> 0:16:40.360 happen in the conversion. There are numerous operational things that 0:16:40.400 --> 0:16:43.280 could happen after the fact and during lease up, and 0:16:43.520 --> 0:16:46.520 things like that new product could come online and compete 0:16:46.520 --> 0:16:50.480 with you. Recessions could hit, other things could hit. They 0:16:50.480 --> 0:16:54.600 could bring the prices down from when you started the 0:16:54.760 --> 0:16:56.120 discussion of that project. 0:16:57.000 --> 0:16:59.880 Let's say you got the you know, the legislator cooperated 0:17:00.120 --> 0:17:02.960 change the tax code and they moved up the dates 0:17:03.080 --> 0:17:05.640 and a bunch of other stuff happened that was sort 0:17:05.640 --> 0:17:09.760 of favorable from a policy perspective, like, Okay, how much 0:17:09.960 --> 0:17:12.399 do you think just office TORESI in general could like 0:17:12.520 --> 0:17:15.679 move the dial in both directions, because that's sort of 0:17:15.720 --> 0:17:17.399 the big question here. And it sounds like, you know, 0:17:17.440 --> 0:17:21.760 you've done you've done a handful of projects, but it 0:17:21.880 --> 0:17:25.560 you know, they it doesn't seem like it's a possibility everywhere, 0:17:25.560 --> 0:17:27.199 And there are lots of buildings that as you say, 0:17:27.240 --> 0:17:28.800 you can like walk in and say no, this is 0:17:29.080 --> 0:17:31.359 not going to work. So, like, how much is this 0:17:31.480 --> 0:17:33.600 in terms of when people talk about there being a 0:17:33.640 --> 0:17:36.919 crisis of office, you know, people not going to the office, 0:17:36.960 --> 0:17:40.680 et cetera like that, how much could it move the dial? 0:17:40.680 --> 0:17:41.160 In your view? 0:17:41.760 --> 0:17:45.000 It's it's going to be one one piece of the puzzle. 0:17:45.359 --> 0:17:49.160 It's not going to be the solving piece. Okay, this 0:17:49.200 --> 0:17:54.200 won't solve the housing crisis altogether, but not many things 0:17:54.320 --> 0:17:58.120 on a broad brush will. But doing these things will 0:17:58.200 --> 0:18:01.480 certainly help and will certainly get more units on the market. 0:18:02.080 --> 0:18:04.679 How closely do you follow the sort of return to 0:18:04.760 --> 0:18:07.040 office headlines? Like, you know, if you see a news 0:18:07.160 --> 0:18:10.439 article that says Jamie Diamond says everyone at JP Mortgage 0:18:10.440 --> 0:18:12.760 should come in four days a week instead of three, 0:18:12.880 --> 0:18:16.240 do you immediately start incorporating that into your like forecasts 0:18:16.280 --> 0:18:17.520 and expectations for rent. 0:18:18.359 --> 0:18:21.000 No, but we we follow it very closely. We also 0:18:21.200 --> 0:18:25.040 invest in commercial office. We have many office buildings in 0:18:25.080 --> 0:18:28.480 our portfolio, so we follow that very closely. 0:18:28.800 --> 0:18:30.080 Here in New York, sit. 0:18:30.080 --> 0:18:34.199 Here in New York, also in San Francisco, Seattle, Los Angeles, 0:18:34.560 --> 0:18:36.320 So so we follow it very closely. 0:18:36.560 --> 0:18:38.400 Can you can we take a minute to talk about 0:18:38.400 --> 0:18:40.680 some of those markets from an office, just a pure 0:18:40.840 --> 0:18:44.119 office perspective, because people are so gloomy on it. You know, 0:18:44.160 --> 0:18:47.320 if you look at the shares of the publicly traded proxies, 0:18:47.359 --> 0:18:49.800 I guess for some of these markets pretty dumps. 0:18:49.960 --> 0:18:51.280 There are challenges. 0:18:51.359 --> 0:18:51.960 New York is. 0:18:53.440 --> 0:18:57.040 Well ahead of many of the markets that I just mentioned, 0:18:57.560 --> 0:19:00.280 and I think that it comes down to, you know, 0:19:00.480 --> 0:19:05.479 the city and the administrations within those cities and making 0:19:05.520 --> 0:19:09.719 sure that they drive that traffic to their central business district. 0:19:10.359 --> 0:19:13.400 And you know, for instance San Francisco, it's it's you know, 0:19:13.440 --> 0:19:16.920 it's seen better days, yes, And we're looking at a 0:19:16.960 --> 0:19:19.439 lot of different opportunities there where we could potentially convert. 0:19:19.480 --> 0:19:23.119 Because you have people out eating at restaurants, there are 0:19:23.160 --> 0:19:26.800 places that are busy. Impact not all the offices are 0:19:26.960 --> 0:19:30.919 are occupied. Though. Here in New York we've seen that return. 0:19:31.000 --> 0:19:34.040 We've seen a lot of people come back into the office. 0:19:35.320 --> 0:19:39.120 You know, we really saw the residential multi family takeoff 0:19:39.160 --> 0:19:42.840 in called May of twenty twenty one. That's when we 0:19:42.880 --> 0:19:46.879 really saw that trajectory. And it's it's helped with all 0:19:47.000 --> 0:19:50.520 the return to office and with Jamie diamond saying, you know, 0:19:50.520 --> 0:19:52.399 four days a week or five days a week for 0:19:52.480 --> 0:19:55.520 managing directors, and that's what we need. 0:19:57.520 --> 0:19:59.679 This might be a slightly weird question, but I remember, 0:20:00.200 --> 0:20:03.520 you know, the other big crisis in commercial real estate 0:20:03.640 --> 0:20:05.760 was sort of post two thousand and eight, when you 0:20:05.840 --> 0:20:09.960 had the death of retail, the dead malls all over America, 0:20:10.040 --> 0:20:12.760 and there was a move then to try to convert 0:20:12.840 --> 0:20:17.120 some of that space either to new community facilities, gyms 0:20:17.160 --> 0:20:21.080 and things like that, or in some cases residential. How 0:20:21.160 --> 0:20:24.520 successful I know this isn't your area of expertise necessarily, 0:20:24.520 --> 0:20:27.560 but how successful were those efforts and what can they 0:20:27.560 --> 0:20:29.440 tell us about the current situation. 0:20:29.880 --> 0:20:32.880 Yeah, I think it's area dependent because some of those 0:20:32.920 --> 0:20:35.880 areas where you're able to change a mall to more 0:20:35.920 --> 0:20:39.840 of an outdoor mall, put some multifamily on top of 0:20:40.600 --> 0:20:43.840 those retail shops and maybe some parking below it. That 0:20:43.920 --> 0:20:46.560 creates a whole new life cycle and a whole new 0:20:46.600 --> 0:20:50.879