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♪ [theme music] ♪ michael stoler: soeveryone is so happy! the economy, the stockmarket's the highest level, the real estate is doing great,you know, the economy seems fine, retail is doingwell, hotels, but i don't know. i have this pessimistic feelingthat it's really not that great, but it's good. so as opposed tohaving the pessimist provide his insight, i put togetherthese individuals who will provide their outlook onwhere they see new york city

today. my guests include mikeslocum, who is the president of capital one commercialbank, dennis russo, who's the chairman of the realestate practice from new york bakerhofsteader, fred berk,who is the co-chair of the real estate practice at friedmanllp, and last but definitely not least, my friend, joshmuss, who's the chairman and ceo of muss development.so i have a banker, i have an attorney, i have anaccountant, and i have a builder/owner/deveoper. i'mgoing to start with you,

because you deserve to be pickedon. how do you look at it? you and i have discussed thisall the time, especially since we were also working togetherfor this nonprofit to give some advice to them. we'veseen ups and downs over the years. how do you see it? arewe getting frothy? how do you see that? the prices andeverything, we've never seen rents like this and all theother situation. joshua muss: i certainly thinkthat it seems to be in high speed. i don't think we'veseen real estate as frothy,

as you put it, in many years.i'm also cognizant of the fact that we have 7 years of good,7 years of bad, 7 years of good, 7 years of bad, it's almostbiblical in the way they do it, and we're starting to get alittle nervous. i mean, one doesn't want to admit it.one wants to think that it's going to keep on gettingbetter. i would prefer to be a seller today than a buyer,but it's all in the eyes of the beholder. michael stoler: you know, it'svery interesting. one of your

clients who just built a newbuilding in lincoln center, gary, jake, and i were atbreakfast about a week ago, and we're sitting there, andi said, okay, you opened up the rental office, and whatare you getting for rents? i said, i'll bet you what you'regetting. he said to me, i'm getting $95 a squarefoot in rent. i said, it's $95? i mean, you're amsterdamavenue, we're at the end of lincoln center. nothing'swrong with amsterdam avenue. $95 a square foot is enormous!i mean, as a banker, how do

you look at this? because whenwe were talking prior to the show, with these high prices,banks have been reducing -- not you, other banks, maybe theones who have other cups over here, but other bankshave been changing. what do you see, how do youlook at the world today? michael slocum: you know,it's like you say, it's not great, but it's not bad. it'sprobably still pretty good, but we see a lot of competitionin the loan market for quality assets, and i think our concernis eventually, interest rates

are going to go back up, sothere's a lot of stuff getting financed today at reallylow interest rates, and what happens 5 or 7 yearsfrom now? michael stoler: so let's look atthat, because fred and dennis, representing companies inthis way, you know, they're buying theproperty, they're saying, hey, i'm buying the property,i'm paying 3% on a loan, you know, or 3? for thisapartment, and, you know, they're saying, i'll takea couple years interest only,

and then 4-5 years fromnow, nobody has a crystal ball, no one knew that the fedwas going to maintain these rates for such a long time,something, as josh brought up, 7 good, 7 bad, over there, wedon't know what the timing is. and we have a crisis in iran andiraq. when you're underwriting, how do you look at deals today?i mean, i know you guys look at, it's relationship, relationship,and establish, but you know, these other banks are coming outhere, fifth and third came, and u.s. bank, and all theseother places, this has an

effect on everybody. michael slocum: it does. but ithink that, i oversee our business across thecountry, and interestingly, new york still offers probablymore attractive opportunities than markets that have lessrestrictions on what happens there, so there'sstill a constrained market here, there's still great demand,and for rental properties, i think the occupancyrate's around 99%. you can't find that in houstonor atlanta or dallas --

joshua muss: because everybodywants to live in new york. dennis russo: right, fromwherever you're from, these people buying, there'sa woman the other day that bought her two-year-old a$56 million apartment. michael stoler: so wait asecond. you're the kid who grew up in the new york market,you're chairman of a new york real estate practice of acleveland, and if i said anything about cleveland,people, one comment is, nobody really wants tofinance cleveland. even bank of,

ohio savings bank, which isa new york community bank subsidiary, they prefer not tofinance cleveland. so what do you see the market -- you'vebeen on the market, you do a lot of hospitality, you do avariety of things, you represent banks, howdo you see the world today? dennis russo: well, look.mike is -- we represent a lot of lenders, we also represent a lotof developers. mike is right. interest rates, as everybodyknows, are keeping things down and cap rates where theyare. reality is that most,

if you talk to most of yourdeveloper clients, and like, they still have a gung hoattitude in respect to new york, because it is still the bestmarket. it is the most attractive hospitality marketby far, we're still building hotels, not as fast as we werea few years ago, i can tell you that, but we're stillbuilding hotels, people look to put their money, here isthe place. foreigners, i have a chinese client that just camein, a developer, they overpaid for a property, which i won'tname, by probably 15-20%.

and they knew it. and they'rehappy to put their money here just to haveit here. it's a bank. michael stoler: people lookat new york as a safe haven. dennis russo: it'sa safe deposit box. michael stoler: it's a safedeposit box, there's security, but we have certain otherthings. we don't have the same mayor that we've had forthe last 12 years, we have a different, we have a varietyof situations. you represent a number of foreign investors.i know the firm does that.

frederick berk: as long asinterest rates stay low, manhattan, everybody lovesmanhattan, especially young kids. and brooklyn, i'm sorry,the tri-state area. i apologize. i do apologize! joshua muss:the mecca of brooklyn! mohammed of brooklyn! michael slocum: no, no, no. joshua muss: no, no,he's right. frederick berk: and the kidslove the tri-state area.

this is where they want to be.interest rates are low. foreign money, as youmentioned, is unbelievable. we have money coming infrom china, from india, from russia, from brazil,from ireland, i just had a client who sold a 51% interestin a significant building at a 2% cap rate to a foreigninvestor. and when you have people like that coming in,the prices are going to just keep escalating. i agree withyou, it is frothy. but with interest rates low and thedesire to be in manhattan,

i personally don't see itending in the near future. dennis russo: i think it'sgoing to be stable for a little bit of a time, put itthat way. you're going to see places like bushwick and thelike, which, my father was a fireman, it was burningdown during the time when i was a kid. now people aresaying, oh, we're doing a beautiful project in bushwick.since this stretch of time for our expansion has keptgoing a little bit more, i think, than before, now youstart working your way out

right to bushwick and the like,i think that it's going to stay relatively steady. itis frothy to a certain extent, but what you're talking about,too, remember, are really core assets. so whenever you'redealing with a real core asset, the foreigner alwayscomes in, not always, but always comes in -- frederick berk: andhospitality. dennis russo: - and hospitality. frederick berk: hospitality isbooking because the foreigners.

dennis russo: i just didit. michael stoler: but josh hasthe finest hotel in brooklyn. he was the first one, he was avisionary over there, he has the marriott at thebrooklyn bridge, which, in addition to having thespace and everything else, it has the largest cateringfacility, and it's a meeting place and everything over there.i, a couple months ago, took a walk over the 59th streetbridge, went to long island city, specifically to lookaround what was happening.

it was a sunday. and iwent to the left section, which was really moreclose to astoria, and i saw approximately 25 hotels. ididn't hear one u.s. citizen speak. everything wasa foreign language. but all of these hotels arebeing built there. brooklyn, who has, as we were saying,the buzz that people want to be there, they don't have 27hotels in long island city. there's a question of saturationat a point. when people, you grew up in bushwick.you knew it. is bushwick the

next place for thenew wythe hotel? i mean -- dennis russo: my father grewup in bushwick, but anyway -- michael stoler: no, no,but what i'm saying to you is, there are neighborhoods.whenever i discuss brooklyn, and we get to, josh wasthe creator of oceana, which is this luxurycondominium. you still have one tower being built there? joshua muss: yeah,we're finishing up the last one. michael stoler: now, when italk about brighton beach or

coney island, i always havethe same comment from all the people here. it's too far. ittakes too long to get into the city. it takes, no problem,because everybody wants to be, it's a 45 minuteride to brighton beach. brighton beach, at least youcan get off the train and walk to housing. coney islandis a difference. you get off the train, and then you have adistance. so is every section, i mean, we're talking thateverything is good, but, you know, does this pass on? youoperate, as we said, in many

states. but you also operate innew jersey and long island. how do you look at theworld in those markets today? michael slocum: newjersey, i think, is spotty. i think there are areas that areokay, we do a lot of stuff on the hudson, hoboken, jerseycity, and when you get more into the state, we've done someoffice that has been a little challenged. it's kind ofspotty. and long island is still sort of a self-containedarea too. so we don't do as much out there. everybody wantsto kind of be, if they're not

in manhattan or brooklyn, theywant to be pretty close because of all the commute. dennis russo: that's thedifference, because when you look at the things out in longisland or new jersey, and you look at the effective rents, youalways look at the effective rents, they haven't moved inyears. i mean, you're talking $27 to 32 a square foot. imean, i do tons of leases. in new york, you move from$50 to $70. frederick berk: but isn'twhat happening, new york city

companies, like ours, are takingoffice space in the suburbs because you don't want topay $50, 60, 70, 80 a foot. therefore, you're openinglocations, and people are moving there because theywant to work near their office. joshua muss: sure. we'reseeing a real ripple effect. i mean, let's face it. new yorkcity is going to be relatively recession proof, because whentimes get bad, people want to be in new york city. whentimes get good, they want to be in new york city. so we'reseeing that in the boroughs,

and we're doing, thank god,work in manhattan, too, but we see in the boroughs,there's, all of the sudden, we're getting better rents, andwe're getting better occupancy, and the better retail areas,we're getting filled up. in fact, vacancies in the lastfew years have been almost a thing of the past. it's just amatter of price, and if you price it right, you're going torent it out. so i think new york city is doing verywell, is doing probably better than anywhere else, and i thinkit will continue that way.

it's just a matter of howhigh one expects it to go. michael stoler: but youknow, as mike was saying, and dennis was also alluding,you know, the office market in new jersey, the officemarket in long island and westchester really hasn't goneup in years. it's the same rent, and the expenses arehigher. and that's why the westchester market, the realestate taxes kill you, and so do nassau county over there.those are the different situations. you have an officein long island. it's a

different business. your clientbusiness that you deal with -- frederick berk: differentbusiness. but with today's technology, we're doing workout of manhattan utilizing people in longisland. we have an office -- michael stoler: - but he's doingthat in the law profession with manhattan doing workout of cleveland! dennis russo: cleveland,florida, 14 offices. i use associates athalf the number. frederick berk: we'll get there.

dennis russo: yeah. feel freeto use our people, too, by the way. yeah, no.we're utilizing, let's face it. it's a cheaper space, youpay people less, they're just as effective at certain things,and utilize them, and so it's going to work. frederick berk: as long asyou can manage them properly, it's a fantastic thing. dennis russo: it's a greatthing. keeps everybody happy. frederick berk: fantastic thing.

michael slocum: wehave a big presence in melville. we had 700 associates in abuilding there, and we plan to stay there for the very reason--most of them live out there, they like being there, it's notthat bad a commute if you need to come in to our office in thecity, but you don't want to have your primary office in melvilleand try to attract people from new jersey or westchestercounty. so that's why you end up in manhattan, becausethen you can draw from new jersey,westchester, and long island.

dennis russo: well, you needto be here. you need to have, just like retail, i'm not goingto shift the conversation, but retail, we've beenbuying retail now, oh my lord, in new york city,it's gotten insane! michael stoler: well,let's talk about retail. let's talk about retail let'stalk about hospitality. you know, there was anarticle, and i think steve causo brought it out very well. thearticle said, "poor danny meyer. 30 years, he can't afford therent at union square cafã©."

and steve causo said, you knowwhat? look at his revenue 30 years ago, andlook at his revenue today. what's the rent? bobby flay iscomplaining that you can't afford to open up a restaurant,and he just opened up a restaurant. so the story thatthe landlords are gouging, okay, maybe in certain markets,in the meatpacking district and other areas, in chelsea ormidtown south, it's over there, but there is a lot of vacantspace. time is leaving, 6th avenue is a very reasonableneighborhood.

joshua muss: gouging isa pejorative word. what they're doing is, the landlords -- michael stoler: that'swhat happens -- joshua muss: - if you recall -- michael stoler: - harvard,you know, i forgot about that! frederick berk: i'm with josh! joshua muss: - if you recallwhat i said before, we're able to get everything filled up aslong as we ask for the right rents. so if you're asking forthe right rents, you'll lease it

up. if you're asking for thewrong rents, you won't lease it up, and if you're getting $500 asquare foot on some side street, then you're getting the rightrent. it's a matter of everything floating to the top. michael stoler: look, unqlo isplanning to open up more stores. everyone's coming tothis market here, retail is very strong over here, trader joe'swould love to have more stores, aldi, this is the market. thisis where we're looking at it. are there any areas, whenyou go down to headquarters,

and they ask you, where arethe best opportunities? where do you look besidesmanhattan? i mean, in one areas, are you positive on retail,are you, what's your feelings in the hospitality market -- michael slocum: yeah, wedon't do much hotel, because it is a more volatile asset class,and we like to do not only sort of the interim loan, butwe like to do permanent loans. permanent loans on hotels is alittle dicey, so we don't do too much of that. but we look atsome retail around the city,

and we see good opportunitiesthere with a lot of very quality developers, and we do a lot ofoffice in manhattan, but not a lot of office outside. michael stoler: you know, here'ssomething. the trade center is coming on board, they justapproved larry's, he's getting liberty bonds to build theadditional over there. fortunately, brookfield has doneexceptionally well. they're nearly fully leased,even with the loss of lehman and everyone else downtown.but do you, are we worried about

some of the office space inmidtown? or as i said recently on a show, where can that,not the friedmans, where can that smaller non-profit or thatsmaller law firm or the smaller accounting firm,they're getting priced out? joshua muss: nonprofits don'tbelong in midtown. they belong where the office rent is cheap.wherever that might be. and actually, there's a lot ofself-help going on, a lot of the vacant office space isbeing converted to apartments. i'm concerned that you converttoo many to apartments,

and you lose the centraloffice district. that could be a problem, because the greatnessof new york is that you have a transportation thatcomes into the heart of new york city. michael stoler: and anythoughts about this potential midtown zoning? joshua muss: it won't be builtwhile i'm alive! michael stoler: you don't thinkit's going to? dennis russo: it may happen. thequestion is, will it happen

under de blasio? i tend to doubtit. it may happen. that'll add space. fine. but it'll only addas much space as we can take. i mean, we do overbuildevery once in a while. but in answer to your question, whereis a spot for the tenant that needs $40 a square foot, or $45,or even $50, as it may go, the answer to that is,in lower manhattan. class b space. if you're smart, you're buying class bspace there, because what you're talking about, michael, isthe top. you're talking

about $95 a square foot, $90a square foot. there's been a lot of tenants looking to bein manhattan, and they can't afford it. that class bspace, just like park avenue south did, that will fill up. michael stoler: what about,where do you see this? when people come to you, thefunds and other people asking for your advice in looking ata market, how do you look at, how do you tell them, and theyask you about lower manhattan, and people are nowlooking at the hudson yards?

i mean, this is, you have a lotof property that recently has traded at very highprices in the hudson yards. one of your clients sold -- dennis russo: we just did thebiggest deal on 34th street. michael stoler: right. dennis russo: that was a secondsale for them, too. michael stoler: right. sowhat's happened is, the hudson yards are very nice, but atleast related is doing it with oxford in a very systematicapproach. they're not building

in the spec office buildingover there. but there's a spec office building on 40thstreet. i was walking today, gary barnett's gem tower, theother side of the building, it was spec, and it's emptytoday. there are a couple buildings that are, and 3rdavenue, you can still probably get rent at $40 a foot, $45 -- michael slocum: i think you can.but back to what jeff said. if these folks would pricethis at a little lower level, i think it wouldlease pretty easily.

frederick berk: i think so.people are always looking for- michael slocum: - for thetop dollar. frederick berk: people arealways looking for new class a space. so it'll shift over,and you get conversion- joshua muss: the troubleis, with the internet, every day, you're reading,this guy's renting out for $50, this guy renting out for $90,this guy's selling for $3,000 a square foot, and everybodythinks they can do the same thing. theinformation is too free flowing,

too exaggerated, the brokersare exaggerating what they're able to get, and before youknow, people are overpricing, and there is space -- michael stoler: i'll give you agreat example. when capital one was looking for space, mikeand i were talking, 280 park avenue, which is owned bytwo reits, vornado and s.o. greene, they've spent millionsof dollars renovating the property, and they havenot signed one tenant to that property.

joshua muss: you don't readabout those. michael stoler: okay,we're talking about close to 1.1 million, 1.2, 3 millionsquare feet of space! and nobody's biting right nowfor that. and park avenue is still a prime location. michael slocum: i think they'renot biting it, but they're asking. i think there's -- michael stoler: which iswhat josh -- michael slocum: - plenty ofinterest. it's a nice building,

i think they've done a greatjob. we were very close, but we- joshua muss: i personallydon't see how convenient the west side is for access. you'retrying to interact with the lawyers, with the accountants,with the customers, you can't get to the west side. andeven when they get that one subway stop, and it's going tobe very difficult to access. michael slocum: you know,it's one subway stop. it's like, i went to williamsburg acouple months ago with my wife. we took the l train, it wasa saturday. it was packed!

we took the first stop, youcan't get off! so we're going to have the one subway stopat 34th street and 11th avenue, 10th avenue, and that's supposedto take care of everything, including all the apartmentsand everything else. joshua muss: i think it'sgoing to be a disaster. dennis russo: that'simpossible. that's impossible. michael slocum: what abouttraffic? it's just gotten worse -- joshua muss: oh, it's terrible.

michael slocum: - in just thelast 10 years i've been here, seems like there's constructionon every cross street, trying to get across town is anightmare these days. i thought it might be alittle better this summer. i spent some time yesterdayand today trying to get across town, and they keep closinglanes on the avenues to create bicycle lanes and parking,and it's a challenge. so i think one thing they've gotto do is try to work a little bit on the traffic,because you can't create

subway stops overnight. michael stoler: but partof the traffic difficulties, besides the new construction,everything else, was partially created by bloomberg in certainmarkets with the areas stopping, like in timessquare, you have streets, the pedestrian markets overthere. they've cut that down, and that's had a major effect.i mean, have the pedestrian markets been affectingdowntown brooklyn, also? joshua muss: no, it hasn'treally impacted yet. i mean,

there's still plenty ofpedestrian traffic. i actually just walked in fromthe other side of the street to come here, and near the empirestate building, you can't pass. i mean, you justcan't walk. dennis russo: wellthat's tourists! joshua muss: yeah, well,tourists have taken over a great deal of the sidewalk space,a great deal of the traffic space, you have the buses goingalong, they're good for us, they're bad for us, and ifthey stop traffic, it's not good

for us, but maybe good for the hotels. dennis russo: well, 54million people or so, i think the number is -- joshua muss: god bless 'em! dennis russo: - rockcenter up by me, it's packed. 42nd street, it's packed.34th street by the empire state building, it's packed. you know,i look at it and i complain, then i say, god bless thatthey're here, because they keep putting people, 35million room nights --

joshua muss: and new york city'sreinvented itself. they have hospitality like never happenedbefore, the tech seems to be catching on, and by the way,that's one of the reasons why new york city is so popular,because you don't have, you have a different typeof people coming in here that don't want to commute. that'swhy there's so many people looking for housing. you havepeople coming in from all over the country, the smarter people,the tech people, the creative people, people want to getmarried, all the people,

they come here. frederick berk: kids love it,and they do not want to commute. joshua muss: that's right. frederick berk: they will paywhatever it takes to be here. joshua muss: i got an emailfrom my cousin whose kid is in new jersey looking for anapartment. he says, do you have an apartment? he wants$1,500 a month, i said -- michael slocum: withthree roommates!

joshua muss: it doesn't exist! michael stoler: but you knowwhat? you bring up something, which mike was saying before onwhat they do with some financing on the jerseyside over there. you can go to jersey city in a brand newbuilding with all these amenities right on journalsquare, and you pay, as i was saying, gary jacobs said92 at lincoln center, we're talking 42, okay, and ina couple months, my friend, alan goldman at sjp is openingup in fort lee, which is going

to be a test of what's goingon, and they're planning to get about $38 to 40 a footright at the george washington bridge. so these are convenientsituations, and i think part of that, even though, as somebodysaid, they want to be in manhattan, but they also haveto be realistic that you don't have that much availabilityof space and everything else. joshua muss: young peoplearen't realistic. dennis russo: youngpeople want to be there. they want to walk outtheir door. you say, what's the

difference? it's a hugedifference! it's a commute! even if it's 20 minutes, there'sa difference between walking out your door and livingin union square and being in union square park andseeing, it's so vibrant -- frederick berk: so whenyou leave work, you want to walk to happy hour. asa kid. that's what you want. michael slocum: well, andyou don't want to try to figure out how to get back tojersey at 12:00 at night. frederick berk: that's true too.

dennis russo: so therefore,they'll live four in a room if they have to and spend, do that. michael stoler: so in summation,how do you see the next year, year and a half? dennis russo: the next year,year and a half, new york city, i think that the de blasioadministration won't have, in that period of time, atremendous impact with the affordable housing. it will hurtus a bit. but the reality is, i think things are goingto stay kind of the same.

i don't think things are goingto, i don't think things are going to blow out of the waterand get even tremendously more expensive, but you look athong kong, you look at london, you say, can't getmore expensive. yes it can. but i don't think it's goingto get more expensive. i think we'regoing to be stable. michael stoler: so in acouple months, we'll come back, and we'll see if ourideas and predictions come through. i'd like to thankmike, dennis, fred, and

josh. see you next week.