52: What Opportunities Have Arisen

Welcome. This is Real Estate Investing Live from New York with James Nelson, the principal and head of Avis and Young's Tri State Investment Sales Group. In this program you'll learn about the world of commercial real estate and find out why it is one of the largest investment opportunities in New York and around the world. Now here is your host, James Nelson.

Welcome everyone.

Welcome TO Episode number 52 of Real Estate Investing Live from New York. This is your host, James Nelson. I'm principal and head of Tri State Investment Sales for Avis and Young. And for those of you who are looking to connect with me, my handle is James Nelson NYC. So you can find me on LinkedIn, Twitter, Instagram and it's great to be engaging with you all. Also, thank you all for tuning in. Last week we had a great panel on our deal of the year. We received that award from the Real Estate Board in New York and really I think spoke to the creativity, ingenuity and determination it took to help three long standing New York institutions all facilitate moves and acquisitions and was a really exciting sale to be a part of. So hope if you did not hear that you will go back and listen.

And while you're at it, why not.

Go listen to all of our episodes that you can either find on iTunes, Spotify, iHeartradio. It's great to hear. There's so many ways now to listen in and I just got our recent stats and what's amazing and thank you for all of you who are joining in from overseas but we have listeners we can track from China, Poland, Canada, Korea, Ireland, France, Spain, Australia, even Bermuda, Indonesia, Serbia and Thailand. So wow, really exciting that our audience is not just domestic but also global. And for those of you listening to the first time, go back and listen to some of these earlier episodes. Bruce Ratner, the first interview that I ever gave. Now that episode has been downloaded over 5000 times. Also Dan Hurwitz is the second most downloaded episode ever, followed by my interview with Ian Ross, the interview I did with Avis and Young CEO Mark Rose on partnership and performance, Scott Rechler on Resilience, Risk Game with Francis Greenberger, Rod Santomosimo. I love the title of this episode, no Experience Required with Chad Cooley, Massoud Body with the Epiphany and Leading by Example with Marianne Gilmartin. So those are the top 10 shows by download. So if you're looking for some suggestions I would check them out. So for today's show we have a panel and this was part of the New York City Expo which I'm usually I attend in person and speak live on the panel. And thank you to Anthony Kazazas who kept it going, albeit virtually. And so he asked me to speak on his panel, which I was thrilled to do. Susan May McLean from Horizon Land was the moderator and Mike Cohen from Proceeda Funding spoke about what's going on in the lending environment. And then Terrence Dunn from Einbinder Dunn spoke about the legal implications, but I spoke about the opportunities that exist post Pandemic. And again this show. I want you all to become successful investors and I hope this panel discussion gives you some great ideas on where to focus your attention. So thank you again for all your support. This has been fantastic. Some of you have been asking about when the interviews are going to start lining up again. We've got a new season that we are rolling out, so I've got several interviews that are now in the hopper. They will be coming out shortly, but in the meantime I hope these panel discussions will be interesting and informative to give you some current information. And with that we're going to have a brief word from our sponsor and.

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Welcome everybody.

My name is Anthony Kazazis, the director of the NYC Network Group as well as the NYC Real Estate Expo and I want to thank you all for coming on board today and registering for today's webinar. What opportunities have arisen from COVID 19 pandemic? The commercial real estate industry as well as the residential has been hit hard by this crisis and we want to find out are there still opportunities out there for great deals? Today we have someone from the legal field as well as the mortgage industry and the commercial and title insurance. Our guests today are Susan May McLean from Horizon Land Services of New York, James Nelson from Madison Young, Michael Cohen from Procita Funding, as well as Terence Dunn, Esq. From Inventor & Dunn LLP. At this point I'd like to introduce to you Susan Mae McLean. Twenty years ago she founded Horizon Land Services which provides residential and commercial title insurance nationwide. Susan thrives on connecting people and has been the bridge for countless business relationships. I can attest to it. I'm very honored to have Susan Mae McLean as our moderator today. Susan as well will be conducting a webinar every month on great topics to discuss residential and commercial webinars in this industry. Without further ado, ladies and gentlemen, I'd like to welcome Susan May McLean.

Thanks Anthony and it's nice to see everybody again. Here we have James Nelson, Michael Cohen and Terrence Dunn. And I'd like you to each take just one minute and just give a little bit of your background to start. James, can you start?

Sure thing. And Susan, Terrence, Mike, great to see you all again. Anthony, thank you, thank you for doing this. And as I said last time, we wish this could all be in person together but we know and we'll look forward to doing future expos with you. So really excited to be back with you all. The market is ever changing right now, so I know we're going to have a lot to talk about today. So my background that I'm principal and head of Tri State Investment Sales here at Avis and Young. We're a full service brokerage firm with 120 offices around the world. But again, New York City is really my focus and happy to be reporting from our brand new office here at 530 Fifth Ave. So really great to be back at it and looking forward to a great discussion today.

Michael, how about you?

Sure. Just to reiterate what James said, it's great to be back with you. Susan, James and Terrence and Anthony, thanks for putting us together again just to discuss what's happening in the opportunities and this new normal as we get back to what we hope to is a better new lifestyle that people can come accustomed to. I work for Preceda Funding and Advisors. We are the exclusive fund manager to the 100 Mile Fund. We specialize in short term bridge financing throughout the Tri State area. We basically operate as a private equity fund managing high net worth individuals and family offices. Our specialty is construction, ground up, heavy gut renovations, historical renovations and you know, we've seen a lot of different opportunities in the last few months. We were quite defensive during the, during the pandemic. But now have turned more offensive. And, you know, I look forward to discussing not only the lending aspect of this, but hearing from the commercial investment, sales side, the legal side. It's going to be a, it's going to be a great opportunity. So thank you again. And Anthony, I think now more than ever it's important that we continue to communicate and something like this allows us to do this. Thank you.

Absolutely.

And Terrence, Hi, I'm Terence Dunn. I'm a partner at ninebinder and Dunn. We're a full service law firm in Manhattan. We're heavily involved in the real estate side of things, the legal side of things, both in the litigation side and the transactional side. I work in commercial leasing, acquisitions, financing and development. It's been a challenging past six plus months and there have been a lot of changes on the legal side. And I'm very happy to be here again with Mike and James and Susan and to talk about it and look forward to it. Thanks for having me.

All right, well, let's get started. First question I'd like to go to James. James, do you see the New York City office market coming back or are you seeing it lose a lot of traction to the suburbs?

Great question. And it's the one that's at the top of everybody's mind because office is such a driver and we know that once the workers come back to New York that the retail will pick up again and certainly multifamily. So, yes, the office, as far as the vacancy numbers, specifically the sublet numbers. The sublet numbers is what we're watching very closely because once companies decide, okay, we're going to downsize and whether that's because they're going to embrace more of the work from home or just consolidate and start reducing their footprint, that's when we're going to start to have some more concern. But so far we have not seen a huge spike in sublet activity when you look at the big picture. So on one hand, it might be a little concerning to know that there's now 8 million square feet of sublet space that's been added to Manhattan this year. Okay, that's a big number. Okay. But when you compare it to the office market here in Manhattan, which is 450 million square feet, that's a very, we're talking 1% here. It's a very small margin. Now, if you look at sublet space compared to overall vacancy, and the vacancy rate in the second quarter jumped from 10% to 10.9%. Actually not much of a jump at all. The sublet space is about 25% of the vacant space, which is normal. That's what we were experiencing a couple years ago. I believe that the companies right now are still taking a wait and see approach. They're kind of hedging hats off to JP Morgan for trying to come back to the workforce. That's still a process. But they did announce that they were signaling they wanted their brokers to come back. Goldman Sachs, definitely the same thing. And really kind of a nice movement to see when some companies like Google and understand, I mean, for employee retention and to be flexible. There are employers who've said it might be a year before you have to come back. But was, yes, refreshing to see a lot of the companies come back to the office.

Okay. And Terrence, generally, how do you think the past six months has affected your office and retail tenants and clients in the city?

Well, it's been a difficult six months. Obviously. First there was the closure. And that applies to our restaurant clients, our retail clients and our office clients just simply couldn't use their space. And since there's been a gradual reopening, the restaurants are getting limited use. Retail, a lot of it's open, but there's no foot traffic. And offices, people are finding that they can't use their offices exactly the way they were using them before. All this happened because of social distancing and legal concerns with requiring tenants to come in or employees to come in and people still feeling their way about that. There have been some litigations challenging leases on the basis of impossibility performance. And there's been a lot of negotiating between our client, our tenant clients and their landlords in terms of trying to make some kind of deal that would make hanging onto the space tenable. You know, people have exposure, whether it's through guarantee or because your operating companies are on the leases. So they don't. They can't walk away, but they're trying to make deals with the landlords to get through this stretch until they can get back and open and make money. And I think for now, that's really the status of it. It's a very tentative sort of feeling their way until we see what the broader solutions that are available are in terms of a vaccine and what its efficacy is going to be. There is a city law that was passed that granted some relief from personal guarantees on tenant leases, and that's still being explored in terms of what whether it's constitutional. And that may give a lot of relief to some people if it holds up. So we're looking at that very closely. But right now we're really just working with people who for the most part are trying to maintain their positions and just get to a point where they can get back to business as usual.

Terrence, do you see landlords being more negotiable or really holding their ground? Is it a 50, 50 or.

You know, that's a good question. It's a case by case thing. It's really interesting, actually. Some landlords, and a lot of it depends on what the landlord is dealing with. Landlords, frequently you're dealing with a management company or a point person and he has partners, he has investors, or he's got a lender and there's frequently very little flexibility on that side. Frequently the lenders, a lot of their loan agreements have covenants where they can't give rent away, where they cannot release people from their rental obligations. And even when they can, they're trying to be very, very grudging in terms of the deals they make because they don't know what the future holds. And so they're trying to keep the deals very short term. They're giving people relief maybe for the period of the closure to the extent possible. They're doing deferrals and not waiver, where they're simply saying, okay, you don't have to pay all your rent now, but we're going to build it into the back part of your lease. We still get the money and that enables us to satisfy our lender. But you get a little relief until you get back up and running. You know, whether these deals are going to hold up, it depends on whether things open up next year and everything's fine and there's a vaccine and people get back to normal. If there's a second wave and these deals, you know, now they people continue to have other problems, then we may have to revisit all of this. So landlords are trying to be very cautious about it right now, and I think almost everyone's trying to act that way on that side.

Mike, what locations are most desirable for lenders in this current market?

It's an interesting question. And I think various lenders are going to have a different appetite for where they want to go and seek new opportunities. Personally, in our office, and our thesis is we are continuing to gravitate to markets that are outside of these core urban areas that we see tremendous growth to happen in the next few years. We're looking at areas that still have access, whether through trans Oriented Development, that have the proximity to the city, but ultimately sit on the Outside and where we can really underwrite to the tenant base, where we feel as though they are essential workforce housing, where we believe that in the event of another pandemic coming from these individual tenants will have the ability to still go and do their jobs, whether it's through hospitals or working at logistics or places that we saw that had a desire for their employees to stay working during this. So we're kind of looking at just the tenant makeup of the individuals and then also the locations. In the past few months we've looked at projects that are located in North Bergen, New Jersey, down through Elizabeth Carteret area. We're looking at multi, predominantly mid rise, where they're kind of not the luxury high rise where everyone's living on top of each other. There's space, there's access to vehicular transportation with a car because some people are not comfortable traveling through mass transportation. So all that is information that we kind of are taking in and trying to digest. And we're kind of making a bet in our thesis that ourselves and many of our peers believe that housing will continue to be a demand. You know, you're always going to look at what kind of supplies coming online. Many of the areas that were in the five boroughs got slightly overheated. There was plenty of permits being pulled and new supply coming online there. So we feel that the exodus is real. We feel that this is going to be the new norm of people looking to travel outside of that. With that being said, you know, we're open to different opportunities, but particularly for lenders like ourselves, we're concentrated on housing and we're actually concentrated on a closer geographical presence from our existing office where it is today.

James, are you seeing distressed assets or loans for sale?

Yes, but I think we are early and I think maybe to just give a little bit of context to where we are in the sales process right now and this market. And I actually wrote a white paper that you can find on our website. So not a cheap commercial@aytristateinvestmentsales.com but if you're interested in reading, it's called the Calm before the Storm. And what I talked about was how this market, although the circumstances are very different, it feels like 2009 as far as the drop in transaction volume. And in 2009, we watched the building sales volume drop 90 percent9.0 from 07. Right. As did my income, which wasn't a whole lot of fun. But then after that, we saw volume double in 2010, double again in 2011 and 2012 as did values. Okay, so we are just wrapping up our third quarter numbers and it's going to definitely look like that same type of drop in transactions. It's looking like if you annualize this year we're going to be about 70% off the 10 year average. If you just look at the third quarter in Manhattan, there was only 21 sales that took place for about a billion one and two of those sales that occurred 1375 Broadway and 522 fifth were negotiated pre Covid but that's where a lot of the dollar volume came from. So if you take those out again, very, very low sales activity. And what happened after March, understandably is the world turned on its head. There was fear. Sellers didn't want to sell into this market. Buyers didn't want to catch a falling night. What happened was a lot of the listing inventory actually came off the market. I have a good friend who runs Property idx, he's a listing platform. He told me the same thing. The number of listings this summer were cut in half. Okay. So for the investors who are listening in right now, a lot of you are probably saying that feels right. We're just not. Where are the opportunities? You would think that this market there would just be tons of them out there. But what's happening? Because a lot of these lenders gave forbearance, they gave time for the borrowers to make good waiting for the tenants to come back and and so that has prolonged the distress. We do a lot of work with the special servicers and what they're telling us is they have been inundated the amount of loans which have been transferred to special servicing in the last three months. It took three years after 2009 to rack up this many loans. And I know we're going to talk a little bit about the different asset classes because obviously the challenges are a lot more severe and some of the asset classes but we don't think it's going to be until later next year when you start seeing a lot of these distressed assets get flushed through system. But yes, in the meantime we are starting to handle some loan sale opportunities, non performing loans and buyers are ready to welcome those with open arms. I think the last thing I will say the difference of the this with 2009 is fortunately there's a lot of capital sitting out there on the sidelines just waiting to jump in for the opportunity.

Good. Okay. Terrence, have you been approached by potential clients who are viewing this time as an opportunity to buy distress and who's most optimistic with these Trends.

Well, I have the same perception as James, although I'm looking at it from a different perspective. I totally agree with his perception of it. You know, we have been talking to people who are looking to see if this is a good time to make a move. But I think generally speaking, people are tentative at this point. They don't see this as a bottom yet. If they do want to move into trying to make an acquisition or, or try to pick up something that's at a distressed price, they want to do it when the prices come down as far as it's going to come. And I don't think anyone's sure that's happened yet. By the same token, there could be good news that comes very quickly. If there's news about the vaccine or if there's other kind of developments that make people jump and believe that things are going to be normal. People are concerned about missing that first steps. So there's a lot of, again, I do think, I agree with James that there's a lot of money on the side sort of waiting very anxiously to see what's going to happen next. But I think for the most part, people are still very cautious. There's still a lot of things playing out in terms of what's happening between owners and their tenants, what's happening between owners and their landlord and their lenders, who's really in trouble or who's going to be able to get through it and resurface and be okay. I think even the sellers aren't sure what to do. So I think right now it's a waiting game for now.

Mike, question for you. How are the lenders justifying to the regulators making new mortgage loans while the market still has so much uncertainty?

I think in particular in our case, we are a direct balance sheet private lender. So our regulatory body that governs us is more through a traditional audit of which we've been since inception of a fund. But what we've kind of, you know, what I would probably tell to our peers or other industry people that are involved doing the similar that we are, I would basically contest that what you were doing three months ago, six months ago, nine months ago, you shouldn't have to relay that information to those regulators. You shouldn't have to give to them anything different than what you have. You should merely be doing the same practices as far as thorough underwriting, relying on third parties, making sure that, you know, all the boxes are checked from your due diligence process. So when you give that information to that regular regulator, they are looking at it and saying that this process that they're still managing is what they were doing before. Now, I do think that there will be more questions asked, there'll be questions of liquidity, there'll be questions about, you know, is there an impairment potentially on any loans or any parts of your portfolio, and of which then you need to be able to answer the questions of, you know, why you feel confident in the value that's there, why you feel confident that the collateral is in excess of your loan amount. So I think it's particular that you continue to be completely transparent. But also, much like us running a private equity fund, we have a fiduciary not only to the individuals who regulate our fund, but also to the individual investors. So we kind of make sure that they are number one. We continue to discuss with them about where we are as far as our portfolio. We are fortunate enough to collect about 77% on interest throughout the pandemic, which was a good number, whether it be through interest, reserves and proceeds or out of pocket. So the gist of what I would say to anybody is that the same practices that you were taking six months ago, you should continue to do that. And if anything, you should be more conservative in your approach of value. You should need to look into anything that you believe potentially could be an impairment down the road and be able to relay that information to anybody that's coming in to look through your portfolio, whether it be through an audit or through some type of compliance. And from there, I think you should be in a good shape to move forward. So that would be my opinion on what most regulatory individuals will look at when coming to overlook a fund or bank or private equity institution.

James, which asset classes have been hit the hardest and which have fared the best?

Right. So probably will not be a surprise that the hotels, which many of them are still shut down, have been greatly, greatly affected. And I think certainly the ones that rely on business travel, international tourism, are certainly having the most challenges. Now offsetting this in New York, what we've seen is that there's been many of the operators have been able to get by by opening up their hotels to emergency workers and governmental protocol. So supportive housing. When I've spoken to some of our hotel clients, they told us this has at least allowed them to get by. So that's great to hear. So that's really on the business travel front, interestingly. And speaking to some friends who have leisure type hotels, certainly ones that were within two hours drive of cities have actually done okay. Because when people aren't jumping on planes, they're driving for weekends away. But for the most part, and speaking to our friends at the special servicers, they've told us that hotels above and beyond constitute a lot of the distress. Retail would be next on the list. And even before COVID we knew that retail was having challenges, certainly vacancy on the rise. But I think we saw a real shift in the way that retailers viewed their footprint and the days of paying up to be on high street where they could take that rent and consider it a marketing expense. Those companies were already starting to roll back and we saw some of those rents even get cut in half before COVID And so I think a lot of that retail will eventually have to be repurposed. And I think there is a big movement certainly, you know, with the bricks to clicks, fulfillment centers, that that's been a welcome addition. And essential retail is the drugstores, grocery stores. Those continue to be a bright light there. Office I would put somewhere in the middle for the reasons I said before. It's just, it's too early to see what's going to happen with these companies. I mean, I will say major vote of confidence that Facebook signed 700,000ft at the Farley office post office building. That deal was in negotiation before COVID And what I heard was the rent that they were talking about before at $110 a foot on that face value rent, they only reduced slightly. This was still a triple digit rent that they signed. What changed was the amount of concessions, lots of free rent. I think the free rent almost doubled in that instance to about two years, certainly more ti understandably to give them time to get back into their space. So that was a great vote of confidence and I'm a believer that New York City office is certainly going to come back. There's that synergy that takes place that can only take place in the workforce. And I think after that, I think multifamily follows multi. Unfortunately, we've seen the vacancy rates in some cases go as high as 80% and the reality is if a young professional doesn't have to report to the office, they're going to go live with mom and dad for a year until they have to come back. But I think once the jobs do open back up, it's only a matter of time before they come back. But those prices, multifamily prices off maybe 10, 15%, we're seeing cap rates in New York now north of 5%. There's some real opportunities there as far as what asset classes have actually fared the best or even improved over this, of course, industrial last mile logistics. I heard there was a Home Depot logistics center that just traded for a 4 cap. That's where the Amazons are trading. That's pretty amazing. And then also medical, we've got some walk in clinics, we have some city MDs for sale which clearly have stayed open throughout and there's a greater need for it. So it really is specific to the asset class as far as the performance in the market.

Mike, I think this is the last question I have. How do mortgage lenders address widespread forbearance requests?

Well, I think the term the forbearance was the buzzword going around, especially in our industry during the midst of the global pandemic. But you know, we kind of viewed it as a partnership. We understood that this was unprecedented times. We kind of went out and reached out and said to our prospective sponsors and borrowers, let's work on this together. Help us help you in a way. We look to see making sure you're applying for the ppp, the Eidl type of, you know, this availability for financing that was in place for them and if they use those type of paths and they went that way, you know, we were much more flexible. I mean we personally didn't believe just coming in and having a very strong letter from our attorney was going to, was going to help her, you know, resolve any of the issues we had. As I mentioned previously, we were fortunate enough to collect about 77% of our interest that was due, whether it be through interest, proceeds of reserve or through out of pocket. But we basically wanted to have continued communication with our sponsors from the moment it happened. We got in front of it, we talked to them, we figured out what they were doing, what their course of action was to help that process. And for the most part many of them came back and they got the PPP money right away. And hats off to the Fed for acting fast because I think they had the roadmap. They saw 7, 8, 9 and they knew that there had to be an injection quickly and they did. And you know, I think there's more wood to chop in the future. But certainly it allowed us to not have to come out with many strong worded letters to begin that process. And we're fortunate enough to have a pretty solid performing book right now we're working through a few, but for the most part we've been fortunate enough to weather the storm and now we're turning our directions into projects that might not deliver for 24, 36 months. So we're hoping on the other side of the hill, but we are well aware that many groups went out there and got the forbearance in place. You know, there's different ways to structure it. But the hopes was that we were in this together, we wanted to work as a team. And I think the communication that we had with our sponsors allowed us to be successful in that manner. And we hope that we got through it.

That was great. Terrence, this is my last question, and Terrence, it's for you. We all know what the struggles have been, but have you seen any upside to any of these events with the groups of existing owners and commercial tenants?

Well, that's a relative question. I think maybe the upside is that it hasn't been worse. I don't see a lot of panic. I don't see, you know, the tenants aren't leaving their leases and throwing their hands in the air and walking away from it. We are actually not involved in that many litigations between landlords and tenants at this point. There people are still figuring out a way to work together. And I think maybe it's the survival of this model, this New York real estate business model, getting through something as dramatic as this is maybe the upside side right now, you know, everybody still wants things to work. Landlords are not looking to take the space back. They're not looking to force people into bankruptcy. Tenants are hoping that they can continue to operate their restaurants and their retail and their offices. And, you know, a lot of people are operating and they're surviving. They're not making money, but they're working it in the hopes that there is going to be, you know, we're going to get around a corner and things are going to get better. I think there is sort of this guarded optimism that this is a chapter, but not the last chapter. In each individual instance that we're dealing with, most of the people that we're talking to on the tenant side are just asking us to work with their landlords, figure out a way to get them some relief so they can get further. And the landlords, you know, our owners are generally telling us, you know, to just see what we can do to keep people in place. I think the one thing that some people are concerned about is whether or not there's going to be a change in the paradigm of where people work. You know, it's hard to tell how many people who are now working at home are going to decide or their companies are going to decide that that works on a long term basis and what impact that's going to have on the office market, which obviously in New York affects all the other markets. Whether that's an incremental change, I think the whole market can deal with that. If that's the fundamental change, then I'm not sure what's going to happen. But right now I think people want to get back to work. I don't think most businesses work effectively at home or as effectively as you can in an office environment. Certainly a law firm doesn't. So I think hopefully things get back to normal.

I find a different energy when I go into the office, which I've been doing once a week for the past six weeks. And it's, it's, it's a real difference. It makes a difference.

Yeah, I agree with that.

Much more. And feeding off of one another when you're in the office changes everything. Not to say that these zoom calls aren't wonderful. They are. But it's so much different being in person.

Yeah.

Well, Anthony, do we have some questions from the audience?

We do. Guys, the questions and answers line is open, so if you have any questions, please submit them. Send them in. Guys, I want to ask you a question. When I was reading off the write up as well as the topic and of course the industry has been hit very hard, but there are opportunities out there.

There.

Would you say those opportunities are more likely in the boroughs, especially Long Island City, in Queens, in Brooklyn, Bronx, even Westchester, New Jersey? Mike, are you doing more loans? Are you writing more loans in Jersey City, in New Jersey or elsewhere? Terrence, transactions. Where are your transactions now? Are you doing more, especially in the outer boroughs or Westchester? And of course, James, is your firm heavily involved with the boroughs, especially Long Island City, seeing what's going on with Long Island City? Terrence, why don't you start off, just let us know how many transactions are you doing now and where are you seeing them?

Well, there's a lot of talk about that. There's been a lot of talk about more things happening in Westchester as people decide to work at home. And there was a general trend, I think, and again, I don't see things. I deal with individual cases more than analyzing, you know, global trends. So I think I'm seeing a glimpse of the city, although I think it's pretty accurate. There was a general trend towards Queens, I think, to begin with, because there was a perception in Manhattan and then Brooklyn had gotten overpriced and there's a lot of interesting things going on in Queens and there's two and a half million people there. It's underserved in a lot of markets. I got a lot of people who are interested in doing restaurants, theaters, all kinds of things in Queens and we're working on a lot, we were working on a lot of projects and there was more happening there even before all this happened. And I think people still see that as an opportune place to go. I haven't seen actual activity on a fundamental basis moving away from Manhattan yet because I don't think people are fully sold on the idea that that has completely changed. I think as I said before and I think as James has been saying, I think people believe that there's going to be a move back to things as normal at some point and that, you know, hopefully now there will be values in Manhattan and all the boroughs. So I think it's again people still kind of waiting by the sidelines to see which way this goes, but I don't think it'll be a long term thing.

Thank you, Terrence. Mike?

Yes, we've been quite active in the last 60 or 90 days, but predominantly in the New Jersey market. We kind of took the thesis and we kind of made the bet that we do see this to continue to have growth. I think what makes us different being a direct private balance sheet lender is kind of where we're not the cheapest group by any means. Our pricing is reflective in the risk return profile. But we're starting to see deals that were going to traditional construction financing just not be able to get over the finish line. So what was initially priced at five and three quarters or six percent, the sponsors are now saying we need a certainty to close, we need this project to move along. So they're paying a little bit more on rate. So I do see that there's going to be opportunities to Terence Point probably in the five boroughs in particular Manhattan. Just hearing what James says about assets trading at 5 caps which were which you haven't seen for years and you have historically low rate cost of capital at this point. I think that you know, it will take place there eventually. But for now, you know, we do feel that there is some type of thought process particular between individuals that may have got priced out of Manhattan that are seeing that there's more space available, that they're seeing that there's fully amenitized buildings and multifamily that they can get in their car and get to their workplace safe. If they wanted to go to the city to go have dinner or go to a show whenever that returns, they do have that access. So you know, everything Kind of moved out, and I think it will continue that way. So, you know, we're seeing opportunities in various different pockets. And if I would recommend to anybody that's out there in the lending space, it's getting closer and tighter, really catering to large masses that might have, you know, the ability to go through another shakeup or another second wave where they're still going into work and still making rent. You know, we saw a lot of groups with second homes get out of the city. And with that, they weren't buying groceries, they weren't going to the local supermarkets and spending money elsewhere. So, you know, I just feel that, you know, there's room to grow in our tertiary bee markets, which you would call in and around the city. And I think the delivery of some of our particular projects will be at a good timing. But to Terrence's and James point, you know, there is only one Manhattan. There is only one ahead of the capital markets. Just a lot of opportunities will be there. And if you strike at the right price, you got a lot of upside.

Great. Thank you, Michael. James.

Yeah, so I think Mike makes a lot of great points there. And to get the investors even a little more excited who are watching, the 5 caps are just in multifamily. Once you sprinkle in some mixed use, we're even seeing some sixes. And for straight retail, we even have seven caps now with the caveat that that's if they're all paying rent. So, you know, that is a consideration. But I think, Anthony, when you talk about activity of Manhattan versus the boroughs, I really see both sides of that. On one hand, the boroughs have always offered tremendous value, just order of magnitude. If the average building in Manhattan's sells for 900, 1000, but Brooklyn was at 500, Queens was at 400, and the Bronx was only at 200. And the idea where, as the crow flies, go 2, 3 miles and you can be buying buildings at 15, 20 cents on the dollar, the rents in those instances might not fall off that much. And I think the boroughs do have a lot of that strong neighborhood demand. The retail is more service oriented. You know, it was never at two, three hundred dollars a foot. That retails at fifty dollars a foot. And these retailers, especially the mom and pops, who a lot of landlords prefer today, you know, because those mom and pops want to make it work. They want to get their business back opened up, as opposed to dealing with a credit tenant that sends out a thousand letters to their, you know, landlord saying, we'd like a lease modification. So you know, that being said, and if we think about the last correction, 2010, 2011, there was a flight back to quality. And what we saw was a lot of these fringe condo projects that maybe shouldn't have been built in the first time. All that end user demand came back to Manhattan. And depending on what happens with the workplace and transportation, a lot of people are saying, well, hey, it was great riding the L train back in the day and live in a cool neighborhood, but you know, maybe walking to work is a better option now. So speaking to some of our clients, landlords in, you know, sleepier kind of midtown East Murray Hill, they've seen an uptick in demand because a lot of the tenants who need to be at work now are preferring to walk. So it'll be really interesting to see what happens.

Great, thanks, James. Guys, we have a question from Robert Ryder. Due to the pandemic, do you see a change in the hospitality sector in New York City going from a large 500 plus hotel chains to more boutique, smaller hotel chains that have more of New York City type of an atmosphere? From Robert Ryder, any of you guys can answer that one?

I just, I think that, you know, when you come and you travel, especially on the business side and you come here, you know, you get kind of accustomed to where you like to stay, you, you know, you have some type of system where you, you know, whether it be through points or rewards or such. So, you know, I do think that maybe this actual pandemic will bring New York back to having it some kind of, you know, different feel to where it's going to feel more boutique and that there may be an opportunity. But at the end of the day, you know, certain large hotels with the reservation systems that are huge drivers, the large flags, they kind of demand the best real estate and it could very well change that. People are wanting to gravitate towards having a different feel when they move in. And I think different neighborhoods take different feels. So maybe you'll see the West Village come up with a different boutique appeal or maybe the Upper east side. But as far as the midtown stretch, you're going to have the big name flag hotels that are probably going to still be there. Though we did see several close just because of what happened. But you know, if I'm making a bet, I'm seeing that they'll probably come back and you know, just because of just the allure of having it under one flag, one reservation system and people getting accustomed to where they're staying and where they're actually, you know, going to meetings and going to dinners afterwards.

Great. Thanks, Mike.

I would agree with all that. I think the only thing I would add is, you know, some of the boutiques are able to be a little bit more nimble during this time. I was speaking with a friend who's actually in the process of opening up a boutique called Hotel right now. And he says, look, you know, we have outdoor space that we're going to utilize, and if people want to, you know, dine outside, they can do that. And so just having flexibility is, I think makes a lot of sense during this time.

I just wanted to add, to go back to something before Anthony, some activity that I'm recently seeing right now is we're doing a lot of due diligence for developers who are checking on buildings, looking at what's going on, so their activity is significant. I think that everyone is just positioning themselves right now, and it's on every asset class, honestly. So. And that's been really nice to see because it's hopeful from a residential standpoint. We've seen a tremendous uptick in Pennsylvania and New Jersey. And as everyone knows, the Hamptons was on fire for a while and still is, but the city has also been picking up. We're getting a lot of contracts on co ops, which has been interesting, but there's a lot of due diligence going on right now in the city by many of the developers, and new developers are kind of starting to show themselves as well.

You know, Susan, I'm really glad you brought that up because land sales, development, that was one of the asset classes that I neglected to mention and kind of, how are each asset classes class faring? And look, there has been a complete void of land sales since the beginning of this year. So I think to your point, for developers to use this time to assemble, to think about how do we bonus the site, how do we tap into some of these programs and to stick a shovel in the ground. And it's very encouraging to hear what Mike has to say. And look, if a development lives and dies by 2 or 3 percentage points on what you borrowed, you probably shouldn't be building that project. But if you can get out of the ground now, remember, by the time you're delivering product, it's not tomorrow, it's two years from now, right? And if you're not seeing that competition, you're not seeing new development sites getting underway. Guess what? When you're selling or renting product two to three years from now, you're not going to have a lot of competition. So that's really the key is to use this time, whether it's assembling, whether it's buying air rights, using this time wisely. And I would be an advocate for trying to get out of the ground sooner than later to really beat the wave of development that will undoubtedly pick up again in the future.

Yeah, there's a tremendous amount of opportunity out there and people are definitely putting their fingers on it now. So that's helpful.

Thank you, Susan. Guys, we have another question here from Jay Patel. I heard a lot of investors saying the sky is going to fall and we'll grab a very and they'll be able to grab cheap deals. But it didn't happen after 9, 11 or 20, 10, 8 or a 9 downturn, especially in the Northeast. What do you think? And any of you could answer that.

So, Jay, you're right. When you look at the pricing, and I'm actually a big believer that there are opportunities in any market. Right. Because even if you bought in 06 07, if you bought the right opportunity with the right business plan, value add strategy, and as long as you didn't overleverage it, you were okay. Right. And New York ultimately rewarded you. So I think the most important thing when you're buying is what is the seller's motivation? Why are they selling? And it's okay to ask the broker, you know, ask why. Tell me the story here. Right. And I know a lot of investors who tell me, you know, look, I want something with a good story. Tell me what's going on. And what's interesting is in the last 60 days, we have picked up 20 new listings that we've gone to market with. And our team, we average about five or six new listings per month. So we have been completely inundated in the last two months. And this is because owners are feeling more comfortable now. They know that they can't, you know, they're hearing they can transact. There is money out there. But what's really interesting is the profile of these sellers. And at first I thought it was just anecdotal where, you know, it seemed like we were approached by a couple retiring couples. But we went and surveyed these 20 new listings, and over half of them have owned the property for more than 10 years. Why is that important? Well, if you're a buyer and you're dealing with an owner who says, you know, hey, it's been great, but you know what? We've seen enough, we're out, those owners are going to have a much lower basis. Okay. And you know, they can afford to sell into the market. We have one client who has retail. He's telling us that two years ago he had offers of $30 million. Now whether or not that was a real offer, you know, who knows. But given the benefit of the doubt, you know, even say it was 20, 25 million, today we're asking 11,950 for that property. So but again, he bought this property, you know, close to 20 years ago for a million dollars. Right. And again they know this market and the leasing environment, it's not going to change overnight. I think we can all agree on this panel. This is going to be years, not months. So if you can take a long term view and buy in with the right business plan and don't over lever, I think there's some real opportunities out there.

I agree with that. I think one of the differences to get to Jay's question between 2008 and now is that was a financial crisis. And this is not really a financial crisis, this is a social crisis that is having a financial effect. But there hasn't really been any structural damage to the economy or the real estate system that we have here. And I think that in a business that has such a long cycle as James and Susan were describing, I think there will be people who will step in and make deals now if they think the price has gotten to a point where it's going to go up from there.

From a residential standpoint, first of all, I think between what we're going through now is kind of a combination between 9, 11 and 08 and I do think that values from a residential standpoint have gone down. I've watched properties that went into contract in January and February stall and now are have come back with a significant reduction and they're closing. So as you were saying, it does depend on the individual situation.

That literally concludes. I want to thank you guys. You guys were great. Very informative. Mike, Terrence, James, Susan, thank you very much, very much. Once again guys, all that register for this webinar. Thank you for attending. Several times a month we will be having many more different informative type of webinars to offer you. So once again, thank you so much and thanks for joining.

Thank you Anthony. Thanks guys.

A different approach to putting our clients first. Avis and Young's Tri State Investment Sales Group sells multi family office, retail development and specialty sales throughout the New York metro area. As experienced thought leaders in their industry. Our 35 member group is available to help you make informed investment decisions by advising you on your current holdings or identifying new opportunities in the marketplace. Our Our one unified team is built on an industry unique platform which promotes unparalleled collaboration and teamwork. We share core values of hard work, integrity and expertise. We put our clients first, providing tailor made strategies to achieve superior results. Please Visit us at aytristateinvestmentsales.com and follow us on Twitter LinkedIn and Instagram amesnelsonnyc to learn more.

Thank you for tuning in this week to Real Estate Investing Live from New York. Please join your host, James Nelson for another program next Tuesday at 7pm in New York, 4pm Pacific Time on the Voice America Business Channel. All shows are rebroadcast Wednesday mornings at 7:00am Eastern Time, 4:00pm Pacific Time, as well as Always on Demand. We'll talk again next time week.