By Taylor Ott ’16 and Sophie Haas ’17

Moderator Paul Pariser, Co-CEO of Taconic Investment Partners, kicked the panel off by asking the panelists about some recent career highlights and their backgrounds. MaryAnne Gilmartin, President and CEO of Forest City Ratner Companies, talked about two of her most important projects: The New York Times Building and the Barclays Center.  Ms. Gilmartin describes herself as a “hopeless developer,” and has had the opportunity to focus on ground-up development only. Back in the 1980’s, she focused on the office market in Brooklyn “when companies were fearful about crossing the bridge.”  Since then, Forest City Ratner developed MetroTech Center in Brooklyn which has become catalytic with regards to developers and businesses moving into the outer boroughs.

Seth Pinsky, EVP and Investment Manager from RXR Realty, explained to the audience that he joined RXR two years ago to focus on emerging submarkets in New York.  Seth originally started his career in the public realm, working for Bloomberg’s administration and the NYC Economic Development Corporation. Currently, Mr. Pinsky’s team is finalizing the process of fundraising between $300MM and $400MM to invest in two main areas: 1) emerging urban areas, the outer boroughs of New York, including commercial properties such as 470 Vanderbilt, and 2) urban suburban areas, traditional suburban downtowns, offering ground-up development opportunities and master developer services.

The discussion then turned to the current state of New York’s office market, in particular on changes between Manhattan, Brooklyn, Long Island and other outer borough markets. Pinsky remarked that global trends still favor the city which has a competitive advantage by attracting smart and talented work. However, the city presents numerous challenges: high costs, low quality of inventory and the impact of global economic factors. He further elaborated that out the current 400 million square feet of office space in NYC, the average age is 70 to 80 years old, much of which is functionally obsolete. Mr. Pinsky then added that in the long run, investment in the development of modern New York office is a good bet, as there is not a lot of good quality product, even with newly added developments such as Hudson Yards or the World Trade sites. He also believes that markets like Brooklyn offer good investment opportunities as the talented workforce is shifting toward living in the outer boroughs.

Ms. Gilmartin expanded on Mr. Pinsky’s last comment, explaining that instead of corporations deciding where their next office location should be, talent now has much more to say.  Priorities have shifted and corporations now try to go where their talent is going.  People are now moving to Brooklyn from the Upper East Side to save money, bike to work and have more outdoor spaces in close proximity.  The problem with the Brooklyn market however, is that its office product is old; the most sophisticated offices were built in the 1980’s and 1990’s.  Work environment dynamics have evolved, and as a result has changed the demand for the type of office product.  To stay relevant, the New York office market needs to respond to such trends.  A challenge that Ms. Gilmartin raised, in regards to the office market, are construction prices.  Construction prices are more or less the same in Brooklyn and in Manhattan, but there is still a gap in rent prices that is larger than the gap in land costs.  More developers will be able to justify ground-up development in Brooklyn as rents are nearing $50-$60 per square foot and with relocation and new construction abatements, developers can build the new type of office buildings tenants are requiring.

Mr. Pariser then asked the panelists to talk about what could happen to the tired buildings on Madison and Park Avenues after new projects such as Hudson Yards and World Financial Center are gaining all the attention and success.  Mr. Pinsky remarked that his company is heavily invested in Sixth and Park Avenues and in buildings throughout the rest of Midtown.  One of their assets, 75 Rockefeller Plaza, will soon undergo a gut renovation and will be transformed into a 21st century building within the skin of the historic building.  He emphasized the need for the government to rezone certain areas for added density, and for additional incentives for investors to tear down existing buildings and replace them with new infrastructure.  Furthermore, transportation still needs to be improved overall.

The panelists also touched on the trend of co-working, the WeWork phenomenon, and how much growth potential this sector has. The panel agreed that office demand has definitely shifted; tenants nowadays demand more flexibility, less risk and an environment that allows them to collaborate more with likeminded companies.  Ms. Gilmartin mentioned that WeWork’s success is apparent in their ability to negotiate very favorable deals with landlords.  People want to be in their space because WeWork is emphasizing the “business of community” versus marketing itself as “just a real estate provider.”  This model supports entrepreneurs as well as stable corporations who might need swing space or temporary space.  Neither of the panelists have WeWork as a tenant, but RXR has a similar co-working tenant.  The discussion then turned into how owners can make office space “sexier” for tenants.  Blackstone, for example, bought the prior New York Times Building and completely renovated it, opening up multiple floors and creating a fun atmosphere that could attract tenants like Yahoo.

Finally, Mr. Pariser shifted the discussion toward the 421A tax incentive, and whether the development of multi-family would work without the tax incentivized program.  Both panelists agreed that it would not and Ms. Gilmartin commented that, with a high likelihood, there will be no new approvals for the program and we could go through all of 2016 without 421A.  Motivation will shift with next year’s elections. Even if investors are not ready to start building, they will be compelled to put footings in the ground on sites that continuous construction is not required.

One interesting question from the audience focused on the future of modular construction with relation to Forest City Ratner’s 32-story modular tower on Flatbush Avenue, adjacent to the Barclays Center.  Ms. Gilmartin commented that the relationship with their partner Skanska, had turned sour and although this particular project might not create the most appealing returns, the future is very compelling.  Modular construction allows the developer to control the construction schedule and costs with greater detail, as 65% of construction is done without exposure to the elements and requires less union, on-site labor.  Ms. Gilmartin commented that the Pacific Park Brooklyn project is under construction and as of now, no buildings other than 461 Dean will be constructed via modular manufacturing methods.

Sophie Haas ’17 is the International AVP for the Real Estate Association at Columbia Business School. She worked in tenant representation at Jones Lang LaSalle prior to starting her MBA and is now a first-year student focusing on real estate development.

Taylor Ott ’16 is the VP of Careers for the Real Estate Association at Columbia Business School. He is a second-year student focused on real estate investment and spent his summer at Vornado Realty Trust in the New York Development group. Prior to Columbia Business School, he was trained architect with over three years of real estate development experience at Boston Properties in the Washington, DC office.

The 8th annual Real Estate Symposium, an exclusive alumni-only educational forum, took place on Tuesday, December 15, 2015 at the Columbia University Club of New York. Barry S. Sternlicht, Chairman and CEO of Starwood Capital Group, delivered the opening keynote and Thomas J. Barrack, Jr., Founder and Executive Chairman of Colony Capital, delivered the closing address.

Please visit the event page for more details and reports on other speakers. Hosted by the Paul Milstein Center for Real Estate and the Real Estate Circle of Columbia Business School, the Real Estate Symposium is an annual educational forum that brings together accomplished Columbia Business School alumni and top industry leaders for a broad-based discussion of topical issues, high-profile transactions, trends, and challenges facing the real estate industry.