Bearish Before It Was Cool

Location: Do you ever get bored waiting for the market to recover?
Mr. Kuhn: God, this is great! I don’t get bored waiting for the market to recover. I go look for opportunities! This is the greatest mining time we’ve had in the last 10 years. … And if you’re a tenant-rep broker, and I’m not, tenants now feel the market is at the bottom. I think the economic statistics indicate we’ve sort of hit bottom in terms of rental value. Jeff may disagree. And at least tenants are starting to write leases again.

Do you agree that we’ve hit bottom, Jeff?

Mr. Gural: Yeah, I think you’ve got a dynamic where you have landlords like ourselves, the old families who don’t have a lot of debt and who have owned the buildings a long time and have the flexibility of adjusting to the market, which is what we basically have done. … On the other hand, you have the guys who bought these building in 2005, ’06 and ’07, who borrowed 95 percent of the money, and they’re in a different position. Because if you’re in that position and now you get vacant space, where are you getting the money to build the space for the tenant who is considering renting it, number one? Number two, I think tenants today, and brokers who do their homework, look at how much debt is on the building and who’s the landlord.

So that makes landlords like you more appealing?

Mr. Gural: Yeah, we have a clear advantage in a market like this. Also, we have the advantage of being able to make decisions quickly. So if I go into a meeting with a tenant, the tenant knows that if I say yes, it’s not like I have to check with the lender.

How many square feet do you own?

Mr. Gural: We have about 6 million, 8 million if you count some stuff in New Jersey.

You’re one of the biggest landlords in New York City, then.
Messrs. Kuhn and Gural: Yes.

Why doesn’t Newmark have as much name recognition as some of New York’s other big landlords?
Mr. Gural: We’re not developers. Where you get name recognition is when you build a new building from scratch.
Mr. Kuhn: But also I think we were very early bears in the market, Barry [Gosin], Jeff and I. We took a lot of criticism [for that]. So Jeff hasn’t really bought anything in the past five years, to his credit. And when you’re not a buyer, people forget who you are. And Jeff also doesn’t have a really big ego. I don’t think he’s out in the social circles gallivanting around, trying to show that he’s the big poobah.

Are you buying any real estate right now?
Mr. Gural: Right now, I’m not, because I’m working on a couple of deals that require financing. So, I’ve got to put those to bed first, because I don’t want to screw up the buildings I already own in order to buy something.

Has the cooler summer been a boon to landlords, from an energy-savings standpoint?
Mr. Gural: You’re going to save some money. On the other hand, it could be a cold winter. … If you own a building long enough, it’s immaterial. We’re also at the mercy of oil prices, so you know a bigger help is the fact that oil isn’t $150 a barrel. It’s only $70 or something.

Do you have any thoughts on the World Trade Center development? Do you want it to get built?
Mr. Kuhn: Next question.

Do you think the market can sustain an additional 10 million square feet of office space?
Mr. Kuhn: No.
Mr. Gural: But again, it’s hard to look ahead that far. If we always knew what was going to happen in seven years, we’d be very smart. Certainly, while it’s true that we were not enticed into buying buildings for $1,000 a foot, nor did we think Lehman Brothers and Merill Lynch would be out of business.

Bearish Before It Was Cool