The pandemic changed the way people work and where they live. 

Between 2019 and 2021, the percentage of days worked from home increased from 5 to 30 percent. And hybrid and remote work show little sign of abating three years from the onset of covid. 

At a recent CBS panel, experts from academia, industry, and government discussed the effects of working from home on commercial and residential real estate, and the future of cities. 

What are the projections for real estate values? How will cities change and what is the plan for cities, like New York City, to deal with the associated fiscal challenges? Which places and asset types might benefit?

Moderator Stephan Meier, Chair of the Management Division at CBS and the James P. Gorman Professor of Business, joined panelists Nicholas Bienstock '96, managing partner at Savanna, Stijn Van Nieuwerburgh, the Earle W. Kazis and Benjamin Schore Professor of Real Estate & Professor of Finance at CBS, and Julie Stein, executive director of the "New" New York Panel to discuss these questions.

The event was sponsored by Columbia Business School's Digital Future Initiative and the Paul Milstein Center for Real Estate.

Watch a video of the event above or read the full transcript below.


Stephan Meier: Welcome everybody. This is the first event for our new Humans in the Digital Economy Lab, which is part of the Digital Future Initiative at Columbia Business School. It's a new think tank that Dean Costis Maglaras founded a couple of months ago and it's really focused on preparing our students for what the digital future is going to be about. We also want to help organizations, governments and communities better understand this disruption. This panel is a collaboration with the Paul Milstein Center for Real Estate, which organizes all our amazing real estate programs and supports all the research that has to do with real estate.

Now to introduce tonight's topic is not that hard, but I tried to do it in a way you might not have expected.

I'm going to quote somebody who is hardly ever quoted in a business school: Lenin. He said there are decades where nothing happens, and there are weeks where decades happen. Lenin was speaking about the Bolshevik Revolution, but I think the phrase equally applies to what covid did to a lot of trends in the world and particularly in relation to the workplace. The new normal is that people are not coming into the office as much, and that of course has consequences for how we manage firms. It also will have consequences on real estate, and in cities in particular.

So that's kind of what we're talking about this evening with an amazing panel. Let me introduce the three speakers.

To my left, or to your right, is Stijn Van Nieuwerburgh, the Earle W. Kazis and Benjamin Schore Professor of Real Estate & Professor of Finance. He's originally from Belgium, but I consider him a New Yorker. He has been a Columbia for 5 years and was at NYU for another 15 years before that. Since his PhD in Stanford, he has only been in New York, is that correct? So his professional career after his PhD has been in New York and he studies real estate extensively, and more recently how covid and the hybrid work trend actually affects real estate prices in general.

He's in the news a lot, too. I hear people are calling him “Professor Doom” now despite the fact that he lives with his family in New York and comes to the office five days a week. He predicts that cities are going to have a hard time.  So we're going to hear from him first.

Next to Stijn is Julie Stein, she's the executive director of the "New" New York Panel. New York Gov. Hochul and Mayor Adams constituted the task force to think about what's going to happen to the business district in New York. She worked with a 60-person panel to actually think much more holistically about what to do with cities. And this 40-point plan that they came up with was described as the most ambitious document to address the urban crisis brought on by the pandemic. And so I'm really looking forward to hearing what she has to say. She's the only one on the panel here who doesn't have a degree from, or work for, Columbia University. She has degrees from MIT and Brown, but she's still welcome here on the panel.

And then last but not least, there is Nicholas Bienstock.

Nicholas has worked in the real estate business ever since he graduated from Columbia. He's also an adjunct at the school here and heavily involved in the real estate program at the moment. He is a managing partner at Savanna, where he sits on the investment committee and is responsible for sourcing asset management acquisition as well as supervising of the ongoing marketing and leasing of the whole Savanna investment portfolio. So it's going to be interesting to hear Nick tell us what's happening on the ground.

Now we all agree that we want to keep this very discussion-based, but I'm going to start just with everybody giving their first introductory remarks to set the stage. And I think I'm going to start with Stijn who can tell us about the real estate market in general and in New York in particular.

Stijn Van Nieuwerburgh: Thank you Stefan. Welcome everyone and great to see so many of you here. So let me start with some introductory remarks, mostly based on some of the research I've been working on the last couple of years. And I like the way Stefan sort of framed the issue because I do think we are living in the middle of what's really a remarkable transformation, really a revolution. Lennon might not be sort of too far off here in the sense that this idea of separation of location of work from location of residents is really a transformational idea in my mind and something that's going to take sort of decades to play out. And we are, we're sort of at the very start of that in my mind. And so that is sort of a big idea because if you think about it, for thousands of years people have been working where they're living, they were living near the forest that they were foraging, they were living near the farms that they were working on near the lands that they worked in later after the industrial revolution.

And then more recently they were either living close to their office or sort of commuting within commuting distance from their offices. And all of that is getting potentially disrupted now with this separation of location of work and location of residents and that's going to happening and that's happening on a global scale. So that's sort of a mind-blowing idea in my mind and one way I think has going to have important repercussions for real estate and urban structure.

So I want to begin by bringing you back three years to the start of the pandemic and talking a little bit about the effect on migration and residential real estate. So you remember three years ago almost to the date a lot of people left big cities sort of fly, escaping the health risks that Covid brought. And there were two types of migration. One type of migration was within metropolitan areas where people were moving from the urban core to the suburbs. Think of people moving from Manhattan to Westchester County or maybe even to Brooklyn. It was just sort of in search of a little bit more space, a little bit more sort of healthy environment.

The second migration wave was smaller but nevertheless also important. And that was from large cities to smaller cities. Think of it as from New York City, from the New York metropolitan area, a lot of it to the Sunbelt to places like in Florida, in Phoenix and in Arizona. That whole south of the US is attractive and especially smaller cities in the south have attracted a lot of population from large cities. And just to give you couple of numbers, Manhattan lost 200,000 residents since March of 2020, which is, that's the most of any county in the United States. If you add Brooklyn and the Bronx and Queens, New York City lost 350,000 residents. That's a big number.

Now how do we know this? We know this from lots of new data, cell phone, ping data. Whenever you go somewhere Google captures you. And so we know we can track people. We also know that from United States Postal Service change of address data for example, and this migration was much stronger for people who were able to work remotely. So mostly professionals, many of you and also people that sort of had the means of moving. So the economic means of moving to rent another place, maybe buy a house. Now, what was the effect on real estate? Well it was very clear the demand for real estate went up in the suburbs and in the smaller cities that pushed up prices because in the short run supply was essentially fixed. And we sort of saw this large change in urban relative to suburban house prices and house rents.

So that's sort of a first stylized fact. Next I want to talk a little bit about the office market. So the office market is sort of ground zero for remote work and it is an important asset class because it's sits in a lot of institutional portfolios, a lot of commercial real estate. The average institution allocates about 10 percent to commercial real estate of that, a lot of it is office. And so that sort of has aggregate implications as well. And it's important for not just for equity investors but also for debt investors, for banks, investors and commercial mortgage-backed securities. And it's important for local governments and we'll talk a lot more about that with basically local property tax revenue is an important source of tax revenue for local municipalities. So in this paper that I wrote, which is somewhat ominously titled The Office Real Estate Apocalypse, I guess I deserve my title.

In a nutshell what we do is we sort of document what has already happened in the last two and a half years to rents in the office market. And in particular what we find is that sort of the leasing revenue from existing office buildings has fallen about 20 percent already at this point. What we also notice is that a lot, and many of you who work in real estate will notice leases are long term in nature. The average lease in New York City is seven and a half years. There's some leases that are 10 and 20 years. And so what that means is that a lot of leases have not come up. A lot of leases that were outstanding just prior to the onset of covid are still with us today because they have not come up for renewal yet. In fact, only about a third, 36 percent to be precise of leases outstanding in December, 2019 have actually come up for renewal in 2020, 2021 or 2022.

What that means is that as bad as the drop in leasing revenue has already been, the second shoe is yet to fall because there's all these leases that are still outstanding. And moreover, some of the leases that were coming up for renewal in those three years actually were renewed for a very short amount of time, two years, three years. So we see a large increase in the share of short term office leases. So we sort of have a lot of risk going forward, lease renewal risk in the next several years. So that's now what that means is that, so what we do see is that sort of new leasing activity is very, very slow. So every quarter of fraction of leases rolls off because they're off up for renewal. And then the fraction is the question is what fraction is getting re-leased? And what we see is that new leasing activity has fallen by anywhere between 50 and 80 percent across cities in the United States. So for New York City that number is 54 percent, for San Francisco, 70 percent drop in new leasing activity on an annual basis. So what that means is that with sort of a lot of new leases rolling off and not being renewed, the contractual vacancy rate is going up; occupancy is falling. And so occupancy levels are now at the lowest that they have been in 30 plus years. So in San Francisco the contractual occupancy rate right now is something like 75 percent. So 25 percent vacancy, in New York City it’s 23 percent vacancy -- highest since the beginning of modern data. So what we do in our paper is we then sort of ask what do these leasing trends imply for the value the of office assets? So we're sort of coming up with a model to value office. And so long story short, what we find is that sort of the aggregates, and we do most of our work for New York City, that the aggregate value of all office in New York City to the best of our ability has fallen by about 40 percent. Okay? So that's sort of our headline number: 40 percent drop in office values. Now I don't want you to say it's exactly 40 percent, I want you to think of this is 40 percent with a lot of risk around it, there's sort of a whole distribution around that 40 percent number because, who knows, we might be going back to the office or we might be stuck in remote work for the next 10 years, depending on what happens. Maybe it's less than 40 percent, maybe it's more than 40 percent, but our model gives you a tool for thinking about the risk of that. The other important thing that comes out of that analysis is that there's really sort of a tale of two markets. There is the A+ market, as we call it sort of the best quality most monetize news office buildings. They're doing considerably better than the older product, the class B, the class C office, which I really think of as a stranded asset. So if you combine higher interest rates, climate regulation, remote work, that really is sort of a triple headwind for flag B and class C office. And in my mind that sort of makes that the value of those assets essentially -- I don't want to be too dramatic -- but close to zero, close to the value of the land, that sort of idea of flight to quality.

And then, so the last thing I will say is that Big Tech was a big supporter of office demand in 2020 and 2021 and sort of build out the market at least a little bit, and that has now fallen away: Facebook, Google and so forth have sort of withdrawn from the market. They're giving off office space, they're actually taking huge write-downs accounting write-downs to get out of their leases and they're firing people. So as the economy is heading into recession, one of the easiest ways for CFOs to save cost is to just not renew an office lease or renew it for half the amount of space than the old lease. So as long as people are not dramatically less productive working from home, it costs money to put them in an office and it's a very low hanging fruit to cut expenses.

And even companies that are doing well that are making money are in the process of basically rationalizing their office footprint. And we're seeing this sort of play out right now in spades.

Just sort of looking beyond office. Urban retail is sort of in the same boat as urban office. It's doing just as poorly. If you look at leases, leasing, revenue, net effective rent, all the trends are the same, even quantitatively for urban retail as they are for urban office. And so I'll stop here, but we could, there's a whole debate that we will have on what does all of this mean for cities and for property tax revenue and so forth. But we'll come back to that later.

Meier: Thanks so much. So before we go to Julie, let's go to Nick. And so what do you see on the ground? You're like in that business and you deal with it day in and day out for the last many, many years, including through the pandemic. So Nick, what do you see on the ground that from your experience?

Nicholas Bienstock: So I would say I agree with many of the things that have been said. I don't think kind of the Dr. Doom philosophy, having lived through multiple, multiple severe crises and managed our portfolios through multiple crises in New York. I came of age in 1989 in real estate doing workouts as a crisis in national real estate that hit New York at that time. The Asian debt crisis hit New York in 1998. In 2000, the dotcom bubble burst and melted down and hit. In 2000 9/11, then the global financial crisis 2008-10, hurricane Sandy 2015. And then Covid. I think New York does have a remarkable capacity across multiple crises of different types to recover. That being said, I actually agree with a lot of the things that you've said. I think some of these issues are different than some of the issues that we've dealt with in the past. To wind back and kind of look at the last three years, obviously everyone remembers New York was in the heart of the pandemic for a period of time. Everything shut down, policing shut down, construction shut down, and the market was a really sort of tough period. At that time, I think there was an expectation in the business on the business side of the business that we were going to go into a default cycle I thought. And we were one of the most active players in the city of New York in following the global financial crisis in debt-to-equity players where we went in and we bought defaulted mezzanine loans and first mortgages and where the equity at that time we acquired about 4 million square feet of real estate through debt to equity strategies. A lot of people like folks like Savannah were thinking same thing's going to happen in this cycle and it really didn't.

Now why didn't it? I think there were a couple of reasons. One that time the financial institutions were the problem. The financial institutions were in distress. The fed was pushing financial institutions to get bad assets off their balance sheet and to recapitalize. And this time the financial institutions were in pretty good health, and they didn't need to do that. And in fact, they looked at their portfolios and said, when we did that back then we transferred a lot of wealth to people on the other side of the table. Let's not make that same mistake. This is a pandemic; we're going to come out of it at a certain point in time. And sure enough, by 2001 that seemed to be happening, people came back to the city, restaurants started to get full leasing, started to pick up and all the metrics, if you look at it, every graph was going in the right direction. Occupancy was coming back in by the end of 2001, I think, if you look at leasing averages, we were back to normalize leasing averages in terms of per square foot leased. If you look back across time.

So the market at the end of 2001 was absolutely in a recovery mode. Nobody expected that then there was going to be a capital markets crisis. And so we went into 2022 and all of a sudden interest rates spiked more than doubled and that led to another blow to capital stacks that were already precarious. And that has continued and it's gotten worse over the course of this year. And as we go into 2023, I think we're going into a default cycle now we're going into a cycle where every day if you pick up the paper, Brookfield is giving assets back, RXR is giving assets back. Vornado is, Blackstone, too. The biggest baddest players in the industry are literally handing assets back to their lenders. So I think we're going into a period which is going to be a distress period in the next 12 to 24 months.

And I think that's going to create distress across particular assets. But it's not evenly distributed, as you said that what is clear in the post covid world is that better assets in better locations closer to transportation are doing relatively well and secondary assets in secondary locations that need work on their air handling systems and don't have the kinds of amenities that tenants are looking for are suffering, are disproportionately suffering. So we have a portfolio today of about 7 million square feet in New York. Our assets in and around Grand Central Penn Station, on top of transportation that are improved, are doing pretty well that we're leasing. I think we've done almost 2 million square feet of leases this year and we're, we're probably 12 percent off our original proforma. But the market rents in general across the market are down 30 percent.  I think Coldwell Banker Richard Ellis just came up with a study that looked at better assets in better locations and they're only down about 12 or 13 percent.

So the pain is not evenly distributed, it's unequally distributed. And as we look forward we see that continuing businesses are making money, businesses are doing well. A lot of people want to bring their people back to work -- generally Tuesday, Wednesday, and Thursday. And when they want people back to work, they want them all back to work, they want them all back to work at the same time so that they can have the kind of collaborative relationships that are so important to so many businesses. So in a weird way, I think the occupancy statistic that we're sort of average occupancy is almost is less relevant today.

Tuesday, Wednesday and Thursday are back to close to, and many of our buildings close to pre pandemic levels. Monday is later and Friday is empty. So you almost need an occupancy statistic that that's what's relevant is do people still need to work together? And if they have to work together, they want to work together at the same time so people are coming back at the same time. And as we design spaces for tenants, we're designing it to reflect that. So there's more open spaces, there's more conference rooms, more collaborative spaces, less individual office spaces. Because, again, when people are bringing their employees back, everyone has incorporated a remote component to work, a work from home component. But when they're back, they want people to be together and intermingling. So, I would say I agree with a lot of what you said in terms of what's happened in the market. I think we are going into a tough period and a default cycle period in the next 12 or 24 months. The only other thing I would say is with respect to the out migration, we started a business in southern Florida, we expanded our business to southern Florida three years ago, and I was there yesterday. It's booming. It is booming. People are in a good mood, the business is great, they're signing leases, they're selling apartments. But what you're seeing, you know, read it in the high-level statistics, but people are leaving for favorable climate. We're going for a more favorable tax environment, a more welcoming business environment. And you're seeing a lot of people leave from New York. We're building a 1.6 million square foot condominium on in West Palm Beach facing Palm Beach. It's a big, big, big project. And so we're marketing everywhere.

We launched marketing about a month ago. Where are the buyers coming from? We've hired Douglas Elliman, they're marketing New York, New Jersey and Connecticut first and foremost. And after that, California, right, they're coming often from higher tax, highly higher regulated jurisdictions and they're moving there. Now, not everyone is moving permanently, but I'm seeing lots and lots of people I know are moving. They're buying a place, they are opening a satellite office and part of it is technology. Part of it's that we're all so comfortable today with now Zoom technology. I can go down, I can spend two days a week working down there and not skip a beat. So Zoom technology has allowed people a greater level of flexibility in their lives and the way they live and the way they work, and that has been to the benefit of a lot of these secondary, what used to be secondary locations, that are drawing away frankly some of the wealth and talent of New York.

I'll just say one more thing: West Palm Beach is building today 1.8 million square feet of office space and they're drawing a lot of firms down there. And in Miami they made an announcement recently: Blackstone is moving to Miami, with 40,000 square feet. That doesn't even move the needle in New York. The mayor of Miami came up to New York a couple of months ago and Greenberg, Trager & Herbst, LLP is a law firm, we do a lot of business with them. The mayor of Miami came up and he wanted to meet some people in the real estate business in New York. And so they set up a meeting and I met a guy named Suarez, very charismatic. And he came in the room and he said, look, I'm going to keep taxes low, I'm going to keep the city safe, I'm trying to encourage business. I'm here to encourage you guys to come down and do business in Miami. And he was very persuasive and a straightforward guy. And at the end of the meeting I said, Mayor Suarez, if JP Morgan needs 500,000 square feet and they want to hire 5,000 people, can you accommodate that? And the answer was basically no. Yes, they can accommodate Blackstone opening an office for 40,000 square feet. But the infrastructure of global business exists in New York, and the talent pool exists on a scale and to a degree that no other place in the United States has it. We negotiated the lease a couple of years ago. This a sad story. Amazon was going to occupy our building in Long Island City as their headquarters. We spent a year with the Amazon guys like negotiating that lease. They were not coming to New York because they particularly wanted to come to New York. It's expensive, it's not so easy to do business. They were coming here because the talent pool was here, because they could hire 50,000 smart people and we had the infrastructure to come with them. So I think both, you know, can have opposite sides of the same coin. You can have some of these southern markets thrive and polks and businesses in, but at the end of the day it's around the margins that the major companies of the world who need the incredible talent pool and infrastructure here that we have, I think almost have to be here, need to be here. And one of us, two kids who just graduated from college, every single one of their friends wants to come to New York, they came to New York, they're coming to New York, everyone wants to be here. One of them had to go to Chicago and was trying to transfer to New York. So I think it's that ultimately that's the saving grace of this city. I think people want to live here. I think they want to work here, and I think the city is and will come back, but I think it's going to be a bumpy road for the next couple of years.

Meier: Thanks. So what I hear is on one hand there is this very challenging situation, but also there is an asset;  there is something about the city. And I think that's what Julie and the task force kind of did to figure out. And you just told me in six months, six months from start to end, you came up with a 40 point plan. So Julie, what is it that will save our lovely New York City?

Julie Stein: Thank you for setting up my part of this so well because I think you've done a really nice job both sort of laying out the challenges and also the opportunity mean, one thing I'll say before I dive in is that there used to be a model where people would move to where the businesses are now, businesses move to where people are. And so cultivating talent is really where it's at. And being a place where talent wants to be is really magic sauce.

So I'm going to run down what we have been up to. So as this story has been told, the pandemic has obviously changed everything. How we work, how we live, how we play. And as a result, these new trends that you so nicely laid out for us have been introduced to the city. It's about changing expectations of how and more people work, how many days in the week employees and employers expect people to be in the office, which has huge impacts on office spaces as you laid out.

But also of course the commercial ecosystems that in our business districts that have traditionally revolved around those office workers. And that has huge implication, potential implications on our tax revenue because business districts in New York and elsewhere are the fiscal foundations that all municipalities run off of. And that revenue from those business districts powers government spending on social infrastructure, on physical infrastructure. So even if you yourself don't work in midtown, don't live in down work in downtown, you need to care about what's happening there because your library, your senior center, your education, your roads, all that stuff is funded by this center of global commerce that's happening in Midtown. We also know that the trends from the pandemic exacerbated existing inequalities. This is true from the health outcomes of the pandemic itself and also in terms of the employment recovery that we've seen.

So the jobs in New York City are still down from 2019 levels. This is especially true in sectors where low income workers up are primarily employed like food and beverage. We also know that unemployment is up -- that is particularly true for black and brown New Yorkers. And this is sort of the starting point that we started our work at the New York Panel. I also want to say there are positive trends that we are seeing, so that's important context. New York City private sector add added two 20,000 private sector jobs in December alone, that's s capping 11 months of consecutive months of job growth, which is good. And since Mayor Adams started in January of 2022, we've seen an additional 199,000 jobs added in New York City. So nothing to sneeze that. We also know, and this is a really interesting stat, that new business formation is happening like crazy in New York City. There have been 32,000 new businesses that have been formed in the last year. One in nine businesses in New York City has been formed within the last year, which is a fascinating statistic. So 2022 has been a sort of banner year for us because people want to be here.

So I think the context that you've laid out and actually the point that you made when you started is that New York City's success over time has really been our ability to convert crisis into opportunity. You gave, I dunno, 15 examples probably, but I think one of the ways that this city distinguishes itself from other places are our ability to bounce back. And Mayor Eric Adams and Governor Kathy Hochul saw a similar opportunity in this moment post pandemic and tasked us the New York Panel with reimagining what a New York could look like. And so in June of 2022, we brought together 59 civic leaders, industry experts to be on a blue ribbon panel. The goal was to leverage this sort of, I dunno how much you guys know about city state politics, but you leverage this pretty unique moment in city state, governor and mayor alignment to build a coordinated joint plan for the recovery and resilience of New York City and the entire interconnected down state region. The initial charge of the panel was to revive our business districts, but we very quickly realized that we would actually need solutions that address a much wider range of interconnected challenges affecting all New Yorkers in this world where people can vote with their feet, we really needed to answer the question, why should they work here? Which led us to the conclusion that we needed to make New York the best place to work no matter what you do or where you work. And to do that, to your point, you really need to make New York the best place period.

And so that was sort of our framework going in into our recommendation. So in December, six months, as I was saying, six months to the day from when we kicked off to when the governor and the mayor announced adopted initiatives of the mayor of the governor in December we released this 40 point plan that was organized under three key goals, which I'll walk through in a minute. But I think to underscore, I always want to make the point that the plan is multi-dimensional. It is interconnected, it goes beyond traditional economic development levers towards recovery. It acknowledges that there's no single silver bullet, that there are a number of things that we need to do across multiple dimensions in order to make the city the best place to work in the best place period. And fundamentally, the plan talks about how we need to not just recover, but we need to evolve.

We need to make sure that the city is better positioned moving forward into this new world, the stuff we know and the uncertainties that we don't know. So the plan has 40 points, some of them are legislative changes, some of them are budgets, some of them are just agency actions, things that need to be enacted. Some are city, some are state, some are federal. And really what they're all meant to do is be catalytic public actions to induce private investment. And so there's the part that the public sector has to do, but of course there's also the part that the private has sector has to do to reinvest in the city and together we bring the city back.

So I'll just run through quickly the sort of three goals that span a number of different things, but I think most importantly it really talks about this interconnection, which you'll see.

So our first goal is about reimagining our business districts as 24/7 vibrant destinations. This is about shedding our old ideas about single use business districts and supporting their evolution into great places where people live, work, and play. In 2023, this may not be rocket science, but it's certainly not the way that Midtown currently functions. It is what was very successful in lower Manhattan, but it will take a fair amount of change in order to bring that type of success into midtown. So we identified under this goal for interconnected strategies in order to achieve this live work play environment. The first one is making sure that our city and state regulatory environment is flexible and conducive to evolution of the land use in the building use so that it can evolve to this modern context. And that's about making sure that we can bring more residential into our business districts while still keeping them global hubs of centers of commerce because that is our unique competitive advantage.

We also want to make sure that we have updated and updated and common sense regulatory rules that govern the use of our commercial space. Because right now, for example, there are certain commercial districts where you can have a restaurant but you can't have a caterer. You can have a bike repair shop, but not a bike rental shop. There's just all of these are camping. This is the moment for us to update our regular code and get the rules out of the way so we can evolve. And one of the things in this that I I'm sure we'll talk more about is the residential conversions. And it's a very hot topic and I think we were talking about it before the panel started. We want to make sure that when it makes sense that where it makes sense, the rules are out of the way so that we can convert outdated office space to residential use to both soak up some of that excess vacancy but also bring more foot traffic into these business districts.

And one footnote I want to say to the point you were making about flight to quality is that yes, we are absolutely seeing a flight to quality and more stranded assets in the lower quality, but I think that it's important to acknowledge the market segmentation that's happening, that there is a flight to quality in class A flight to quality in class B. There's a flight to quality in Class C and those class B and Class C office spaces are actually really critical for those sort of like bread and butter, New York City businesses, your lawyers, your medical offices. There's a lot of people who actually need that office space. So our prediction is not that you're going to see everyone going into the most modern class A, you're going to see everyone flight to quality within their class. That market segmentation is key.

A second key catalytic investment under this sort of live work plan framework is about investments in permanent beautiful public space. So this is your capital improvements to make places more pedestrianized to make just world class public space. When you think of Barcelona, you think of Paris, we have some of that here but not in midtown and we want to make sure we are making investments that make them pleasant places. One of our co-chairs at one of our meetings was making the joke that he loves to walk, he loves to walk all over. New York City never wants the same thing to walk the mid down. And that that's telling, right? We think that these type of capital improvements will encourage some of the residential that we want to see. It will also make commutes feel safer for people who are coming in through our transit hubs in those locations. And also we know that people want more outdoor space. Workers want more outdoor space to do business, to have meetings, to have networking. Those interactions, the more capital improvements and beautiful streetscapes, it encourages all of that.

Third, under this umbrella, we also need to improve our quality of life issues. We in this one talk both about sort of sustainability like reducing emissions and other polluting sources, local L 97 and other retro retrofit commissioning in order to make bus buildings more sustainable. But this is also sort of your typical clean and safe quality of life. Get the garbage bags off the streets, get the sidewalk sets down. Just common sense stuff that we in New York have become too used to just living with but are frankly unacceptable. And this is the moment in time for us to do something about that.

And then fourth on the dose umbrella, we want to make sure that you know that we have this long term view on making these 24/7 business districts, but we also know that some of them need a shot in the arm in the short term. So this one is about bringing activations in the very short term programming, arts events and other things that really drive foot traffic now, especially on like a Monday and a Friday when people may not be otherwise will come to the districts.

Our second goal is about making it easier for New Yorkers to get to work. This one is both about improving our transportation infrastructure so people can get into our business districts, but at the same time acknowledging that people are going to want to work closer to home. And so also making investments in a fiber economic development plan that has workspaces and closer to home and also other employment hubs, whether it's anchor institution-oriented transportation, institution orient, anchor, institution oriented because people are going to want to work in all five boroughs and we should encourage that. What I really like about this one is that it really acknowledges that the future of work is hybrid, which is I think the first time maybe that the governor or mayor actually acknowledged that and it draws on the strength of being able to work from anywhere, but also the same time saying, we just need to make it easier to get to work no matter where you are.

And so under this we have a number of different strategies around improving our subways, our trains, our bike infrastructure, reducing cars and truck congestion so we can make, which is a requirement for a number of our other recommendations. And then also investing in these five employment hubs.

Our third and last goal is about generating inclusive future focus growth. This one is about supporting jobs and innovation, but also breaking down barriers to economic mobility. It's about diversifying our economy to make sure that we are more resilient to future shocks while also making sure that we're investing in future focus sectors like climate adaptation green economy, offshore wind life science. And this one is also about acknowledging that we need to confront our housing crisis head on. This was one of the most interesting moments for me during our entire panel process. I think it was the very first meeting a tech leader stood up and said, if we're not talking about our housing affordability crisis, what are we even doing here? If companies cannot reliably, reliably house their people here, it doesn't matter what else we do. No companies are going to want to come here because they need their employees to be stably housed. And so that the housing piece, even though maybe it seems a little bit different from where we started with our business district recovery, is really a core piece and is actually a huge part of the governor's legislative agenda this year. And then last but not least under this goal is about ensuring that access opportunities is fair and equitable. So this is one's about removing barriers or labor force action such as making sure that childcare is more accessible quality, a higher quality, more affordable. This one is also about making sure for example, that people with disabilities don't have make a trade off between keeping their home health aid on Medicaid and entering the workforce. So we're trying a legislative fix around that. This one's also about making sure that workforce development is aligned with real industries in the future and making sure that bipoc entrepreneurs and mwb businesses have better access to opportunity.

So it's a lot, it's 40 points. I'm happy to in q and a get into any of them, but I just wanted to do an overview of the strategic framework around it.

And then the last thing I'll say is we've really hit the ground running in implementation since it started in December. The New York priorities were well represented in the governor's state of the state address and in her executive budget, fingers crossed that the politics play out in our favor and we actually get a lot of those through at the end of that process. We also were excited to see the mayor lift up a lot of these priorities in his state of the city a few weeks ago, including a 375 million investment in some of those public realm capital improvements that I was talking about are really important down payment so that private sector knows that we are serious about making our streets more livable.

We're also, of course going to need a broad coalition of leaders and organizations in everyday New York to lift this up. A lot of these, as you hear me talking probably sound like a very common-sense changes, but yet they have many political hurdles. So we are looking for folks for whom this stuff resonates to make their voices heard with their legislators through the political process with their friends, because we really are going to need to get arm and arm to come together for the recovery of our city so that we aren't in a doom spiral. And I'm happy to take more questions.

Meier: Thank you. Thank you Julie. I'm much more positive than my colleague. So a lot of potential private sector. I mean what I find interesting as well, like private initiatives, maybe ideas that people have. So let me open it up. I mean I could go back to all of you, but let's open it up and take some questions from you all for either one of the three or all of them at the same time.

Question: You kind of mentioned Julie about taking away a lot of the regulations and pieces to make things like businesses come back, but are we making changes and taxes because how do you make the tax situations corporate taxes in Florida are so much lower, that's a huge incentive to go to these other southern states and then yeah, so what do we need?

Stein: Yeah, we didn't make any specific recommendations around business taxes for example. There certainly are certain development and property taxes and things that encourage some of the development that we want to see, especially around housing for 21 A and whatnot. I mean I think the article that you quoted in the beginning about the plan, all talks about cities are for people who want to be there, and I think that's kind of true. It's like is the juice worth to squeeze? Sure, some businesses going to move their business because for them it makes sense. New York City's got a competitive advantage. It has no number of competitive advantage in our talent. So we did not address corporate taxes head on. I think we think that this package is the right one for this moment.

Van Nieuwerburgh: Can I say something about that? So just to follow up, I mean very much admired the plan that New York City put together in an analysis comparing to different cities, New York City is sort of on the vanguard of having the most coherent response of any major city in the United States. So I applaud them for that. My overarching question though, after reading this report, which is similar to yours, which is how much is all of that going to cost and where is the money going to come from? And so that's sort of ultimately a question of taxes because if property values indeed fall by 40 percent, then you know can do the math that that's a $5 billion hit on a $100 billion budget. So that's a 5 percent budget deficit just from the commercial property tax reduction. And so the question is which other taxes are going to go up or which spending is going to going to get cut in order to make up the difference because cities have a balanced budget requirement. And so that's sort of related to your question, are residential property taxes going to go up? Well that's not going to be very popular. Are we sort of coming up on an election? I would be surprised if we're going to raise residential property taxes, but the math has to add up.

Question:  And the part two of my question that I forgot for a second real quick is development regulations. So are we changing all of these conversions? Everything New York City takes a long time to do development here. Are some of the regulations are going to change?

Stein: I mean that's the hope. So someone before we started was asking how difficult is it politically to do it? And the answer is somewhat, and it depends where. I do think that the political wins are shifting, especially around a lot of the housing pieces of this. I think, I don't know that it's just the way my Twitter feed is cult like curated, but maybe if just it does feel like we're in a ground soul moment, it feels like there a thing that used to be very politically difficult to say about bringing on more housing and bringing those people in. People are willing to dive into those development politics a little bit differently than they were. But sure, I mean you're going to have your state changes that are going to be made followed by the city, changes that are going to be made by based on, followed by the business that's going to need to happen.

And then the development process so that this is not a short term fix, this is a near median effects best case scenario: someone already has the project lined up, but that's not going to be the case, which is why we're looking at other things in the shorter term to sort of bring on those changes. But yeah, I mean this is about the evolution of the city towards a future that we want to see and an optimism that we want to get there. It can't only be a development is never going to solve our problem and always has a lag time. I don’t know if you have anything you want to say about that.

Meier: I have a question on this. How easy is it to convert? Nick and Stijn: how many can we convert? How easy is it? How expensive is?

Bienstock: So just brief briefly to comment on the prior top. New York has a difficult place to build. We've been doing it for years. We've been doing adaptive reuse conversions, we've done ground up development and it's difficult, but it's also one of the biggest and most attractive markets in the country. So there's a tension between if you can put in place the infrastructure and the expertise to be able to build in New York where you can do some exciting projects. And one other thing I would touch on, we talk about New York relative to other cities, is business diversity. San Francisco is kind of a one-trick town, and so it's worse than what you said. It's 25 percent vacant, but another 20 percent is sublet is on the sublet market. Forty-five percent of the city of San Francisco is available for rent because it's a one-trick town. It's all about the tech companies. New York is the most diverse business base of any major city in the United States. I mean the techs here and we've got the finance industry and we've got professional services and we've got advertising; we've got media and we've, you know, name it. So I think that helps us as we come out because you can kick sort of one leg from the stool and others are still in good shape.

Going to the second question, the residential conversion, it would be terrific and be great for the city if we converted some of these old buildings to residential uses and we will, but it's not something that can be done easily on a large scale. So just to walk through some of the issues, you know, look at 10 different office buildings, maybe one out of 10 just can be converted to residential because you've got to have the right floor plate and you've got to have the right fenestration. It has to be in the right location. So just a physical, the floor ceiling height, access, egress. So if you just look at 10 buildings, maybe one or two or suitable, all things be equal for conversion. Then if you look at the math, just simple math for cost to revenue and expense. So if you start from the revenue side, so if at the end of the process, after you've converted the building, if you're lucky, you'll get $90 per square foot for the rent in rent and you'll have approximately $30 a square foot in expenses. So you're going to net 60 bucks a foot. And again, that's including real estate taxes. If you're lucky, it'll be valued at a five cap at the end of that and you'll have a building that's worth $1,200 per square foot, but you won't because actually there's a loss factor. If you convert the building as an office building, you lease a hundred percent of the space as a residential building, you lease, you lose about 15 to 20 percent of the space when you convert. So you're actually, your leasable space is about 85 percent of the gross. So your million, your 1,200 bucks a foot converts to a little over a thousand bucks a foot. That's what your building is worth if you're successful at the end of the process and it's going to take you four years, it's going to take you four years because it's a year to plan two to at least two, two and a half years to convert and then a year to say, so four year project from start to finish.

This is among the most risky things you can do in my business. You're buying a vacant building -- maybe it's vacant, maybe it's not, that's a separate issue -- but you're hopefully buying a vacant building and then you're spending years of I'm spending God knows how much risk capital to convert it and then eventually you're hoping it's going to lease up at the end of that process. So that's at least 25 percent money, maybe more. But so if it's going to be worth a thousand bucks a foot at the end of the day in order to get a 25 percent return on it, if you do the math, you have to be all in at maybe 600 bucks a foot, a little bit above that in order to get a 25 percent return on your equity, which is probably going to be 35 percent of your total capitalization.

So that's the revenue side. You need to be in it 600 bucks a foot. So what does it cost? Average conversion cost being $200 and $400 per square foot of hard costs, right? Let's pick $300 in the middle, then it costs another $200 in soft costs, especially with interest carry being twice as much as what it used to be. So the conversion costs of the average building are probably $500 a foot. You have to be all in at roughly $600 a foot. You have to buy the building for a hundred dollars per square foot. Aren't that many buildings that are for sale for a hundred dollars a square foot, and you also have to buy it vacant. Very, very few buildings are entirely vacant. It actually costs money to vacate a building and that leads to uncertainty in the process. So in order to make the numbers work … now every building's different. Maybe some the conversion costs is a little bit different, maybe some, you are in incredible locations and you'll get more than 90 bucks a foot. So there are characteristics about individual properties that can change those numbers, but that's kind of an average, and that's why the numbers don't work. In most cases, you almost have to be given the building in order to make the numbers work.

Stein: I think it's just like the scale of what's actually anticipated to potentially happen is very small, is in the throes of the pandemic. It seemed like such a no-brainer. Oh, of course you should do this, but you actually, so the city just completed what was called the Office Adaptive Reuse Task Force, which made recommendations for actually how to make it easier to do this on the regulatory side, and of all of the common sense changes that they want to make that are actually up for consideration right now, it only brings about 250 additional buildings into the realm of possibility for conversion, and it only anticipates there's like 20,000, like generously 20,000 units, to convert over the next 10 years. So we're really talking about a niche market for this

I think what's really exciting about this conversion is that potentially with the opportunity of some incentive for affordable housing to actually get affordable housing in business district locations where actually there's very little opportunity to otherwise have it. And I think that's sort of like the key opportunity is not just housing, but income restricted, affordable housing in areas where it's otherwise difficult to bring it up.

Van Nieuwerburgh: I hate to be the party pooper here, but if it's already not feasible with market rent housing, how will it be feasible with affordable housing? I'm all for affordable housing. I've done a lot of research in affordable housing. I'm the biggest affordable housing fan, but it's not economically feasible for market rents or the subsidies would have to be absolutely enormous. It sort of gets us back to the question of where is the money going to come from? And I think that's sort of the, and to Nick's point, I mean Nick is absolutely right. I mean the obstacles are sort of tremendous. There's physical limitations, there's economic limitations, there is, there's regulatory barriers. And this conversion is not a new idea. I mean just yesterday or today and a big new conversion opened up in New York City, One Wall Street. It started five or six years ago, long before Covid, and it took five or six years to Nick's point. And he did it successfully. But it's all ultra luxury rentals, as you might imagine, condos and rentals. And it's certainly not affordable housing. And I don't know what the economics of that building will look like. If you look at the numbers over the last seven years 1 percent of the office stock has been converted to apartments. And if we're very lucky, we can convert another 1 percent in the next three to four years. That's sort of the numbers we're talking about here. So this is not a panacea to the problem. I mean, I agree with, that's sort of the direction we need to go. We need to make New York City a place where people want to live, not necessarily where people want to work. And that will require conversion or creation of new apartments. But office to apartment conversion is complicated.

Stein:  At the same time, we are also trying to pursue the lifting of the, what's called the 12 floor area ratio cap, which would allow denser residential development in areas where it's appropriate. And this is an area, this is an opportunity to make the change fundamentally change to the economics of redevelopment by adding value and giving more value for developers. And so we think, of course the conversions are one path, but for an outdating office, outdated office building, having another tool in your toolkit of redevelopment where it makes it easier to pencil is another opportunity we think sort of goes hand in hand.

Bienstock: To me, that's a tremendous opportunity that the city has at zero cost. The city with a stroke of a pen can change zoning laws and can allow taller, denser buildings in an ar. Now it's not so easy. I know there's community, there's process, all that, but just in theory by allowing greater density of development and a broader latitude of use groups in particular locations in and around major transportation, I think that's the kind of thing that could really be innovative and can spur construction.

Stein: And this is a very little known fact that the state actually controls how much residential density we can build. The state does not have any control over the density of any other use type except for residential development in New York City. And so it, it's capped at 12, it's in front of the governor's budget this year to look that it was last year as well. There's a stronger coalition coming back for it, but we would still need to make changes at the local level in order to enact that local zone change. But we have this additional hurdle at the state level that we're hopefully going for this year.

Van Nieuwerburgh: Another little change, but this may be a much smaller magnitude, is a developer, a friend of mine was telling me that he was converting an office to residential in Washington, DC and sort of New York City has a law that if it's a bedroom, it must have a window that turns out to be a law as far as I know, only in New York City in DC that's not the case, for example. So there are places that do not have that rule. So what can you do if the bedroom doesn't need to have a window while you could build a bedroom in the interior of the building, which sort of dramatically reduces your loss factor and you can build a nice big bedroom with a big closet. And it turns out people love these types of apartments and he did very, very well on that development. So small things like that, that's sort of with a stroke of a pen, this could be changed and it would make some conversion sort of feasible that otherwise would not be.

Question: I haven't read the plan, but one thing New York has led in, and one of the reasons that I came to live in New York is the focus on sustainability, local I97, regardless of how it plays out with how much fine and all of that people see, where do you see that effect in office development, workplace development, reading recently that one Vanderbilt is already behind, right? Because it has so many gas fired appliances and the move to electrify. How do you see that coming in to where we're headed in the next five to 10 years?

Stein: Yeah, absolutely. I thought it was interesting, I can't remember which one of you mentioned this, but talking about on the flip side of that, when the buildings can't meet it, how it further brings the lower quality buildings behind. I mean I think the flip side of that is exactly right. I mean tenants, and maybe you can speak to this, want to be in the best buildings and that is about especially coming out of the pandemic, the best air quality, the best sustainability. They want the amenities and the features that they expect. I think us also recognize that there are certain challenges to achieving local L 97. And so one of the things we're looking at is whether there's a way to do innovative financing through some sort of consortium, public private consortium, in order to get people where they need to be. But we think it's sort of part and parcel with this quality-of-life concept, which is that in order for these to be the best buildings that are going to attract people back into the office, you got to be right with state of the art on that side.

Bienstock: An incredible change in the business in the last 10 years. I would say 10 years ago people didn't pay a lot of attention to very few firms, paid a lot of attention to sustainability issues. And we've seen year by year become more important, more and more important on almost every side. And I'll start from our investor base. We raise money from pension funds and insurance companies, raise money from European pension funds, which is where kind of the initial with APG as a Dutch pension fund, major investor of ours, starting about maybe 10, 11 years ago, they started requiring us as part of their investment in our limited partnership and agreement, to track sustainability metrics across our portfolio and GRESB, the global real estate benchmarking system is kind of the measurement system that most institutional investors use. And it's scored out of a hundred, I think we were a 30 the first year, which is not, by the way, not is a good score. But every single year what we've found is as we raise capital for funds, it's more and more important to more and more investors that we not only are show able to show improvements across our GRESB scores, but that we have policies and procedures in place to address sustainability issues on every asset that we acquire. And so that’s coming from the investor base, then it's coming from municipalities: cutting edge laws that are requiring carbon testing across buildings. Little known fact buildings are responsible for about 40 percent of the world's carbon production. It's on par with you think people think about cars. Buildings are almost as big. So we're seeing it across our portfolio in New York where we're addressing issues to make sure we can hit the benchmarks required as the thresholds go up over time for local law 97 testing on carbon reduction. And then tenants, tenants, I would say still smaller tenants, not so focused, but larger, more institutional tenants want to go to the best buildings with the best policies and procedures that are lead. So again, we're seeing it from almost every aspect of the business. And while 10 or 12 years ago it was lip service, this is not lip service. This is very, very focused sort of investment policies that are implemented across our portfolio and across the place of most institutional investors now.

Van Nieuwerburgh: I think this is very important. The climate focus that you're talking about, that sort of to me raises an interesting possibility of back to our prior discussion on conversion this and the lack of funding and the gap that Nick was talking about in the funding. You could imagine a plan that converts brown class B office buildings into green class A apartment buildings and use federal funding to help with that. So for example, the EPA as a $27 billion fund that was passed as part of the inflation reduction act last year, much of that money is sort of not earmarked. And there's sort of this public process right now for proposals. One proposal is explicitly allow for that money to be used for these type of conversions. And so now you have, we're taking a build, an office building of the market, we're creating housing and we're helping the environment. It's sort of a win-win-win, an optimistic note!

Question: How has the capital raising landscape changed in the past couple of years, especially with respect to office space? What are you hearing from your investor base about the plans going forward and then where ultimately do you see maybe new capital sources coming from that are still interested and see the value in flight to quality?

Bienstock: So I think in general it's been a very, very difficult landscape to raise capital in. Look, Blackstone can always raise money, but I think a lot of the secondary, and we're in that secondary category, it's been a hard environment to raise money. We're about to launch Savannah Fund six, but it is a distress oriented vehicle, a high yield distress oriented vehicle that I think is going to really focus on kind of rescue capital in and around New York City and the tri-state area. And we're getting, I would say a much warmer reception for this, that particular strategy. But I would say in general, there's been so much uncertainty around the office space in particular over the last couple of years that it's been hard to raise money for office-focused investments.

Van Nieuwerburgh: The only place I've seen somebody, some investors mentioned at least an interest in a survey and investing in offices in Asia. I think in Asia sort of there's people live even in smaller places or the office culture is stronger. So maybe that's sort of the only exception. But I think in general, US and European investors want to stay far away from office.

Question: So then how do ultimately the institutional quality office assets in this country trade, I mean, what's going to happen to the price of them and when the owners at some point, one would liquidity in the next few years if nobody on the planet wants to buy office in America?

Bienstock: So I'll start and other people can add, and I would say I think would've used a 20 percent figure, I don't think would've used a 40 percent figure. I would've said office values are kind of off 20 percent, but it's almost impossible to do any kind of a transaction in the current environment because the capital markets are upside down. So if you own a portfolio, if you can avoid it, you are absolutely not selling anything right now. You're trying to hold through this period till capital markets stabilize, ideally, maybe until interest rates come down and you're into a more healthy, robust transactional environment. But right now pricing is opaque. There are so few transactions that it's not clear what kind of deal you can execute. And just briefly, I think come where I think a lot of capital is going to need to be deployed in the next two years.

Again, when I say rescue capital, very quick example, if you owned a really good office building in the heart of Manhattan a year ago and it had a 5 million net income, you would've capped that at a four and a half and your building would've been worth $110 million. And if you had 65 percent debt, which is kind of normal, you would've been carrying about $70 million of debt on that building. And at that time you were paying three or 4 percent interest. If your debt is coming due today, same building, great building, fully occupied with great tenants on long-term leases. If your debt is coming due today and your lender says, pay me the $70 million that you owe on this building, and you say, okay, I'm going to go, I have a great building, it's fully occupied, I'm going to go refinance, it’s very hard to get a quote. This is a terrific building in the heart of Manhattan. And if you get a quote, that $5 million, they're going to apply a 1.25 debt service coverage ratio to it. So you're going to have $4 million of financeable income, and then they're going to price that to a minimum 8 perfent debt yield that gives you $50 million. You owe the other guy 70, and the market is saying, here's 50. So the differential is rescue capital. That's where the biggest opportunity is in the market today because you, if you owe, have that building and you got to pay, you have three options. One is you give the building back to your lender. Two is you come up with $20 million to fill that gap. Not a lot of people have $20 million sitting around in a bank account to just own the same building tomorrow that they owned yesterday. And the third is you go to the market, and you say somebody give me this money, I need it. I'll keep some equity interest on the backend. I'll keep a hope note. And that money is priced at about 20 percent today. So that's kind of the opportunity right now. But if anyone can avoid selling a building right now, there no one's selling a building.

Van Nieuwerburgh: Yeah, I mean I think that's right. I mean, half of the press today, Vornado just gave back 650 Madison Avenue -- 1.2 billion valuation for this building in 2019, $800 million of debt on it. They just gave back the keys. So basically the 400 million equity is wiped out. And that's a good building on Madison Avenue. And that that's Vornado, and Vornado does A+ in New York City. They're a very sophisticated landlord. And it's not an isolated example. RXR, Nick mentioned that Brookfield just gave back sort of a portfolio of class A buildings. And that's the good stuff. Office rates are down, they're trading down 50 percent. Again, that's the A+ stuff, so I think 20 percent valuation decline is very optimistic in light of this evidence. I agree with 20 – 25 percent number for a plus, but I think if you look at everything else, B and C is much, much worse.

Question: Just to follow up with what you were just mentioning, I understand that right now nobody's setting anything because they're not getting what they would expect, but do you think that we're going to reach a point in the midterm or sooner than later than people will be obliged to sell?

Bienstock: Absolutely. Yeah. I mean, that's what I mean by a default cycle. I think we're going into a default cycle and all, when you say give back, all of these are situations where owners are giving their properties back to the lenders and they're saying, you take it. A lender's going to force it onto the market. The lender's going to do a forced sale, and the market will clear at a clearing price. It's happening right now and it's just going to accelerate over the course of the year.

Van Nieuwerburgh: I mean, it usually happens at the time of refinancing. So a lot of debt is tenure fixed. So a lot of the stuff that was issued in 2013, it's now coming due. And sort of the question, the calculation is what's sort of your equity in the building at that point? And that depends on the relative interest rate that you had back in 2013 versus the interest rate that you're getting now. And so the numbers that Nick just walked through is perfect example of sort of the extra money you need to put into the building in order to refinance it.

Bienstock: That's the fixed rate stuff. That's longer term. In the next 12 months, $15 billion of CMBS is coming due in New York City. And then the balance, if you add balance sheet lending, it is probably more than twice that. Yeah. So $30-40 billion of debt is coming due over the next year in the city. And every maturity, every single maturity will have a massive shortfall compared to what the market will bear today.

Question: You two both talked about a variety of opportunities and scenarios in which public and private partnerships are at play. What would you say are maybe the lowest hanging fruit for public private partnerships and then looking kind of further afield at broader kind of systems change plays that would inevitably need to happen? What's your point of view on that?

Stein: We’ve been getting a lot of phone calls from folks that are really interested in what's called lighter, faster, cheaper public realm improvements. And so just one example, we were talking about how long it takes to build anything in New York City, we are focused on getting a bunch of capital improvements in the street, permanent signals that the city is improving. But also there's opportunities for private landlords who have public space on their sidewalks, for example, to just throw up stuff like tactical urbanism. There's opportunities to do stuff that isn't necessarily a capital improvement. It falls short of, in the grand capital improvement is on private property that's public facing, but that has a sort of the same type of impact on the public realm. So I mean, know that's a small example I think in the scale of what you're talking about, but I think that there's a huge opportunity there to really, one of the things that we are seeking is unique in-person experiences for residents, for office workers, for visitors, for tourists.

We want to have a reason to be in these places. Driving foot traffic, driving retail sales and driving that vibrancy that you seek. And so anything that's is of interest changes that street scape environment. So I think that that's sort of very simple tactical stuff. It's hard for the city to do, easy for private sector to do, but with a public base. And we often find that that's sort of true maybe with popups, right? Like popup at a retail store, et cetera. You really kind of need a private sector partner that is more invested in the neighborhood, not just necessarily in a single storefront. You see the people who do the most creative things, every popup lease that you do, it takes as long as a lease that you would do for any retail space. It's sort of a labor of love. And so you see people doing that who have more of a neighborhood view.

And so you look for those private partners to do that type of thing. I think that's one example. Another sort of interesting system change thing that I haven't talked about yet is, I don't know, I don’t know if anyone wants to talk about curb management, but this is one of the things that I'm particularly excited about, the potential for the idea that basically rather than having all of our parking spots dedicated just for car parking, what if we actually changed it to a modular, dynamically priced use in the use and pricing system where you could actually sort of slot in a modular, like a street eatery or a loading zone or a car park. And that stuff changes over the course of the day. That stuff changes based on demand for pricing. There's a real opportunity for us to use our streets and to partner with users in the private sector to better activate, I can't remember the number, it's like 75 percent of our public rightaway is dedicated to car parking, which is insane. And I think that there's a, it's maybe not the sexiest thing, but from where I sit, it just could be so transformational in terms of our experience and also the type of use. I think the pandemic really opened our eyes to how we could use the street differently, whether it's open streets or whether it's open restaurants. And I think curb management takes that to the next level. It's a very sexy thing in San Francisco, but hasn't quite hit New York, but we're hoping to pilot it here. And I think it could have very tangible changes to people's experience, both sort of in the activities that you do, but also your experience.

Bienstock: I mean think you look a bit in New York, some of the things, the city, the High Line completely transformed the west side, unbelievable what that project did. And your example about midtown lacking open space, the most successful area of midtown is Bryant Park. Bryant Park was activated in, its incredible what that did for the entire surrounding community. So I think sort of infrastructural improvements like that the city can make are enormously helpful. And then we've talked a lot about the conversions of housing, if there were some, it's hard to make the numbers work, but incentives can help make the numbers work and could accelerate some of those conversions of defunct secondary office buildings.

Van Nieuwerburgh: I think the other crucial one is public transportation that's about to that that's New York City falls apart without the subway and the subway has a two and a half billion dollar fiscal deficit per year for the foreseeable future. And so I think sort of passing the congestion tolls to fund that I think is sort of a crucial piece.

Stein: It could be transformational both for the funding mechanisms, but also for actually our use of the streets. Yeah, yeah, absolutely. One of the things that we recommend in our report is what, what's called a city ticket, which is a 24/7 ticket right now off peak, you can ride the LIRR for $5, but at the peak you still need to pay full price. But there's additional capacity on LIRR and on Metro North as well because the people coming to the office and also they're bringing in additional capacity. And so if you actually, we've done the math, if you reduce the price, there's actually a sweet spot where you get additional revenue because more people will ride it. And so we're just trying to think really creatively about using additional infrastructure that we actually already have, but in a way that meets the moment.

Question: You mentioned transformational. There's a lot of stuff on the news about potential casinos with the license. Can you talk a little bit about what your thoughts are on that and maybe some of the qualitative effects of what happens to the city if they were to put a casino in the city?

Bienstock: I don't know a lot about it. I, I'm kind of in favor of it. I kind of think it brings life and business to critical central business districts. But I don't know. Yeah, I think, I don't know any more than what you've read in the paper.

Question: What are your thoughts about shared spaces offices like the WeWork business model, and if you think that the pandemic has affected that, how do you see it in the future?

Van Nieuwerburgh: I think ironically, I think the business model I think is going to get new life because there's a lot of small firms out there that don't really need or want, can afford a long term expensive lease. And especially that has that demand for flexible leasing has, if anything, increased in the last few years with remote work with hybrid work. So that doesn't mean that we work will do well. I think that means that a flexible leasing will do well because the truth of the matter is to use a quote from Warren Buffet, what's the moat? What is the moat that WeWork has? I always teach my real estate finance students this WeWork has no mote, therefore the business is not worth very much. And the reason is that every landlord, Nick can be WeWork tomorrow. And it's really not difficult. You can put in a coffee, coffee store or whatever, a pong table in your building that doesn't require WeWork. And so I'm very skeptical about WeWork, but I'm very bullish on flexible adaptive leasing. And I think even going beyond that existing bill, I think there will be contractual innovations in, we talked earlier about Nick's. So Nick's view, which I am not a believer in Nick's view, is that we need the same space as we did before because as long as my workers need to come in on Tuesday and Wednesday, I need the exact same square footage as if they're there every five days. I don't think that's true. I think what will change, what will happen in the future is landlords will be get very creative and using leasing that space with new contracts, with apps. If your small business wants to rent an office in Manhattan on Monday, it'll only a third as what it will cost on Tuesday. And guess what? If we can make it work that you are there on Monday and I'm there on Tuesday, and we have an app for that, we'll figure it out. And so I think that too is sort of, that's good news for creative landlords that can use their building more efficiently. It's sort of very bad news for aggregate demands for office space because we'll be using our buildings much more.

Stein: But it's also really exciting for potential for growth because it actually means that we're not as constrained by our office buildings for the potential for additional business. And so if we can get our housing, it creates a lot more opportunity for ...

Bienstock: But by the way, I don't think that's true either. I think there's just going to be less demand, but I think many, many businesses will have that Tuesday, Wednesday, Thursday dynamic. But I think in the aggregate, you're right, there is going to be less demand. Just one more question maybe.

Question: How are you guys thinking about replacement costs and the ongoing construction cost increases that are going on right now and how that gives existing assets pricing power?

Bienstock: So we're pretty far out in the supply chain bidding. And so I think what's interesting is sometimes we barely have particular insight into the future, but I think we're bidding out several large scale projects right now. And while in the past three or four years, cost always we're growing up, I think we're seeing actually at the sort of back end of when we're bidding for drywall contracts, elevator contracts, foundation, when we look out a year, 18 months, it feels like the cost curve is shifting back. So I think the effect of interest rates, inflation, all that, I kind of see it in our business sort of leveling out and maybe coming down a year to 18 months out. It's an interesting question about whether that gives, just the general pricing of higher pricing of new construction gives an advantage. The older billings, I'm not sure, probably the one asset class in New York City that is held up better than anything is new construction. People are paying a premium for new construction. And now in New York, part of it is it's so hard to add to the supply. It's so expensive and time consuming that when you build a brand new LEED certified gold office building, it fills up and it actually fills up for kind of record high prices. So I’m not sure I see the connection between a strong advantage for older buildings because of the increasing cost of building new ones.

Van Nieuwerburgh: I mean, there's basically no demand for new office buildings at this point. I mean, if you're in Francisco, I don't know, are we ever going to see a new office building being built in San Francisco? Maybe. Maybe it'll be an A + building, but there's basically a huge excess supply. So the last thing we want to do right now is add new supply to the market. So that advantage, I think is sort of not relevant right now.

Meier: So thank you so much. That was really exciting. So I think my takeaway away is it's very challenging, but also a lot of opportunities to rethink and reimagining the future of cities and where private companies, private solutions, interesting new solutions can also come in. But it's definitely going to be rough for maybe a couple of months or years to come. So thank you so much for coming. The storm has not hit us yet, maybe never. So it was worth showing up. Thanks so much for the panelists.