On Wednesday, March 6th The Real Estate Institute at Stony Brook University College of Business hosted its annual Spring Luncheon, focusing on “Where is Long Island Office Space Heading.”
REI Chairperson Patrick Fogarty thanked the sponsors, the board of directors, and event organizers. He dedicated the discussion to two REI board members who have passed away, John Gutleber and John Damianos. After a moment of silence and round of applause, he introduced the moderator, David Pennetta, Executive Director of Cushman & Wakefield of Long Island.
Mr. Pennetta introduced panelist Bob Coughlan, co-founder of TRITEC Real Estate Company and Anthony Fromer, Principal of We’re Associates, Inc.
Pennetta began the panel discussing the current state of Long Island Real Estate. He referred to impacts of millennials, multi-family units, the industrial property boom, and current rent prices. He addressed vacancies rates and noted new developments that are underway giving thanks to the help of County Executives Steve Bellone and Laura Curran. He began the discussion with the panelists by asking for the current state of their respective organizations.
Mr. Fromer responded first, speaking about his class A office space in Jericho and a considerable portfolio in Melville that features a variety of product. He is currently working to fill larger spaces in Suffolk with rent in the $20’s to low $30’s. Mr. Fromer stated that class B rents are starting to rise for a variety of reasons and the buildings are seeing a significant amount of traffic from potential tenants. He spoke about medical office space, mentioning that Northwell Health is taking space in offices outside of the area surrounding the hospital. Mr. Fromer and Bob Coughlan both agreed that medical tenants are a profitable distinct market. He brought up the importance of retaining tenants, managing escalations and how escalations affect renewals. He stressed not to lose tenants or take advantage of them, and that renewing a lease is much more cost effective than having vacancies and trying to find new tenants. When spaces go vacant, you lose rent, pay brokers, acquire TI costs and other expenses to start all over again. Seizing on the medical tenants, Mr. Pennetta referenced specific instances of hospitals taking office space. He also talked about office space converting to industrial buildings a reversal of a trend that was going on 15 years ago.
Mr. Pennetta asked Bob Coughlan to talk about Dealertrack, and how TRITEC was able to make that deal. Bob said Dealertrack was not a speculative project their building is designed for them because what they needed was not available anywhere else. Requirements for new buildings vary and depending on class, site conditions, land, tenant improvement costs, taxes, and CAM, concluding that construction cost is often well above replacement costs.
Mr. Pennetta moved onto transit-oriented development, keeping the young workforce on Long Island, revitalizations, and other new projects. Anthony Fromer stated there is a need to attract employees with workplace amenities. At the Publisher’s Clearing House space he recently leased, they added a basketball and tennis court to attract talent. Bob Coughlan referred to Dealertrack and their attempt to draw NYC engineers with amenities like sleeping pods and a game room in the building. David Pennetta brought up a project in Melville that includes a gym, pool, pickleball, golf, restaurants, and an internal common area with picnic tables and fake clouds. He asked if there are more of these types of amenities coming in on new projects. Bob responded, if you have facilities like this, vacancies will fill, but if those amenities are not currently a part of the building it is otherwise hard to find. He referred to the market crash when businesses reduced headcount, moved to smaller offices, and took less storage space. He said the vacancies are tighter, and they are not in the point to push that agenda, but when the economy allows it, they will. Right now, TRITEC’s focus is on multifamily, then retail after that.
Pennetta’s next topic focused on IDA benefits. Without it, there would be a considerable gap in rent amounts, too deep for tenants, and that brokers need to be more educated about tax breaks so they can manage their expectations when finding tenants. Bob Coughlan agreed the IDA benefits are crucial to development on Long Island. He talked about the proposed prevailing wage law. The law will change the definition of public works, and eliminate negotiations with organized labor, which will halt financing on new construction and hurt many real estate related professions. The law will harm economic development on Long Island, as it did in Yonkers when they passed the same bill. He urged everyone to educate themselves on the matter as there is an unintended consequence to the law. https://libn.com/2019/03/06/developers-say-proposed-prevailing-wage-law-is-a-business-killer/?fbclid=IwAR0Wwi90sgMs6BL3gRm7TKDkeB9kA8gSOjCUTQNThin3BErVhCWrqU5zQ7I David Pennetta followed up saying that not having the correct information can be extremely hurtful to the economy as it was with the Amazon deal. He critiqued news outlets releasing misleading information. Amazon would have had massive benefits to Long Island. The Amazon benefits included 25k new jobs, the largest provider of jobs in New York State, with the second largest only being 1,000 jobs. Bob Coughlan referred to the loss of 186 billion possible benefits to New York, calling it a “blown opportunity.” Anthony Fromer said pushing them out was a “horrendous decision.”
Anthony Fromer moved on to talk about his company and that they used to have Grumman before they moved to Texas. They may have lost tech companies as tenants but have gained hospitals. Northwell is expanding out of Manhasset to other offices that provide feedback to the hospital. When one industry leaves, another will fill its shoes. The new thing to consider is the young working force and what they need and want in a job on Long Island instead of the city. David Pennetta brought up Transit Oriented Development (TOD) and Employment Oriented Development. It is beneficial to be able to walk to public transit or even walk to your job. Millennials are looking for that. Bob Coughlan stated TRITEC has several TOD under construction. To make a successful development TRITEC builds residential first, then retail, then commercial. He feels stand-alone office parks blend in and are not distinct enough to attract employers. For the office space inside of TOD’s Bob felt medical office, although not glamorous, pay their bills and bring in people to support the nearby retail. Traditional office space is harder to fill.
David Pennetta asks about lifestyle centers, or the Ronkonkoma Hub, to which Robert Coughlan explained there is a demand brought on by a changing demographic, so they get constructed. The demographics are changing, but Long Island’s housing product has not met the needs of the people. Mr. Fromer brought the revitalizing topic back to office spaces, where he is currently bringing his 1970’s office building up to date with a lobby and elevator. It’s hard to redesign an older building to reflect new designs and attract the same people, but he is making it work with nearby residential areas. One idea is to build housing in the middle of the parking lots, where employees can live and walk to work. Rezoning to allow this in Melville would be beneficial, especially with the proposed direct route 110 bus from Babylon to Huntington. He notes the challenges in building such a project; Long Island has some highest taxes in the Nation, and Nassau County taxes are considerably higher than Suffolk.
Mr. Pannetta asks Bob Coughlan’s opinion on the market. He replies that six months ago, before the proposed prevailing wage bill and Amazon’s decision, he would have said the economy was great. So he told David to ask again in four weeks after the pending legislation gets voted on. He stressed the importance of this proposed bill once again and urged the audience to act.