On Monday morning, the pro-business nonprofit Partnership for New York City sent an open letter to Trump — who has been waging a war in the courts and on Twitter over the election results, and has refused to start the transition process — pleading with the president to start giving Biden the necessary briefings as the coronavirus pandemic continues to rage.

“Every day that an orderly presidential transition process is delayed, our democracy grows weaker in the eyes of our own citizens, and the nation’s stature on the global stage is diminished,” the letter reads. “Our national interest and respect for the integrity of our democratic process requires that the administrator of the federal General Services Administration immediately ascertain that Joseph R. Biden and Kamala D. Harris are the president-elect and vice president-elect so that a proper transition can begin. Withholding resources and vital information from an incoming administration puts the public and economic health and security of America at risk.”

(On Monday evening, the GSA signaled it would in fact ascertain Biden’s election.) 

The open letter included several major players in the New York real estate community — where Trump made his name — including Tishman Speyer’s Rob Speyer, the Real Estate Board of New York Chair and developer William Rudin, Durst Organization Chairman and soon-to-be Real Estate Board of New York chair Douglas Durst, Newmark CEO Barry Gosin, RXR Realty’s Scott Rechler and MAG Partners’ MaryAnne Gilmartin.

The letter was also signed by Related Companies’ CEO Jeff Blau, whose chairman, Stephen Ross, came under fire last year for hosting a swanky Hamptons fundraiser for Trump. Ross did not sign the letter himself, but told The New York Times that he regretted hosting the event, though he didn’t say who he planned to vote for. And major Republican donor Henry Kravis, co-Chairman and co-CEO of private equity firm KKR, also signed the letter.

Some notable figures in the real estate industry did not sign on to the letter, including those who have donated previously to Trump’s reelection campaign. Richard LeFrak, chairman and CEO of LeFrak Organization, which donated $16,200 to the Trump campaign; and Elie Hirschfeld, president of Hirschfeld Properties, who previously told Commercial Observer that he had switched parties once Trump announced his run for the presidency, both didn’t sign the open letter.

Trump has refused to concede the Nov. 3 election, even after most news outlets called the race for Biden on Nov. 7, and, instead, started a legal battle to overturn the results in several key states, while repeatedly making unfounded claims of fraud in the election. Despite a rising number of coronavirus cases around the country, Trump has not started a transition with the Biden administration, and Trump’s coronavirus vaccine chief adviser, Dr. Moncef Slaoui, said over the weekend that he has had no contact with Biden’s team.

Richard took the reins in 2003, becoming chairman and CEO after the death of his father, Samuel. Under Richard’s leadership, the company has remained a heavyweight, building massive developments such as Jersey City Newport along the Hudson River. 

The organization expanded to South Florida not long after the 2008 market crash, when many thought it was a risky bet. Taking its New York formula south, the firm bought a 183-acre site that housed a former landfill in North Miami with plans to transform it into a residential-heavy, mixed-use development. It brought on another real estate dynasty for the project, the Soffers, who developed and own much of Aventura, including the famed mall. Jackie Soffer, daughter of developer Donald Soffer, now runs the company, Turnberry Associates.

LeFrak also struck it big in the hotel business, working with Barry Sternlicht’s Starwood Capital Group to develop the first 1 Hotel in Miami Beach, which sold for $610 million in 2019. Today, the deal is still one of the region’s priciest hotel trades.  

The real estate veteran sat down with Commercial Observer in May to discuss his South Florida excursion, which paid off, and the state of New York’s markets. (The interview was edited for length and clarity.)

Commercial Observer: You began developing in South Florida in 2012, not long after the crash when lenders were still wary of the region. What potential did you see in South Florida?

Richard LeFrak: There were a couple of things that happened. One of my executives was very high on Brazil. My oldest son traveled to Brazil and noticed that everyone who had money was taking it to Miami. So we said, “You want to invest in Brazil; we might as well invest in Miami.”

We participated in the asset purchase of a failed bank, Corus Bank. That bank’s portfolio was about 2,000 empty condominiums in Miami, from Sunny Isles all the way down to South Beach. We got an up-close look at the market. 

I was watching the real, live numbers and a lot of that product was being literally inhaled by investors, foreign buyers, domestic buyers. What people thought was a 10- or 15-year supply really was a two- or three-year supply. I told my sons that before the world figured out what was happening in South Florida, let’s see what we could buy.

One of those acquisitions was the site of the first 1 Hotel with Starwood. But people said it was a risky move. Why did you move forward with the project? 

I got to know Barry in conjunction with the Corus transaction. He’s a super-creative guy. And he had a vision. He said, “I want to build the 1.” “What’s that?” I asked. He said, “It’s green, sustainable luxury. I’ve had something like this in my mind for quite a while.” “OK. … Is there a brand book?” 

Whenever they do hotels, there’s always a brand book. But he just pointed to his head. I had a lot of respect for his creativity and so we embarked. Of course, you misjudged the cost — it was much more than you thought. You misjudged the market — it was more robust. One balanced the other in the end.

So the answer was yes. I think we were pleasantly surprised by the market reception as we came into the market at the same time as Edition and Faena [other luxury oceanfront hotels in Miami Beach.]

You spent about $300 million repositioning the property? 

Four hundred million — that was a nice round number. 

Do you see a bubble forming in South Florida’s condo market?

No. There are far fewer cranes. There’s construction, but the product is very limited. I don’t see the big inventory of unsold units. 

Condo developers are now much more cautious about giving someone the green light. The financing of the condos is basically getting done, somewhat, by down payments. 

But, why aren’t you developing the condo at Solé Mia?

You’re talking to a resident of New York state. As a tax matter, if I succeed, the money goes to the government. If I fail, it’s all on me. So it doesn’t make much sense. And that’s not really our primary business. I’m happy building rental apartments. It’s always been our stock-in-trade.

Why did you team up with Jackie Soffer on the North Miami project?

It was started by me in 2012. I went through an extensive period of negotiation with the regulatory authorities. This is a massive project. We’re talking about something like $3, $4 or $5 billion worth of development. So, we had to set the table properly and we did.

If we were going to implement this thing, then I need a real organization. I didn’t have an office in South Florida. And so the Soffers came along to actually buy in. We worked out a transaction where we would go 50-50. And I would have access to their staff, basically — construction, marketing, regulatory and public affairs.

Both you and Jackie Soffer are heirs to real estate empires. Was that factor in the decision to join forces?

This project is basically five minutes away from Aventura. They’re local hometown heroes. They knew the market. Not necessarily Jackie, but the firm had the experience of doing one of these developments, which is slightly different than doing a one-off. Not everybody has the stomach for that. In the beginning, it just eats money. 

As a matter of chronology, Jackie is about the same age as my kids. She’s from a younger generation. She’s a delightful person.  

Speaking of your children, what’s succession looking like at LeFrak?

Right now, I’m more of a coach than a player. I have two talented sons. They’re not kids — they’re 48 and 50. One is more into development and implementation. He’s an MIT engineer by training. The other deals more with the finances. They have complementary skills. 

They’re totally capable of carrying on without me. I can’t say that we’re going to be a five-generation business — but we are clearly going to be a four-generation business.

Do you have any plans to retire?

No. Day to day, my sons run the show. I help them when they have problems. If there’s a big idea, then I get more involved. 

About New York, do you think it’s possible to develop another LeFrak City?

The closest we got is in Jersey City with Newport, which was most of my career. We’ve just finished the 37th building on the project. But, in New York, it’s very tough to build.

Do you think that there will be a replacement for 421a, a controversial subsidy that many developers have used to build housing in New York?

I don’t like making political prognostications. The mayor has come out in support of some version of it. It seems to be controversial in the legislature.

Here’s another, somewhat political question: When’s the last time you spoke with former President Trump? 

He’s a friend of mine. It’s a personal relationship, but I don’t want to get into it.

Fair enough. South Florida, like New York, is one of the least affordable places to live. What steps should governments take? Is rent-stabilization — how LeFrak City is priced — the answer?

The way you deal with demand is by creating more supply. South Florida had a big outburst of rent prices, but some of it will level off. The reason is COVID. I don’t see an explosion of population that has happened in the last four months continuing. Some will stay and some will go.

I think the jury is still out on remote work. The pandemic may be slightly less frightening, and certain offices are reopening. Especially younger people want and need the office environment to learn and have mentoring. 

My observation about affordability is that it’s a sensitive subject. There was an article in the Wall Street Journal – somebody was living in a condo on Brickell and paying $3,500 a month. Now, numbers are $6,000 or $7,000, and they’re not happy about it. I’m happy to rent them an apartment at Solé Mia for $3,500 a month. 

I’m not here to not be sensitive to it, but it’s still a lot less expensive living in Florida than it is in New York.

Because the signals are downright mystifying. On the one hand, office attendance is still terrible. Like, really terrible. According to research by Placer.ai, compared to May of 2019 total visits to office buildings in New York were down 40.6 percent. And that’s actually good in comparison to Chicago (down 45.7 percent) and San Francisco (down 67.8 percent). Yes, all three markets have been showing improvement from earlier in the year (even though San Francisco’s office usage declined during April) but these are bad numbers to see well more than a year after COVID vaccines became widely available. If these kinds of trends continue, it could spell true disaster for the office market.

Just how bad a disaster?

NYU Stern School of Business and Columbia University Graduate School of Business put out a report saying that U.S. office buildings could lose $500 billion in value by 2029 – 28 percent of their overall worth nationwide. The report used the word “Apocalypse” in its title.

And yet multifamily property has never looked more in-demand or more valuable in Gotham’s 398-year history.

According to a report by Douglas Elliman the average monthly rent in Manhattan now stands at $4,975. (This is a record figure.) The average studio – a single room, for goodness sake! – averages $3,088, up 25 percent in a year. Moreover, the vacancy rate has been below 2 percent for the last six months, with listing inventory down 70 percent from what it was last year. 

In fact, it’s such a tight inventory that brokers are charging as much as 40 percent of a year’s rent on their broker fees, and bidding wars are breaking out on desirable apartments.

As good as this is for multifamily landlords, this is not a healthy or stable situation, and it’s certainly not good for New York City renters. Given the fact that the New York state legislative session ended with the future of the 421a development incentive essentially doomed, one could expect that the problem could get a lot worse.

Thankfully, on Tuesday Gov. Kathy Hochul signed legislation expanding the state’s ability to convert distressed hotels into housing. Hopefully this will eventually ease some of the city’s housing scarcity.

Looking south

A place that seems to be having similar multifamily demand (but not as severe work-from-home problems) is South Florida.

One of the early embracers of South Florida was the legendary New York real estate figure Richard LeFrak, who first started developing in Miami in 2012.

“One of my executives was very high on Brazil,” LeFrak told Commercial Observer in an exclusive interview. “My oldest son traveled to Brazil and noticed that everyone who had money was taking it to Miami. So we said, ‘You want to invest in Brazil; we might as well invest in Miami.’ ”

LeFrak continued: “I was watching the real, live numbers and a lot of that product was being literally inhaled by investors, foreign buyers, domestic buyers. What people thought was a 10- or 15-year supply really was a two- or three-year supply. I told my sons that before the world figured out what was happening in South Florida, let’s see what we could buy.”

Many of LeFrak’s out-of-town peers have gotten wind of this; just this week the Denver-based AIR Communities spent $211 million buying Modera Biscayne Bay, a 296-unit Miami apartment tower a block from Biscayne Bay, from Mill Creek Residential. And that’s not even mentioning the local players who continue trading real estate, like Dezer Development selling Nova Southeastern University’s North Miami Beach campus for $31.1 million to PPG Development; or retail properties trading hands.

Properties are moving elsewhere, too!

Of course, housing is in demand in a lot of urban areas. It has been one of the reasons a real estate developer like Rick Caruso is doing so well in the race to become L.A.’s next mayor. (Although Caruso is much more associated with retail than affordable housing.)

But, yes, there is a need for more housing, and other developers are also making plans. Local Development, a multifamily builder, filed plans to construct a seven-story, 136-unit apartment building at 5101-5125 West Pico Boulevard in L.A.’s Mid-Wilshire.

And office property is trading, too. Vectra Management Group sold a mostly vacant 45,630-square-foot office building at 640 North Sepulveda Boulevard, on the Westside of Los Angeles, to the J. Paul Getty Trust (the world’s largest and wealthiest art institution) for $32.5 million. 

In Northern Virginia, Amazon picked up a 12-acre site called PenPlace as part of the second phase of its HQ2 from JBG Smith for $198 million. (This will add 3.2 million square feet of office space and more than 100,000 square feet of retail to the project.)

And, yes, New York is seeing trades. SL Green Realty sold the office portion of 609 Fifth Avenue to an undisclosed “domestic investor” for $101 million. (SL Green sold the retail portion to Reuben Brothers in 2020 for $168 million.)

Keep calm and lease on!

Whether or not tenants are returning to the office, the leases keep coming.

Artistic Linen, a textile maker, took space at 10 West 33rd Street in Koreatown; K2 Integrity, a risk advisory firm, subleased 40,000 square feet from TIAA at 730 Third Avenue; Warby Parker re-upped its 2,874-square-foot store at 121 Greene Street (its first brick-and-mortar location); McKissack Group is headed to 498 Seventh Avenue, where the family-owned construction and design firm took 14,113 square feet; PCCP is moving from its home at 444 Madison Avenue to 11,000 square feet at 505 Fifth Avenue; the Indiana-based Merchants Bancorp took 10,000 square feet on the 24th floor of Marx Realty’s 10 Grand Central; and catering company Great Performances is adding 10,000 square feet to its footprint at the Bruckner Building in the Bronx.

Live and Latch

One of the darlings of the proptech sector has been Latch, the smart-lock company that secured a $1.5 billion valuation last year after going public through a special purpose acquisition company, or SPAC.

But SPACs seem to be falling into disrepute. Last week The New York Times reported that the vehicle has been losing much of its luster in the eyes of many investors. That includes when it comes to SPAC-backed proptech companies such as Latch.

“The overall market is more volatile than it’s been for some time and companies overall are more cautious,” said Casey Berman of Camber Creek, which was an early investor in Latch. “Whether it’s SPACs, taking a company public or raising money through private financing, generally, companies are being more cautious and prioritizing cash. There’s uncertainty around how long this volatility will last, so people are choosing the more prudent option.”

See you next week!