The Real State of Real Estate 2011 Roundtable from Westfair Online on Vimeo.
BUSINESS JOURNAL: How have the markets changed over the last 15, 20, 30 years in terms of the types of businesses here? What”™s fueled that change and how has each county”™s image changed, sans the big corporate players?
ROBERT P. WEISZ: (Companies began) relocating from New York City. That started in the late ”˜50s and ”˜60s, more intense in the ”˜70s and part of the ”˜80s. Westchester was the primary focus of a number of companies and the main reason was the convenience to (the) city and the proximity to the homes of the principals of these companies. ”¦ the infrastructure in terms of transportation, housing and school districts. Quality of life was never an issue. It is still not an issue today.
MICHAEL WEINSTOCK: I think in the early ”˜80s there were 17 world headquarters in the Fairfield County area ”¦
ALFRED B. DELBELLO: I just want to add, it wasn”™t just coming from New York City, because in those days Texaco ”¦ was looking around the world for a location. It would have been very normal for them to locate in Houston, Texas, and they came to Westchester County.
BUSINESS JOURNAL: You were Westchester”™s county executive at the time?
DELBELLO: Yes, we brought them to Westchester, and I asked John McKinley the CEO why he selected Westchester out of the whole world and he said, No. 1, New York state is a mature state in its relationship with the corporate world and No. 2, Westchester had accessibility to the world ”¦ to the financial centers ”¦ I thought it was very telling when they said it”™s a mature state with regard to its relationship with businesses. And I think there, there”™s been such dramatic change.
WEISZ: The cycle has changed. Corporate headquarters (are) not as large anymore. There was a trend of separating top executives from back offices. ”¦ corporate headquarters had an average of 700 people, some more than that, (and that has) shrunk to sometimes 150 (or) 200 ”¦ So that trend started the large vacancies we see.
DELBELLO: Coincidentally, within that exact same time frame occurred the passage of the Taylor Law in the late ”˜60s and early ”˜70s, allowing for collective bargaining ”¦ The cost of public employees, particularly the teachers when they unionized, started causing property taxes to escalate unbelievably, causing the cost of living in this area to almost become untenable, as it is today.
In those days, it was a very affordable community (with) a very well-educated workforce. Now it has, as we all know, the highest property taxes in the U.S.
JOHN H. MEYER: It”™s not just the teachers, it”™s the first responders, it”™s the public works employees ”“ they all have tremendous benefits that are just impossible to be able to afford by these communities. Al is absolutely right.
Westchester still has a great workforce, and it still offers a lot, but the lower-level employees have no place to live. ”¦ People who ordinarily would be living in Westchester live in Dutchess, Putnam.
BUSINESS JOURNAL: Is this in Fairfield County as well, in terms of affordability?
JOHN R. MCCARTHY: Fairfield County, back in the ”˜80s (saw) all the migration to the Naugatuck Valley ”¦ they were all going to go up to Shelton and Trumbull, and then the market pulled back. When the market pulls back, the people don”™t go up there because there”™s affordable housing within the immediate area. And all those guys in Shelton, Trumbull, New Haven, expected this major boom, and it started, and then all of a sudden the reins were pulled in and it slowed down.
WEINSTOCK: Over time ”¦ that has moved further and further out. Ridgefield used to be the boonies and that”™s where you went because when you got out of college you couldn”™t go back to Westport, you couldn”™t go to Greenwich and you couldn”™t get into New Canaan. It”™s not affordable anymore.
But it was also space requirements, you know, the age of the computers. Remember the file rooms? All the files? And so, our space ”“ 20,000 square feet is now (10,000 square feet). All those space requirements get shoved down, and they”™re useful space requirements now which require heating and air conditioning and the like for the computer systems or the (workers).
MCCARTHY: You used to have, Mike, more built-out spaces and stuff like that. Now there are more open plans, so when you do that, the square footage requirement ”¦ consolidates to a great degree ”¦ The mergers and acquisitions of the mid-80s took the whole middle market out of the market. We had bet so much money on them staying and growing and being part of this whole marketplace.
Whether it was the Taylor Act or New York ”¦ waking up and saying, ”˜We can tax these people a lot more.”™ I think that”™s what started the migration, but ”¦ nobody in their wildest dreams in the ”˜80s would have ever, ever thought that General Foods would have been acquired. I mean, it was just unconscionable, it just would not happen. And when that took place, it was an eye-opening experience. Like, ”˜Oh my God, if that can happen, IBM could be taken over”™ and all that. And that would decimate this whole marketplace that we were in.
MEYER: Well let”™s talk about IBM. They”™re still in Armonk and the reason is because of cooperative government, which I happen to know about. At the time, 20 years ago, IBM decided they were going to move out and the supervisor of the town of North Castle (Jack Lombardi) said to me (that he) had a conversation with (former CEO Lou) Gerstner (to keep the company there). ”¦ and they increased the zoning density on the property (to) allow IBM to build a new headquarters. And then they decided to rip apart the old building and (sought) approval to build an all-weather connection between the new headquarters and the old headquarters and Jack said ”“ he told me this ”“ ”˜I thought you were going to sell the building.”™ And (Gerstner) said, ”˜No, we”™re going to consolidate (and) bring all of our employees together here.”™
And that”™s the story of IBM staying in Westchester County. That hasn”™t happened with a lot of the other companies you”™ve talked about here, John, and it”™s a rampant problem.
BUSINESS JOURNAL: OK, we know how we got here. Where are we headed?
WILLIAM V. CUDDY JR.: Until you look back, it is very difficult to plan for the future. A lot of these facts drive the situation we have today and set the table for planning: issues of housing, cooperation and zoning, corporate transitions and how they operate and function, the age of our inventory. And it”™s a challenge ”¦ But it”™s really just the evolution of what we were due to face inevitably at some point anyway.
This surge in commercial office construction that took place from 1970 to 1985, which accounts for approximately 75 percent of all of our office inventory anyway ”“ it”™s a bit of a pig in the python. It was designed and organized and planned at a point in time that fit business at that point. Now we”™re at that natural obsolescence of the design and function of that inventory.
This is one of the most opportunistic times to repurpose this inventory, bring in more diverse industries, be at the cutting edge of what tomorrow”™s commerce will require.
ROBERT F. WEINBERG: I don”™t disagree with that. I think mixed-use will be our solutions, but I”™ll give you some historical views. When I first went into the business, in the late ”˜50s as a builder, we ”“ I”™m talking about the industry, generally ”“ were (building as many as) 15,000 units a year of housing of every type. ”¦ the real failure I think is the loss of the workforce housing. We were not building high-end housing. We were building housing for the people. So there was a workforce in the county for those big companies to draw on. The attitude changed. ”¦ we have gradually become just a place for rich people.
DELBELLO: We also have a great deal more competition than we ever had, from New Jersey and South Carolina and so forth. These other states have become awfully aggressive in attracting industries out of the metropolitan area.
MCCARTHY: But they were aggressive too, Al, in the ”˜80s and ”˜90s. You know, the Atlantas, the Houstons, the Charlottes.
DELBELLO: I don”™t think they were as aggressive then as they are now.
MEYER: They hardly have to be aggressive, with workforce housing in abundance, with the cost of living and operations very low compared to (Westchester and Fairfield) ”“ it”™s just a normal attraction.
DELBELLO: OK, Connecticut and Starwood, the amount of money they put on the table just to get Starwood out of here (White Plains).
MEYER: I think the whole idea of these states giving incentives out ”“ it”™s as crazy as robbing Peter to pay Paul.
DELBELLO: But it works.
BUSINESS JOURNAL: OK, now let”™s look ahead. What are the growth industries? Where is the development potential?
WEINBERG: As a developer I”™m going to do what I can do because I”™m not interested in going on until the end of time. What I will do is concentrate on a local community (a node). With 44 (municipalities in Westchester), you know, you have to realize from a developer”™s point of view it is a business. I won”™t say it”™s politics ”“ but it”™s politics. You have to know the people who control the decisions. ”¦
I am telling you the future of this county for the next 20 years is the nodes. Go back to the nodes and try to get them to recognize what”™s good for them and what you can do. The village of Port Chester, which is where I”™m concentrating right now, has the infrastructure, is groping toward some kind of a comprehensive plan, and we have told them that if they can get their act together ”“ we have already built ”¦ a half a million (square feet) of retail over there ”“ we”™re ready to build residential. We”™re ready to do things. There”™s no problem with (borrowing). There”™s no shortage of equity capital. There”™s only a shortage of getting government out of the way.
WEISZ: It”™s moving in the right direction and the reason why is ”¦ desperation. All these towns have the same issues, they have budgets that have tremendous deficits, and I think the best example of that is right here next door (1 Gannet Drive). You have an industrial office building that is being converted now to a fitness center, and I think the process has been very smooth and they are going to get it done in record time. There are positive aspects. Unfortunately the reason is desperation, but we don”™t care what the reason is, the reality is that we are moving in that direction.
WEISZ: You know, there”™s another aspect I think should be taken into account. There are services businesses such as accounting, money management, lawyers, and we see the influx … There is a change in the nature of the businesses that are moving to the county and I think we need to build on that.
BUSINESS JOURNAL: You said the money is there and you are talking about nodes as being the best way to build. In Fairfield County, we”™ve got a least three projects that are ready to roll ”“ between the Norwalk 95/7, which is the very definition of a node, Fairfield Metro Center, a node, and the Georgetown project, which won every design award in the book as a village on the rail system. The money went away for those.
WEINSTOCK: In general, good deals get done. When Bob says there”™s money ”“ there”™s equity money everywhere, right? There”™s no limit to what you can do for a good project.
WEISZ: You are ”¦ on the lending side. There”™s money available from banks for financing, so there”™s equity money and there”™s financing. So the issue is not money in any of the aspects. The issue is just the lack of projects.
WEINBERG: Mega-deals without customers ”“ that”™s not going to happen.
MCCARTHY: Fairfield Metro Center ”¦ Those monies have dried up.
WEINSTOCK: You”™ve got to look at these projects on an individual basis. You”™re going to build some housing in Georgetown, is this the right time to do it? Would it sell out? You do market studies. Is that the same thing you saw 10 years ago when it started getting talked about?
So you”™ve got to talk about where you are in the cycle with these projects. ”¦ the flavor-of-the-day was always to say there”™s no money out there, the banks aren”™t lending ”¦ But that”™s not true.
WEISZ: Money is not an issue, we are agreed. ”¦ Now we have also to take into account that we are going through one of the worst crises in the history of this country. What we see with our tenancies is companies doing very well, sales are up, profits are up, the equity and the cash reserves are tremendous, double or triple. What are (they) doing right now? Cutting back spending (and) laying off people, because the environment is an environment of instability and lack of confidence.
Every one of the government levels that we”™ve been describing ”“ county, local government, state, federal ”“ they”™re all bankrupt. They have no money. The issues we are discussing in terms of benefits companies are receiving ”¦ it”™s not going to last anyway. There are a lot of things playing at the same time that are making the problem (seem) worse than it is.
We are going to see stronger cities because there is a lot of development that is happening ”¦ the downtowns are growing. That is increasing the density. That is increasing the demand for retail. Ultimately, it”™s going to bring results in the office space. ”¦ There are a lot of positives in this picture; we are concentrating on the negative.
CUDDY: Attitude can be everything. We”™ve been through quite a few recessions, this one may be a double dip, who knows, but it”™s never as bad as it seems when you are in the moment. And it”™s really never as fantastic as it seems when you are riding the wave.
