Since Mayor Bill de Blasio took office in 2014, New York City has spent at least $1 billion on leasing office space. Despite last years plan to shrink cubical space and try to save money on rent, the city has not succeeded. With more than 350K municipal employees, the city leases over 22 million SF and owns another 15 million SF. This year alone, NYC spent $1.1 billion on rent and by 2020 the number will grow to $1.2 billion. Between 2014 and 2018, the cost to lease offices rose 40%, and the most expensive building belongs to NYC’s Human Resources Administration office at 4 World Trade Center. The city paid almost $39 million last year to rent it.
Since 2011, New York City’s tech employment hub has increased 44%, making New York the second largest city for the number of people working in tech occupations. Also, from 2012 to 2017, $100 per SF office deals jumped 122% due to more tech companies wanting high-quality buildings in the city. Inside the tech-sector, employment has grown 66%, and it has created 264K jobs in this area of expertise. From this tech boom, over 13K tech degrees were given out to students, 1K companies formed, and $17 billion in capital was raised among Columbia University, NYU, and the State University of New York. With this increase, “the tech industry is becoming an extremely important player in the world of high-priced Manhattan offices leases”. From 2011 to 2014, tech businesses only accounted for 3% of total SF deals with starting rents above $100 per SF. From 2015 to 3Q 2018, that number has quadrupled and now tech accounts for 12% of $100 per SF deals.
Steve Langman – the one man who has more riding on We Co.’s initial public offering than any other investor. He was there since the beginning, and he is WeWork’s driving force to push into property acquisitions, as well as, co-manages an investment vehicle that buys buildings with the goal of leasing space to WeWork. Some people and potential investors say that Langman’s roles in the company could create potential conflicts. People in the past have raised concerns about how his and Chief Executive Adam Neumann have similar conflicts. In April, WeWork’s audit committee said they will set guidelines for deals between the company and Langman, and later they approved a restricted stock award of 454,546 shares to Langman for “his ongoing services to the We Company”. This raises conflict-of-interest as he has financial stakes in both the tenant, We Co., and the landlord as his company runs the real estate investment vehicle. At the end of 2017, Langman had 2.28 million shares in WeWork. When WeWork was trying to become its own landlord, they relied on Langman’s company to fundraise and help them get off the ground.
In June, Governor Cuomo agreed to sign any bills that came his way that focused on tenant reforms. However, when the time came, he didn’t sign it and argued that “it did not deliver on Senate Democrats promise to eliminate provisions in the rent stabilization law that allowed landlords to jack up the rent on apartments after renovating them”. When Cuomo did pass the new rent stabilization act on June 14, major real estate companies were not happy. Most of Cuomo’s biggest donors are major real estate developers, so to have them angry is not good. Owners felt blindsided by the changes, and landlords saw the value of their properties drop overnight. With this, certain owners think Cuomo has turned his back on them. One major developer said, “The governor tends to be a bully and will frequently target people he sees as his enemies and seeks revenge”. However other owners are still donating to his campaign and say he did what he had to do. The industry is split between people who believe Cuomo will soften the impact of this legislation for landlords and those who think he caved to the new elected, more progressive class of state legislators. But, now the housing policy committee is being driven by radical people, and he is going along with it. Another developer said that the real estate industry and the Real Estate Board of New York (REBNY), failed to make their case on the rent stabilization laws. Landlords and developers relied too long on campaign contributions to protect the status quo on real estate policy. Cuomo revealed he will be running for a fourth term in 2022, so state legislators will be able to come back in 2020 without feeling their backs pressed against a wall with a new candidate to update the laws even more.