MaryAnne Gilmartin of MAG Partners | 241 West 28th Street in New York City | Renting Today

Transcript

Announcer  00:02

Welcome to American Building, a weekly recorded show whose mission is to share an alternative perspective of what we build in America, and why. Together we discover how the work of the real estate industry connects to every American. In season two, we focused on how buildings changed as a result of the pandemic. In this season, we're revisiting conversations from previous seasons, to see where Americans put their heads down at night. Together, we will discover the many definitions of home across the New York City metropolitan area, which includes over 23 million Americans. Each week, we'll visit a new building and explore complex and confusing issues related to housing access to see what they can teach us about ourselves, and our country will meet those who work to develop in thoughtful and impactful ways, who build neighborhoods to be more sustainable, affordable, accessible, or inclusive, who labor to create thriving communities, and transform the lives of generations to come. Through their stories, we will humanize often polarizing topics. Profound, surprising, and hilarious. This show is for developers and builders with boots on the ground, and for innovators trying to find ways to improve our industry, for the policymakers and public employees. And for any person who has walked by a building and wondered why. And now your host award winning architect turned developer and startup founder or Atif Qadir, AIA.

Atif Qadir  01:53

This is American Building. And I'm your host, Atif Qadir. I'm the founder of Commonplace. Join me as it take a drive by the skylines and strip malls, crosswalks, and rail crossings, balconies, buildings and boroughs to discover a new generation of housing. Let's build common ground.

Atif Qadir  02:26

In this episode, you will learn about the federal benchmark of rent relative to income, how our country has performed against that metric over time, and what exactly the state of renting in America is today. So the US Department of Housing and Urban Development, called HUD uses the benchmark that renters should spend no more than 30% of their income on rent. That allows room for food, travel, healthcare, education, other living expenses and savings for a rainy day. In an article last month for the nation that is included in the show notes, writer Rebecca Gordon lays out what rent often includes besides actual rent. That includes things like application fees, moving fees, security deposits and other select fees. The cost of rent not including these rent related costs, relative to income has been rising since the 1980s and has been sharply rising since the global financial crisis. In New York City. 

Atif Qadir  03:37

The median rent increased by over 31% in the 2010s. But the median income during that time increased 16%. According to data collected by St. Ez and the Federal Reserve, the federal government doesn't offer tax benefits like it does to homeowners through the mortgage interest deduction, which if a similar deduction for home expenses existed for renters, it would help offset some of that growing gap between rent and income. Gordon traces the history of other tax policies, social welfare spending cuts and failed housing policies under Reagan and succeeding presidential administrations that contributed to the situation that we're in now for renters. How do we summarize the state of this rental market today? 

Atif Qadir  04:26

This year was the first that according to Moody's, the median renter is rent burdened in the United States. That means spending more than 30% on rent. For comparison, that number was 22%, two decades ago. In the same article I mentioned earlier, this excerpt stuck with me in 2022, a full time worker needs to earn an hourly wage of $26 On average, to afford a modest two bedroom In rental home in the United States, this housing wage for a two bedroom home is $19 higher than the federal minimum wage of $7.25. In just 11 states and the District of Columbia, the two bedroom housing wage is at least $26 per hour. One of the ways to ease this shockingly large gap is of course, to build more housing. 

Atif Qadir  05:30

In this episode of American building, I am sharing an edited version of the conversation I had in June 2021, with Maryann Gilmartin, who is arguably the most powerful woman in commercial real estate in America today. She is the CEO of mag partners, a woman owned urban focused real estate development company based in New York City. She previously was the interim CEO at Mack Cali Realty, one of the country's largest residential real estate investment trusts, which is now called Varus. Residential. She started her career at Forest City Ratner, eventually rising to the role of president and CEO. Marianne is a graduate of Fordham University. 

Atif Qadir  06:16

We talked about 241, West 28th Street, a new construction, mixed income multifamily rental building in the Chelsea neighborhood of Manhattan. It was in construction then and is now nearing completion, and includes 144 affordable housing units that are financed through the New York City inclusionary housing program, and the 421 a tax abatement. The building has gone to market with the name Ruby, enjoy the conversation. Thank you so much for being here with us, Marian.

MaryAnne Gilmartin  06:49

Well, it's my pleasure.

Atif Qadir  06:51

So many of our listeners are in college and graduate school and the path there to leadership roles in our industry can seem to be an impossibly long one. When you look back, what were the pivot points where you saw your career accelerate, and takeoff,

MaryAnne Gilmartin  07:08

I'll start by saying I think we all need a plan, the most important thing to remember is we all need to be prepared to have our plan up ended, leave space for the role of serendipity. So I was an urban fellow and had the ability to go into public development under Ed Koch to city's only recruitment tool, really to draw young people into government before they headed to the private sector. I knew nothing about real estate, I was on my way to law school. And I couldn't even even describe what a real estate developer did. And I interviewed with all the commissioners, because you were able to be hired directly by a commissioner, unfettered access to the commissioner's office and City Hall. So it was a great gig. 

MaryAnne Gilmartin  07:47

But I really didn't believe that I would be doing anything other than fighting for the rights of juveniles in the justice system. And I stepped into the role so to into the offices of economic development. And I thought to myself, This is so grown up, there was a president, there's a board of directors, there's carpeting, air conditioning, the city was quite a harsh place in the in the late 80s. And because I had two fellowships, I actually was just extremely practical. And I said, I'll spend the summer trying something I don't know anything about. And then in September, I will take my second fellowship and I'll devoted to juvenile justice. And there that I was thrown into a career that I realized I had a passion for, I realized I had real estate in my veins. And I realized it was the most incredible job because you had access to so many facets of what it takes to make a place to change a skyline and to create a ground plane. And so for me, if I had a plan, and I wasn't willing to disrupt my plan, I wouldn't be here speaking to you today, my career. And so I would encourage everyone to be open to the possibility that sometimes the answers to life are really outside the box, right? 

MaryAnne Gilmartin  08:52

Not not in the box we live in day after that. The other thing I'd say is, I would always vote for a great mentor, and great access to a pipeline of opportunity over some big brand name. So for example, if you could work with a fine mentor, somebody who you respect, who's going to give you access to their time and their craft, I would vote for that any day over a bigger company with a bigger portfolio and a bigger balance sheet where you're just a cog in the wheel. So I think you really should follow people because it really takes great people to do great things. And you have to be inside of a great organization. And organizations are great, because they're defined by the people that make them great. And so I believe in mentoring, and I believe that their work he has a lot to offer. So for young people listening, I think you want to be someplace where they value the rookie, because again, you're bringing a perspective and a lens that is unique and different and young and fresh. And if you're not in an organization that sees value in that, I think it's somewhat problematic for career trajectory of someone young and ambitious.

Atif Qadir  09:57

It's so interesting that you say that because in terms of awards and recognition or industry, it often feels that the it's this lone wolf at the top of the pyramid or the top, a team that's responsible for everything from the financing to laying the bricks in the building. And the reality is exactly like you described. There are many, many, many people. So let me ask you this, the amazing company that Bruce Ratner built, and the one that you continue to build CEO, you eventually left. Why did you leave? And what was that thought process like

MaryAnne Gilmartin  10:28

23 years, the proudest part of my role there was we really moved from commoditized building to quality design, I'm really proud of the fact that we were able to build a building like Barclays Center, but I never ever look past the fact that when I go up the escalator at Barclays Center, I look at the Party City, neon sign reflecting from Atlantic center, into Barclays Center, realizing that you built that building to those two buildings right across the street from each other represent for me, the evolution and the arc of the company in terms of where I was when I started there, where it was, when I decided it was time for me to leave. 

MaryAnne Gilmartin  11:04

The decision to leave was a tough one, I'd become the CEO in 2013. I was on my sixth year of being the CEO, it was the most amazing experience I've ever had. And as I said, challenging in that I stepped into Bruce Wagner's shoes. And you have to know as your audience will know, if they if they followed the work that Forest City did, it only said Brucey Ratner. Any article about the company would start with Lucy Ratner. You when we bought the nets and move them to Brooklyn, it was always on behalf of the company. Bruce was such a cult of personality that the article that we started with him, he was larger than life. And then somewhere buried in the middle of the piece we learned about Forest City. So I thought over this company, like it's not like it's going to be a headless horseman or rudderless ship, because Bruce is no longer the president CEO. But truth be told, we had an incredible transition plan he stayed on as the chair. So I had the great benefit of having him down the hall and the corner office. But the company had been operating as a public company non REIT for many, many years since 1968. And so they went to the public markets for their money, but they weren't a real estate investment trust, and we will want to one just no company was operating that way. It was a vestige of a time gone by. 

MaryAnne Gilmartin  12:12

And so it really the family had a lot of control over the board and the decision making that fell out of favor as REITs became more more professional and independent. But I was 23 years and ready to go raise my own money and build projects because I believed in them not because I thought an analyst on a call was gonna say it was okay.

Atif Qadir  12:33

Yeah, I think that that path, then from there to mag partners is what brings you to the project that we'll be talking about today. So I want to focus on Chelsea so our listeners from the New York area will will know Chelsea very well, it's a very popular neighborhood in Manhattan for for those that aren't from New York City. Could you tell us a bit more about Chelsea it says masonry buildings it has also has nondescript apartment blocks as public housing. There's a lot of things that are going on in this neighborhood, that that impact what you are able to do on this site. Tell us about the neighborhood and the site and and how those two are intertwined.

MaryAnne Gilmartin  13:10

Sure, the West Chelsea of today is very different than the West Chelsea 20 years ago. And it's a neighborhood that's gone through extraordinary change. And a lot of it has to do with the fact that it's an unbelievably diverse neighborhood in terms of building types, right, but it's still a garment center, rich contextual building set or masonry, and then liking WestJet, Hudson Yards building this giant Oedipus ism, of steel and glass. And so West, Chelsea became a combination of things in place that tech really wanted to be post Google purchasing Eighth Avenue, more or less on Eighth Avenue. And suddenly, you saw an explosion of tech talent and the creative class. And that creative class not only wanted to work there, but they wanted to play there, they wanted to live there. And so you saw new restaurants when you saw the advent of new types of residential buildings. 

MaryAnne Gilmartin  13:59

And so I think in West Chelsea, you can find very eclectic talent base, and employment base and building types for residential communities. And what we really were drawn to is that the idea of building your Hudson Yards was was attractive to me just because we didn't want to build anything like what you find in Hudson Yards, or on on the avenues. Even if you think about what the Sixth Avenue corridors and Seventh Avenue corridor started to look like from a multifamily point of view, were drawn to the mid block to tower 22 story scheme, where it really feels like home. And so you know, people have coveted this site and had coveted the site for a very long time because it was a parking lot owned by the Edison family directly, not by team, but again in the hub in the center of all this amazing activity. So it's always about it's always alive with energy, whether it's Monday through Friday or on the weekends. And so we knew was a winning location because whether it was the the office friends or the residents around the world on the upswing, at the same time, you have Penn south, which is one of the most successful coops around the corner where people who live in tents out between 26 and 29th street between these two families own all of the land, 

MaryAnne Gilmartin  15:15

going back to JFK when he decided that this was a model for affordable housing, and created a cooperative for people to be able to afford to live in New York City and to live with and to live through generations. So you have Penn South directly around the corner, you have rents that pierce the $100, a square foot mark the residential space, so we knew that its strength was its diversity, its building types, or you favored the more modest kind of not the tower schemes, but the the lower rise entering from 28th or 29th Street with an amazing courtyard in between. So we knew we could build the kind of building that people would want to live in, we also knew that we were sitting across from fit near NYU, in a place where if you chose to build a very young building, you could do, but at the same time, we were attracted by this idea that you could have a kind of a young vibe in the building, but you could also attract young families and young couples, that would make it sort of altogether interesting, because it would be almost a microcosm of what West Chelsea really is. 

MaryAnne Gilmartin  16:16

So for us the site, not easy to get our myths on it. And we had to convince the Edison ownership to give us 120 days to come to them with a proposed transaction. We were fortunate because it was a ground lease. This was not a family that wanted to sell it off. They learned early on back in their days in Jersey, that you should never sell and go talk by the great patriarch, they knew that they should always hold their interest in the land, which meant that condominiums were not possible. And for us, we didn't want to build condos, that's a that's a kind of a moment in time where you cash out if you're lucky. And you end up you know, having some troubles if you don't hit the market at the right time. So there's the hangover of condominiums in New York when we started this project, made it very unattractive for us to build condos. But because they wanted a ground lease, it has to be priced for multifamily, because that's all you can really justify building the biggest challenges you can't build multifamily in some of the most amazing neighborhoods in New York because all of the land is priced for condos, and they just don't pencil out. So we found ourselves with something quite sweet, which is an ability to deliver foreign Geneva units with economics that allowed us to build the multifamily. But at the same time, there was 3000 total units coming to the market, in the three year horizon that we were studying from construction commencement to completion

Atif Qadir  17:33

3000 for the whole island of Manhattan or just a particular part

MaryAnne Gilmartin  17:36

sub market. So yeah, highest performing sub market next to one other in Manhattan, you have a limited amount of new supplies, you've got a mid block location with a two tower scheme entrances on two different vibrant streets. So everything was was looking dandy and super successful. Our capitalist prime to fund the loan was on the brink of being closed when the pandemic hits.

Atif Qadir  18:03

And that's the thing, you hit the gong, and it's like, Oh, my God.

MaryAnne Gilmartin  18:06

And then it became really kind of binary, it became just a binary question of do you believe in New York? Do you think New York is going to come back? And you know, for me, I read all of the obituaries that have been written about New York over and over again, through multiple cycles and many crises. But it wasn't just what I thought, right? It was the three Capital Partners and the lender. So the lender that we had teed up, you know, ready to close disappeared, the lender said, We love this project. We love the sponsorship, we would get thrown out of Investment Committee, if we walked in and asked for $173 million loan to build a building ground up in West Chelsea in the middle of a pandemic. And our partners said, Should we take a step back? 

MaryAnne Gilmartin  18:45

Should we put it on pause. And we went on this, you know, heavily data driven exercise to demonstrate that if we built the building, as planned, and started last November, as scheduled, that we would come out of the ground. At the right time when Very little was being built, we would stabilize this building when Very little was being brought online. And we would be through the pandemic. We didn't necessarily have the transparency into the vaccine at the time because the vaccine is warmed, approved yet, but we just felt as if we were going to bet on the fact that the horizon to build a building, you know gave us the liberty to ignore some of the near term challenges and just dial back the rent and not grow the rent for a few years so they could climb out of the hole that you know the pandemic put it in and recover quite nicely. This would otherwise have been the most straightforward, single residential tower on the block in a midblock area in Manhattan where you do not have extreme circumstances. And it lo and behold became as challenging as the 10 years it took us to have a single vertical building coming out of RFP center, in large part because the pandemic made it impossible to get the funds lined up for the loan and without the loan. There was no

Atif Qadir  19:58

so it sounds like it's either You find the tough projects and the tough projects find you. It's one way or the other, right?

MaryAnne Gilmartin  20:04

I think I am the bet. You know, I find gravitational pull toward the complexity. And of course, I'm not interested in doing a single Infoblox, you know, really like, and also it's a differentiator, right, because the complex stuff, a lot of people run for the hills. And so, complexity, I see opportunity, like rallies, people say you can't build multifamily underground links, you can never get it financed. The success we had on 28th Street really led to the invitation week from Penn south to build up your site. And ultimately, there are 1000s of people that had to opine on our fitness and our partnering skills.

Atif Qadir  20:40

So when the new residents of the building, walk through, talk to us about what they're seeing, in the lobby, in the courtyards, the hallways on the way to their apartment, what does this look? And what is this field? What does that experience going to be like?

MaryAnne Gilmartin  20:55

So first, it's going to be contextual. So one of the things that we love to recognize is, we're going to be building a building on 50th, and Second Avenue on the Upper East Side. And that's going to be a different kind of a building with a different architecture, because it's a different place. And in the great neighborhoods that make up in New York City, you really need to understand the context. And so this building will look and feel as if it belongs in West Chelsea, really proud of that. And all of the details that were developed with Rick Cook, were super respectful of the history of that area. And so masonry building has, you know, beautiful, beautiful wall, there are unbelievable details on the back, and on the windows that will make it visually pleasing. It does have an abundance of outdoor space and open space. And again, we designed all this pre COVID, if you said to me, one of the major swings that you introduced, because I think it actually reinforced a direction we thought the industry was going, which is the importance of of high design and quality of flight to quality, if you will, building commercial or residential, this idea that wellness is important. 

MaryAnne Gilmartin  21:58

And people want to live and work in healthy buildings, that life matter. For example, we have a quarter we basically designed around the ability to introduce light into the corridors and we'll always so when you get off the elevator, you know where the sky is in your life in your in your home. Transparency, the fact that this lobby runs through 28th to 29th Street, the fact that you come upon an outdoor courtyard that separates the two towers, and that is a very welcoming space for everyone. On the top of the building, overlooking at a very interesting level, we have an outdoor pool, which I'm really excited about on one tower. And then we have you know, barbecue space, outdoor space and leisure space on the tops of both of the of the tower. So I think it's a very livable building. And it's got a very human scale, because it's not a tower, kind of a soulless tower. It's about transparency. You know, the wall is not a tinted a wall system, lots of light. And now when it comes to what's changed through the pandemic, is just this idea that you can enter the lobby and go all the way up to your home and really never touch anything to your phone, you can call the elevator, you can open your front door and you can get your mail. 

MaryAnne Gilmartin  23:12

So it's highly amenitized, we have 30,000 square feet of retail, which we will not put a big number one in terms of rent, because we believe very strongly that that square footage makes an enormous impact on the way the building really lands on the community. And it's all about the amenities that people live in the building. So it'll be food, it'll be services, it'll be focused on health and wellness. And there'll be lots of bike space, and amenity space to workout and to stay healthy. I think it'll be a really high performing building. It'll be one of the first buildings post COVID If you know hooks work, Biophilia is a big, big deal for him. So you'll see lots of greenery, a lots of attention by the architect and the design team in the selection of the greens inside and outside courtyard.

Atif Qadir  23:59

So the fact that a lot of the aspects that you brought up that are are natural and well being related, are tied to this desire for biophilic. design the building for people that might hear that and sort of like roll their eyes or be like, or OSI. Could you talk about besides that data of the reasons why these are good ideas? What was the emotional thing that that convinced you to say, Yes, this is what we're doing, as opposed to, no, we're not going to waste XYZ and we're just gonna do the normal the normal way.

MaryAnne Gilmartin  24:34

One of the biggest reasons for doing it is just to visit Rick's office. I mean, what he has done with his own you know, sometimes your own space becomes your best testimonial for what matters, and what he's done with his own office and how he has incorporated Biophilia in his space, and his gardens outside of his internal demise is nothing short of extraordinary and it's a building on 57th Street, and not a lot of architects would like be drawn to 57th Street But again, the care and feeding that he put into his own space, he demonstrated almost a proof of concept by building his space, the way that he likes to build other spaces for clients. And so when buildings, particularly your home, can offer that it absolutely has, you know, a positive impact on your well being. Now, sustainability is like one step above breaking the law. And we talked about, because buildings should be resilient, they really should be contributing to saving the environment, not just not destroying it. 

MaryAnne Gilmartin  25:30

And so I think what I believe about the generation that really represents your generation, and the people who are probably listening to this podcast, is that really matters. It matters where things were sourced, it matters, what it took to build, the place they call home. It matters, the climate and the future of the climate for folks in your generation. And so we're building really, in some ways, I don't want to sound so high and mighty, it's a lot of it is is necessary, really, to meet the market, to where the market wants to be.

Atif Qadir  26:01

And I think that what it particularly is, is do you choose the path of cynicism? Or do you choose the path of change and opportunity and potential for my experience, as a developer, the intrinsic nature of a developer is one who looks for opportunity. And it seems like a no brainer to me. And I think what I've come to realize as well, and correct me if this is what you're thinking you're underwriting is that you actually getting a premium on your rents, it's not just doing it, you're likely to get faster, Lisa, and higher rents Is that what your your hypothesis is, as well,

MaryAnne Gilmartin  26:34

by doing good, you're doing well. And I think that it definitely pencils out. And you know, sometimes it is a proof of concept that proves it. But in the end of the day, I do think that it's a marginal cost in terms of what it takes to do it this way. It does create more timeless buildings, and a better investment all around this whole notion of flight to quality. You know, one of the reasons why I wanted to break out on my own is that I wanted to build beautiful buildings, and demonstrate that those buildings deliver great value to the partners to the investors, right, but also to the communities in which we build. And I wanted to build buy in with people that look like the communities we build in. And so this is, like so simple. Like, of course, that's the way it should be. Well, it turns out in our industry is you know, particularly in New York, it's not that way. It's the usual suspects building commoditized product, unless it's a condo, and somebody's going to come along and plop $15 million down and take it off your hands. 

MaryAnne Gilmartin  27:27

What about this idea of long term value creation, building beauty. And so it started with, you know, when to build something with Renzo Piano, you actually can't go back and build commoditized stuff. You just can't look at the work so differently. And not everybody. You don't have to have Renzo Piano, you just when you when you're building beauty and you're thinking through every detail, you're not just putting a commoditized building up. It's an imperative, it's not even an option to do it different. Once you go through that process. One, you recognize the value. You've convinced the partners, the lenders, and people who live and work there, that it's all worth it. And so once you go through that process, you just never turn it around and go back and do it a different way just doesn't make any sense.

Atif Qadir  28:15

Thanks for joining me today on American building. If you enjoyed this episode and want to hear more, subscribe on your favorite listening app. And don't forget to rate and review and friends. I've teamed up with writers for the New York Times and dwell magazine to launch a digital media platform to tell the fascinating stories of the impact developers and capital providers. I work with a commonplace. Check it out@commonplace.us