Durst on commercial and residential real estate development’s future, post-COVID-19
The developer discusses housing and sustainable, green construction in an interview with City & State.
Real estate developer Douglas Durst has led The Durst Organization, founded in 1915 by his grandfather, since the early 1990s. During that time, he has become a proponent of sustainable development, weathered slumps in the real estate industry and more recently helped navigate the family business through the coronavirus pandemic.
New York City, post-COVID-19, has seen a housing shortage worsen and residential rents skyrocket, while commercial real estate has struggled with high vacancies resulting from employees working from home.
City & State caught up with Durst to discuss when he expects the commercial real estate market will pick up again, office to residential conversions, the state of building new and affordable housing, and his continued support for sustainable, green buildings. This interview has been edited for length and clarity.
What’s the current state of commercial and residential real estate development in New York City?
We’re obviously coming out the other side after COVID, and I expect that the commercial market will start picking up again. When businesses are not sure about what the future brings, they slow down, give up space that they usually end up taking back. We’ve seen that before in 2001 and in 2008. So, I expect that the high vacancy will be decreasing throughout the rest of this year in commercial.
Residential saw with COVID that the laws of supply and demand were still in effect. Twenty percent of tenants moved out and rents fell. By a similar amount, as COVID ended, people started moving back. But we did not build more housing. So now, there’s a tremendous undersupply of housing, which is driving rents up, which is not good in the long term because the more difficult it is for people to find places to live, the more difficult it’s going to be for the workforce to grow.
What are some of the ideas that you believe can help spur new development and address the housing shortage?
Conversions of older office buildings are going to help. It’s not going to be a panacea. It’s not going to really have a huge effect. But the more housing we can produce, the better off we are and a number of the older buildings will convert well. Newer buildings are going to be more difficult and expensive to convert to housing. We simply need to build more housing to meet the growing demand.
Affordable housing needs tremendous support from the government to be produced. The 421-a program that encompasses most affordable housing in New York – that was started as just a housing program. Affordable housing got tacked on as an afterthought. It was never meant to be about affordable housing, but it has produced the most amount of affordable housing of any program in the city. So it’s a very valuable tool.
What people don’t realize as far as affordable housing is concerned, is not only is it expensive and takes large subsidies to get it built, but because the rents are so low, they don’t support the operations and the capital improvements. So many of these affordable housing buildings end up needing tremendous repairs after 20 years. I don’t have any one particular solution. Housing vouchers are one good way and Mitchell-Lama-type programs help. They produced very good housing, which is still working today. But there’s not been any programs like it.
Returning to the issue of commercial real estate, how do you see the workforce returning to offices?
Well, contrary to what a lot of people are saying, employees are back in the office. Buildings are getting back to a normal population Tuesday, Wednesday and Thursdays. I think Friday is going to remain lightly populated. We’re going to have to adjust to a new reality of a four-day workweek. People want to be in the office. We’re social animals. We want to be together. We want to talk to each other. A lot of what we do (at Durst), you can’t do it from home. You can’t build a building from your living room. You can’t design a building from your living room. You need to talk to people. All this talk about how working from home is going to end the office industry just isn’t right.
Let’s discuss your support for sustainability and where it stands today in this new normal.
In 1995, when we built what was 4 Times Square (which is now 151), we decided that we would build an environmentally responsible building. None of us knew exactly what that meant, but we knew we wanted to do it. And so we had a series of retreats. We brought in the Rocky Mountain Institute to try and determine just what would go into building a green building. It was very interesting because, for instance, one of the things we did was insist that all contractors recycle any material used from construction, which had never been done before. Of course, they complained. But it ended up saving them money and now everybody recycles construction waste.
Usually, we don’t do things that are going to add to the upfront cost, but they eventually reduce operating expenses. For instance, in Halletts Point (a new waterfront rental residential property in Astoria, Queens) we’re working with a new form of concrete. Rather than using 100% cement, we substitute ground glass to replace about 30% of the cement. So, it’s less expensive and cement is one of the most (carbon dioxide) producing processes. There is a tremendous benefit to the environment.
We’ve been buying wind power for our buildings for about 20 years now. And at One Bryant Park, we installed a gas turbine which makes about 80% of the power that we use in the building. And when you produce power on site, it’s about 70% more efficient than taking it from the grid because you reuse the heat and there’s no loss of transmission.
Have there been any downsides to producing your own power?
Under New York’s upcoming Local Law 97, we’re going to be penalized because we’re using gas to produce electricity, even though it’s substantially more efficient than buying it from the grid. At One Bryant Park, no matter what we do, we’re going to be paying millions of dollars in penalties, even though it’s one of the most efficient buildings in the city. And the reason is because of the dense occupancy of Bank of America (which occupies the building). A building that’s slightly occupied of a similar size that is vacant gets much higher scores than we do. So, we’re penalized for having a successful building.
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