At an office in SoHo, rows of desks sit empty, while a shaggy dog — shadowing an owner nostalgic for work-from-home comforts — wanders the conference rooms. At a tech workplace downtown, a gaggle of 20-somethings divide into teams, calling out “Who’s on the Orange team?” and “We’re going to kill it!” as part of a game night enticing them back to in-person work. On the subway, commuters delight in a once-unimaginable indulgence: bag-spreading across two seats.
About a year and a half after Mayor Eric Adams chided workers — “You can’t stay home in your pajamas all day!” — New York’s offices in late August were under 41 percent of their prepandemic occupancy. Just 9 percent of the city’s office workers were going in five days a week at the start of the year, according to the Partnership for New York City, a business group. Remote-work levels crisscrossing the country are more mixed, with just under one-third of America’s workdays now done from home.
But in New York, the broad feeling across offices is one that locals know well: It’s like sitting on the subway waiting to get somewhere and then feeling the car lurch to a stop. It sits there. Nobody has any idea when it’s going to move again. Passengers eye one another, feeling fidgety and useless.
That’s the limbo that the real estate industry is experiencing now, as companies try to fill their offices back up. Building owners are waiting for movement. Few know what to do in the meantime.
Caught in the midst of that stall is Eric Gural, whose family has a commercial real estate empire in New York City, GFP Real Estate, which owns and manages more than 55 properties and 13 million square feet, or some 2 percent of the city’s office real estate.
This isn’t the first time Mr. Gural’s family has seen the real estate market falter. There was 2008, during the Great Recession, when a Cushman & Wakefield senior managing director reported: “The news out there has been bone-jarring.” There was the aftermath of the Sept. 11, 2001, attacks, when headlines declared: “Office Vacancies in Downtowns Surge.” There was the economic downturn in 1990, when a real estate professional confessed, in an article about office vacancies: “People are afraid.”
But this time feels different. The value of New York’s office buildings could fall nearly $50 billion in the coming years, according to researchers at Columbia and New York University.
“Covid hit everybody,” Mr. Gural, 55, said. “Who did well in Covid?”
Through most of the city’s previous economic busts, Mr. Gural’s grandfather Aaron, a longtime leader of the family’s real estate business, was confident that people would want cheap New York office space. “No matter what, there’s going to be demand at 10 bucks a foot,” was his thinking, according to his grandson’s recollection.
That wisdom now sounds shaky. It’s an eerie moment for commercial real estate, which has been rattled before but never so fundamentally. New York’s office vacancy rate has surged more than 70 percent since 2019; there’s some 96 million square feet of office real estate available for lease in the city. Delinquency rates for office loans across the United States are at a pandemic-era peak of nearly 5 percent.
Building owners are conceding uncertainty as another Labor Day approaches, the third since vaccines rolled out, and as executives across major employers again ratchet up calls for a return to the office. Economists worry that empty offices could lead to an “urban doom loop”: Fewer people commute, downtown and midtown businesses suffer, tax revenue dips, and it gets tougher for cities to keep public services running.
To try to figure out what happens next, it seemed instructive to speak with someone for whom the vacancy numbers have specific urgency — someone who owns that empty office space.
Asked about the worst-case scenario for his own business, Mr. Gural said: “Rents will be lower. Occupancy will be lower. We won’t be as profitable. The worst part about that is that it might affect some of the philanthropy we do.”
He is staying confident, for the time being, partly by pinning hopes on a broader return to the office. He takes inspiration from his own two children, both in their 20s, who tell him that they want the experience of commuting on the subway and working far from their couches.
“Young people want to work in an office — what’s the Seinfeld line? ‘I finally figured out why we have kids, because they’re here to replace us,’” Mr. Gural said, recalling the spirit if not the letter of the Jerry Seinfeld canon. “The next trove of office workers, of professionals, they’re going to want to work in offices.”
He later added: “The only two great things that weren’t made in the office were fire and the wheel.”
This isn’t the first time New Yorkers have faced down crises by employing Seinfeld-inflected magical thinking. But a crisis is one thing. What about a permanent shift in the way we work and live? As building owners watch to see how permanent the hybrid shift will be, some have adopted a new mantra: “Survive until ’25.”
Location Is Everything
People driving into Manhattan in the summertime tend to want ice cream. That’s a lesson that Mr. Gural’s grandfather learned, in the 1930s, when he had his first foray into business, selling cones at a stoplight near the George Washington Bridge.
“Meet people where they are,” Mr. Gural said, describing his grandfather’s thinking.
That philosophy guided his approach to commercial real estate. Rather than compete with friends for the city’s fanciest properties, its Park and Fifth Avenue gems, the Gural family bought up cheap manufacturing spaces in convenient locations. The company focused on what are known as Class B offices: unadorned properties, many of them in the garment district, instead of Class A gleaming towers like those at Hudson Yards. Roughly 33 percent of the city’s office buildings are Class B, according to Jones Lang LaSalle, a real estate investment company.
Coming out of the pandemic, the Gural family’s approach could put their business in a more difficult position. Real estate agents say they are witnessing a “flight to quality,” in which tenants flock toward fancy spaces in the hopes of drawing workers back to the office. That means the office crisis for Class B owners is especially acute.
Class B properties often look like the stereotype of a New York office: old-school brick, small windows, kitchens with mealy apples, elevators that feel like they haven’t been fixed up since the Giuliani administration. The sort of places people might not return to voluntarily. Many companies fighting to get their workers back are now eyeing flashier spots, the type with juice bars and treadmills in the building.
“The owners of Class B buildings are in a terrible predicament,” said Ruth Colp-Haber, chief executive of Wharton Property Advisors, a real estate brokerage. “They are facing a tsunami of pressures, and some will be washed away with the tide.”
There are three real plays available to office building owners in the increasingly grim game of their business.
Owners could invest in their properties to try to make them more appealing, turning B-minus buildings into B-plus ones with new amenities — sleeker lobbies and elevators, coffee shops, even gyms.
Landlords could default on their loans and hand a building’s keys back to their banks; after all, defaulting on a mortgage loan for one property doesn’t typically allow the bank to touch others.
Then there’s the conversion path, turning office buildings into housing, hotels, retail spaces and laboratories. Between 3 and 10 percent of New York City’s offices could be good candidates for conversion, according to experts, often meaning the buildings are narrow enough that they can be broken up into windowed apartments.
Beyond converting a space, dumping it or “classing it up,” there is another possible course of action (or really inaction) for landlords: Wait and see.
Hope that office workers come back, and that interest rates decline in the meantime. Pray that young people miss the grind and that one day soon they’ll embrace their old commutes, allowing that stalled subway to get back in motion.
“This is a very very slow-moving trend,” Ms. Colp-Haber said. “You can push the can down the road as much as you can.”
Mr. Gural said his company at worst would “tread water,” noting that many of GFP’s deals are with small tenants that aren’t tracked in reports on the industry. He doesn’t believe that GFP will have to give any of its buildings back to the banks.
Sprinkled across Manhattan are Gural properties that are cruising along as smoothly as ever. Take the elegant brick building at 100 Crosby Street, formerly home to Soho’s Dean & Deluca. It now houses Converse and Aritzia, among other tenants — and has no space available for lease, according to CoStar.
Other properties are struggling. Two of GFP’s buildings on West 34th Street have nearly 30 percent of their space available for rent.
The company got a three-year extension this year on a mortgage loan for one of its landmark properties, the DuMont Building, a 42-story Art Deco tower at 515 Madison Avenue, after defaulting on a $103 million loan for the property. Mr. Gural is also in negotiations for a loan extension on a Union Square office building.
The family expects to request extensions on more. But as long as the banks allow the Gurals loan extensions — and it’s not as if the banks want the keys to the buildings — there’s no reason for the family to give up on any of its properties just yet.
“People will come back to the office,” said Mr. Gural, whose employees at GFP have been expected to be in the office three days a week — though that bumps up to four after Labor Day.
“I don’t think the whole world has been doing it wrong for the last 100 years,” he added. “I just don’t. There are so many successful things that have gone on in the world. One of the things they had in common was they had an office.”
Mr. Gural is hanging in the same limbo as the rest of the city, though for him the stakes are quite personal.
His outlook is rosier than that of Manus Clancy, senior managing director at Trepp, a commercial real estate data firm.
“The office market is quite — what’s the word? — unloved,” Mr. Clancy said. “We’re going to see an awful lot of defaults.”
‘Blood Coming Out of Our Nose’
Standing on the steps of the New York County courthouse in May, throngs of men (and they were mostly men) wearing well-fitted suits called out competing bids to buy the Flatiron Building — a strange battle for an office landmark when its future seems wildly uncertain.
“We begin the bidding at $50 million!” the auctioneer said.
The Gural family won, buying out its partner to fully own the building for $161 million. Standing in a cluster of reporters afterward, GFP’s chairman, Jeff Gural (Eric’s father), announced that he was exploring converting at least half of the Flatiron into housing, possibly condominiums. The Gurals are also considering whether some of the building can be used for hotel space.
It’s a recognition that the future of their real estate profile will look different, no matter how broad of a return to office the city sees.
After all, when companies start offering charitable donations on behalf of all employees coming into the office, as Salesforce did in June, it’s a cry for help. Many real estate industry experts argue that there’s no case for optimism for the city’s Class B office owners.
“In many cases, unfortunately, their option may be handing over the keys to your lender,” said Josh Zegen, managing principal and co-founder of Madison Realty Capital, which specializes in financing commercial real estate. “You’re starting to see more and more of that happen.”
Meanwhile, some city leaders are fighting for more office-to-residential conversions, as the population of city homeless shelters reaches 100,000. In August, Mayor Adams announced plans to convert more buildings in Manhattan to residential spaces, by rezoning manufacturing areas in Midtown and by allowing buildings built as recently as 1990 to be converted into housing.
Right now, only those built before 1977 or 1961, depending on location, can be converted. The plan would require City Council approval.
The Gurals have urged more support for office conversions, too. Eric Gural’s cousin Brian Steinwurtzel is helping to oversee for GFP what would be the country’s largest-ever conversion of a building from offices to housing, creating some 1,300 apartments at 25 Water Street. But Mr. Gural stressed that building owners needed rezoning policies and tax incentives to propel conversions.
“We’ve just lost every round of a 15-round fight,” Mr. Gural said of the city’s building owners. “We’re lying on the mat. We have blood coming out of our nose. And our head hurts.”
For a bloodied fighter, Mr. Gural spoke with a sense of cheer. Sitting in a blues bar in Midtown West, he picked up a butter knife and turned it on its edge. He explained that the bar, like the butter knife, is extremely narrow — meaning it could be repurposed to house people.
Looking around the neon-lit space, mostly empty on a weekday at lunch, the eternal New York optimist declared: “I can make apartments here.”