"If banks aren't lending…then you could help all the homeowners you want, but if they don't have a job, it doesn't matter"
As the marathon race for the American Presidency entered its final weeks, candidates Barack Obama and John McCain got serious about rescuing homeowners trapped in bad mortgages and delivering relief to consumers being washed over by the tide of recession. Among other things, Obama called for a 90-day moratorium on foreclosures, and McCain put forth a plan that would replace some mortgages with government-guaranteed loans. To get a fix on the current state of the real estate market, I talked with Bill Rudin, president of Rudin Management, the privately held empire that has extensive commercial and residential holdings in New York City. The perilous economic times also led us to discuss the campaign by New York Mayor Michael Bloomberg to amend city rules and run for a third term. Bloomberg's pitch: Now is no time to change horses.
Both Senators McCain and Obama are proposing more direct relief for strapped homeowners. For example, McCain says he wants to replace mortgages headed for foreclosure with more manageable ones. Obama says he wants a moratorium on foreclosures. Would those proposals really help, or is this just campaign posturing?
There's no question we were in a very difficult place over the last few months. And unfortunately, it took time for the political system and government to react. The good news is they have reacted, and they've come up with a very, very strong plan. We could argue the merits of Senator McCain's or Senator Obama's plans. But the homeowner needs help, and anything that stops more inventory from coming onto the market would be very, very helpful.
Some people, such as Hillary Clinton, have suggested that it would have been better for Washington to have focused on bailing out homeowners instead of banks.
First you needed to restore confidence and liquidity. So you could help the homeowner, but if banks aren't lending to each other, aren't lending to consumers or businesses, then you could help all the homeowners you want, but if they don't have a job, it doesn't matter. You had to deal with the macro issue of providing liquidity to the marketplace.
Obviously there are cities and regions harder hit by the real estate upset than others. Are there places where you think the housing market has actually bottomed out?
I'm not an expert on the national housing market, but I think it's a little too early to answer that question because nobody was able to borrow in the last 60 days. It's going to take a little bit of time for the positive things to start flowing. In the New York City market, there are still people buying, there are foreigners coming into the marketplace, even with the dollar strengthening a little bit. I think activity will pick up over the next 30, 60, 90 days.
New York really is the eye of the storm in this financial crisis. Do you see a ripple effect on the real estate market from the layoffs at Bear, Lehman, and Merrill (MER)?
The full impact isn't clear yet. But let's take Lehman Brothers. They got acquired by Barclays (BCS). Barclays bought their building. Barclays is maintaining their investment bank and some of their other businesses. And so the initial thought was that there are going to be a lot of layoffs. But there haven't been that many layoffs yet. Our sense is a lot of those layoffs are going to happen outside of New York City, where there is redundancy in back-office operations.
What are you seeing on the front lines of commercial real estate in New York?
We're not seeing rents drop dramatically. We're seeing owners being more competitive in terms of pricing, but we're coming off of a very low vacancy level. We're below 6% right now. Even if we start seeing vacancies increase to 7% or 8%, it's still not significant. It's a 450 million-square-foot marketplace, so it's hard to give a specific answer as to what's going on. But there are people making commitments to leases.
Why hasn't the housing slowdown hit New York as hard as other markets?
New York has never been a speculative market like Las Vegas or Miami or others where people would build condos and people would go in and buy them and flip them and not live in them. New York has always been a market where people buy their homes and live in them.
With all the money on the sidelines, when will the economy turn fast and furious on the upside?
Hopefully, it won't be fast and furious, and there will be an orderly process where people look at their assumptions and analysis. We have to sort of go back to the fundamentals of how we look at our businesses. When we moved away from fundamentals and started thinking everything was going to go up forever, that's when we got into trouble.
You've been a staunch supporter of Mayor Bloomberg. Why should we break the rules and let him run for a third term?
First of all, I don't think you're breaking the rules. The city charter allows for the City Council to change the term limits. There's sort of a misunderstanding by the public about what exactly is going on. Term limits don't allow people to make a choice, and our democracy is all about choice. Nobody is saying that by changing the term limits, Mayor Bloomberg is automatically elected mayor. He's got to go through the process and convince voters he's the right person to manage the city during a difficult time. The people will decide whether he is or he isn't. But not letting them have a choice is a mistake.
The fight over term limits has at times pitted Bloomberg and his allies against [Estée Lauder billionaire] Ronald Lauder, who spent a lot of money pushing through term limits years ago. Is this a case of two rich guys deciding how 8 million people will be governed?
No. The people—not the billionaires—will decide whether to elect Bloomberg or whoever the other candidates are.