One-on-One with Richard LeFrak Part 3
In the third part of this interview, LeFrak Organization Chairman and CEO Richard LeFrak shares his perspectives on the effect of Brexit on US foreign capital, where we are in the development cycle and the possibility of a correction in 2017, technology in real estate, and the amenities changing the CRE landscape with EisnerAmper Real Estate Services Group Partner Lisa Knee.
Lisa Knee: Hi I'm Lisa Knee with EisnerAmper and I have a pleasure today of sitting with titan Richard LeFrak from LeFrak Industries So you were quoted on the morning of the Brexit vote that you thought that was going to be good for the United States and good for capital coming into the U.S. Do you still feel confident that that's a good thing for the U.S.?
Richard LeFrak: Yeah I don't believe that the full weight of that decision has really been felt in the U.K. yet I think that there are serious implications there's a complex negotiation that has to take place and that there's a chance that a significant portion of the financial service business will have to relocate from London and that's going to have a significant effect on their economy now maybe they can wiggle through okay and they do have the natural advantage of the English language the history of having an infrastructure to support the financial service business over there but if the feeling in Europe is that if you let one out without any you know scars a lot of them will be leaving then I don't think it's going to be that easy on all of them remember it's a little bit parallel in New York the financial service business is one of many industries that we have but it's the high paying one right?
RL: You can work in the hospitality business and you don't make the same amount of money as some investment banker or trader on Wall Street they're both jobs the high paying jobs a lot of them in London are related to the financial service business so you're taking that wealth out and it's going to affect the economy there but again it's too very early in the game they still haven't had the two-year announcement and all the things that have to be digested and I'm sure there's going to be some very active negotiations with the rest of the E.U. over what status they’ll be in.
LK: There's been a lot of talk about where we are in the cycle however people want to phrase it what inning are in where we're at and I think a lot of people are afraid that in 2017 there's going to be some sort of market correction for this wonderful growth that we have had over the last couple of years where do you feel that we are you still very optimistic for U.S. real estate?
RL:Well we're living in the low interest rate environment here I don't know what normal is and my career I've seen zero and I've seen twenty percent interest so what's normal I know wherever we all were on the low side of normal right now a lot of transactions were motivated by the cost of capital but in the end you still have to have enough demand to justify whether you're building condominiums office space retail multifamily all of those things they still need a customer in the end so my own feeling is that in many markets now they're saturated.
RL:Maybe too many condos too much retail too many hotel rooms so you have to curate where you want to be and say well I want to be in a market where there's still some demand and that the economics of the transaction whether it's a purchase development thing that the economics don't rely completely on these interest rates think of it as a that's kind of the whipped cream on the cake I got to borrow money for three and a half or four percent interest is there a fundamental need for whatever it is that you're investing in and will you have a customer at some price and so I would I would give you an uneven answer and say it's probably the ninth inning in a lot of markets and it may be the third of fourth inning in other markets depending upon how aggressive people have been.
LK:And how important of a role do you think technology is taking in the real estate industry do you think they're behind and embracing it enough for it is there something out there that excites you?
RL:Well certainly the retail business has been just disrupted by Amazon and I'm looking around a room at you and your colleagues here and I'm saying how many of them didn't get a package from Jeff Bezos today probably not many we know that the retail businesses is actually being transformed radically but also offices are being transformed now radically because nobody has a file and everything's in the cloud I don't have it with me but often will show my smartphone and I'll say to people I don't know is this my office technology is certainly changing the demand and the use of commercial space the one thing that remains intact is the cave because they haven't figured out how to put a kitchen and a bathroom in an iPad yet so the cave is still fundamental the desire for somebody to have a home a place to hang up their clothes so the residential business is still good although you know they're scratching at the surface now with some of these what I call kind of couch surfing concepts you know sharing you've also seen a hotel business get turned on Airbnb and real estate is being affected by technology but I don't think we know the depths of it in all the areas yet but it’s severe at least with respect to the retail for sure we know it's pretty cute.
LK:Are you making accommodations for this on your new projects are you thinking about how you’re planning?
RL:Well in SoLe Mia we’re building a shopping center but it’s what they call a lifestyle center a lifestyle center is an experiential place not a traditional shopping center because if you want a pair of socks you get them on Amazon you have to create an experience for people Whether it's more restaurant centric activity centric you got to build up bowling alley and the kind of movie theater that they bring the food to you
LK: Lay back in the seats.
RL:Yeah, lay back in an airline chair and they bring the food you have to build a great kind of park or amenity to draw people you have to make it very walkable very friendly it's not what they used to do so yes we have to adjust for that.
LK:I see there's such passion in you and what you do every day and I know there's passion because you're very philanthropic so what charities do go out there and support and I’m sure every charity but is there something out there from
RL:Well something I'm particularly proud of now is the skating rink in Prospect Park I love charities or philanthropy that effects and the public has access to and we had the opportunity to make the naming gift for the a big skating center in in Brooklyn and Prospect Park.
LK: What's the full name?
RL: It's called Lefrak at Lakeside Lefrak in Brooklyn its Lefrak
LK:I want to make sure everyone understand in New York it’s Lefrak.
RL:Right so it's been widely popular it's a magnificent facility at won a design award as a civic improvement and it's great to go out there and see little kids enjoy themselves it’s family it’s a family sport we support I personally been vice chairman of Museum of Natural History again that's a very accessible philanthropy my wife's on the board of the New York Philharmonic my son's on the board in New York Hospital so I mean we have a whole bunch of course I support Amherst College where I where I went to school so we have a variety of philanthropies that we support but the thing that I enjoy the most of things that the public gets to use that's what I like because I think that's important that people understand that no matter how much success you've had a wealth that you want to use it so that everybody can have access to or enjoy something whether it's knowledge or going to Museum of Natural History skating rink you name it.
LK:So is there anything that keeps you up at night or nothing keeps you up at night or everything keeps you up at night?
RL:My wife's dogs keep me up at night.
LK: Your wife's dogs not your dogs.
RL:No I mean of course every place that I'm working in you can find a reason to worry in other words Miami is going to be under water any minute New York I'm going to get a terrorist attack Los Angeles is going to have an earthquake I mean you can find things to fret over but if you're a real estate developer a developer especially everything you doing is being an optimist about the future I take on a project in Miami that's going to take me 20 years to do am I going to be pessimistic about something I have to say yes there’s going to be bumps along the road but I have confidence that in the life of this project this can be successful so yes I mean I've seen horrible things I mean you know we've all witnessed some things whether it's a financial crisis or 9/11 all these terrible things that have affected people in all kinds of ways in 1982 when interest rates was sky through the moon everybody was complaining and there's a lot of tragedies out there but if you're real estate the developer if you're not optimistic don't go in that business because you can't take your temperature if you want to have your temperature taken every day there's a place you can go it's called Wall Street you can go to Wall Street and they'll take your temperature every day you can open up the New York Times or the Wall Street Journal and look at your start position and you’ll know how you’re doing I never know how I'm doing until the end I have to wait I have to wait till the end in the middle I don't know how I'm doing you can't change your mind when you're building a city or you're building a building you can't say in the middle never mind you're committed so you have to be an optimist.
LK:So I want to thank you so much for sharing the afternoon with us and on your insights on real estate and more specifically telling us about your family in your history thank you very much.
RL:Thank you for coming.
LeFrak Organization Chairman and CEO Richard LeFrak discusses diversification and expansion, joint ventures, and hot locations across the US for development with EisnerAmper Real Estate Services Group Partner Lisa Knee in the second part of this interview.
EisnerAmper Real Estate Services Group Partner Lisa Knee interviews LeFrak Organization Chairman and CEO Richard LeFrak on his start in commercial real estate and the importance of family legacy. Richard shares his perspectives on the development of the Ellipse residential project, the history of 40 West 57th Street on Billionaires Row, the return of millennials to forgotten neighborhoods, and the state of affordable housing and construction costs in New York City.