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When you’re in, you’re in. When you’re out, you’re out. But how do you tell which one is which?

That’s the question The Wall Street Journal brought up last week concerning Big Apple landlords. The article, titled “Is the worst over for New York offices?” rightly noted that “Manhattan landlord SL Green” (SLG) “has been one of the top-performing property stocks this year despite stiff competition for tenants.

SL Green, for those who don’t know, is a real estate investment trust (REIT) and Manhattan’s largest office landlord. It holds interest in 55 buildings such as elite skyscrapers One Vanderbilt Avenue and One Madison Avenue, and other trophy real estate like 10 East 53rd Street.

Consider the company’s description of just that last property as a:

"… boutique trophy asset located in Manhattan’s Plaza District that features unparalleled views of Central Park and the city skyline. The 37-story building underwent a comprehensive redevelopment [that] included the completion of a new lobby integrated with a dramatic interior arcade, redesigned façade, new plazas with abundant green space, and a world-class art program.

"A high-end Equinox fitness club, hotel-style concierge services, and efficient side-core floor plates round out the property’s elevated offerings. With access to marquis restaurants such as Le Bernardin, Daniel, and to premiere hotels like the New York Palace and the Waldorf Astoria, 10 East 53rd Street is truly a signature address."

In other words, this is a crème de la crème property – the only kind that SL Green gets involved with. But does that make the company worth investing in?

It’s no secret that commercial real estate was hit hard by the lockdown era, and its recovery has been a slow one. And New York City – which had some of the strictest lockdown requirements – was among the hardest hit. Many previously in-demand properties saw tenets flee in droves.

But is SL Green’s recent performance – at long last – a sign of a turnaround?

The Wall Street Journal article, as should be expected, is excellently researched and well thought out. And I completely understand its cautious conclusion that “glimmers of hope are emerging for Manhattan’s beleaguered office landlords, but it is still a tough neighborhood.”

I’m the first person to support each analyst and investor’s right to come to their own conclusion. But as for me, I wouldn’t touch New York City real estate if someone put a gun to my head.

If Location Is Everything, I’m Looking Elsewhere

I don’t mean to sound provocative, but I’m a real estate man by trade, education, and at heart. So, to me, it really does start with location, location, location. This seemingly simple word (thrice repeated or not) encompasses multiple factors, including:

• Safety
• Distance to desirable jobs, stores, hospitals, schools, entertainment, and other landmarks
• Economic outlook

In which case, NYC flat-out fails on the first, is diminished on the second, and remains questionable on the third. Everyone knows the city just isn’t what it used to be, regardless of whether everyone wants to admit it or not.

Big Apple subway crime, at least, is down from last year due to increased police presence in metro stations. But that’s after major assaults against transit employees rose 47% from 2020 to 2023, according to an AP analysis.

Remaining workers are being offered “relaxation classes” to manage their resulting fear and anxiety. It’s a story that was all over the news recently. Gun violence is also apparently down by 9%, from 538 attacks this time last year to “just” 485.

But the New York Post reported recently that crime in general is up out on NYC streets, including some very noteworthy stabbings. I won’t go into the gruesome details, but let’s simply say that gun violence isn’t the only cause of violence to consider.

Random sucker-punch assaults continue as well, with an 89-year-old comedian being the latest reported victim just the other day. Pedestrians will be walking along, minding their own business, when someone comes up and slugs them in the face, then walks away.

It’s random and brutal, and people have suffered serious injuries and even died from these attacks. So, it seems more than safe to say that the city remains an abject mess when it comes to the safety of its citizens.

It might seem crass to reduce real-life violence down to a piece of investment analysis. That’s not my intention. But it’s something that does figure into the thinking of every real estate developer in the world. And the trends in New York have been disappointing, to say the least.

A Changed Landscape for the Worse

New York City’s crime statistics naturally change the second “location” consideration: the distance to desirable locations. Between that and other major factors such as rising regulations, company after company and millionaire after billionaire left New York City for sunnier spaces in 2020, 2021, and 2022. And they haven’t come back.

So, despite the population growing since 2020 from about 18.6 million to 19 million, including over 175,000 migrants, it’s not the same. Not even close. And considering that nothing noteworthy is being done about NYC’s plight right now, its future remains unattractive for some time to come.

Now, going back to SL Green, it is one of the best of the best landlords an NYC tenant can ask for. So, I do want to highlight something from that aforementioned cautious Wall Street Journal piece, how:

"SL Green is on track to pass two important milestones. It wants to lease 2 million square feet of space in 2024 and has already found tenants for 1.4 million square feet. The company also expects its occupancy rate to recover to around 91.5% this year."

Moreover, there is a sizable corporate pushback against the work-from-home phenomenon in NYC. To make that often-undesirable requirement more palatable, remaining companies that can afford it are looking for the best of the best office accommodations.

But that’s not automatically translating to enormous profits for SL Green and its high-end competitors. Because, due to all the issues already mentioned on top of an enormous amount of new office space brought online in the last few years for some short-sighted reason that escapes me, landlords now:

"… need to offer sweeteners to fill even their finest buildings. Tenants that sign new leases are being given anywhere from one to 1.5 months free rent a year on average and generous tenant improvement allowances, Colliers data shows."

It adds that “a reduction in these kinds of concessions would be a sign that landlords are getting some power back. However, the market isn’t at this stage of recovery yet.”

Going to Greener Pastures

I’m picking on New York City here because of that (very well-written and well-researched) article I read. But it’s hardly alone in offering too little to residents, businesses, and investors alike.

Cleveland, Ohio. Los Angeles and San Francisco, California. Chicago, Illinois. These cities are spending too much on all the wrong things. The results make them places I want to and will stay away from.

I seek out investing opportunities in places that are thriving. Either that or they’re pushing policies that will help them thrive in the foreseeable future. That’s certainly what I did back in my commercial real estate development days. Big corporations – from Walmart to Advance Auto Parts to Rite Aid – would hire me to look for the most promising sites to build their next retail locations.

I would scope out potential places, analyzing them for that all-important location factor. And if a plot didn’t check out for safety, surrounding attractions, and economic outlook, I’d look elsewhere. It was as simple as that.

So, am I completely down on office spaces as an investment proposition? That’s an easy no. I think there’s still a lot of promise here, a stance I’ve taken since the beginning of the shutdowns.

But I do want to see publicly traded landlords in places with real growth: the kind that beckons new business instead of leaving room for hesitation or outright dismissal. These days, that means a lot of Southern and Midwest markets and far fewer of the big cities we used to fawn over and flock to.

Judge every opportunity – real estate or otherwise – on its own merit. But while you do, consider location. And if it’s located in New York or similar cities, I personally am running far, far away.

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