Gary Barnett of Extell on Holdouts, Rent Hikes and 421a
Gary Barnett doesn’t do many interviews. But it turns out that he has a lot of opinions.
The billionaire founder and president of Extell Development shared a few in a rare sit-down Thursday, including:
- that he should not have to pay millions of dollars to holdout tenants;
- that it’s wrong to say foreign buyers of luxury apartments are “parking their cash;”
- that rents are not soaring but returning to pre-pandemic levels;
- and that developers often lose money and thus deserve every penny when they profit.
Speaking with The Real Deal publisher Amir Korangy before several hundred audience members at TRD’s Showcase and Forum in Manhattan, the man behind such iconic condo towers as Central Park Tower and One57 did not hide that he took hits when the market slumped.
In October, TRD reported that he was selling condos at Central Park Tower at a 25 percent discount, which could shrink the project’s sellout by $1 billion.
“We did what we had to do when the market was down,” Barnett said. “When Covid hit everything, we cut pricing across the board. But since the beginning of 2021, we’re seeing a tremendous pickup in the market.”
He took issue with the narrative that rents have spiraled out of control.
“Saying rents went up 30% is totally inaccurate,” Barnett said. “All it did was stabilize back to normal.”
When rents and condo prices fell, many buildings, including some of his own, did not generate enough revenue to make their debt payments. Therefore, Barnett said, people should not begrudge builders who raise prices when the market bounces back.
Unpredictable market cycles are not the only pitfall facing developers. Barnett also touched on the challenges of navigating tenant holdouts, something that has recently bedeviled competitor Miki Naftali as he tries to convert an Upper West Side rental to condos.
“We are very reluctant to go into anything where we could be stopped by a holdout,” said Barnett, who typically spends years assembling development sites in a quest to build market-defining projects. He was a key figure in the creation of Billionaires’ Row.
With lawyers playing hardball to wring huge settlements for holdout clients, Barnett said government bureaucracy and the court system move too slowly to protect developers’ rights under the law. In Naftali’s case, the tenant has an expired lease and no right to a renewal, yet has remained in his penthouse unit for months in an apparent quest for a seven-figure payout.
The lawyer might get a windfall for the tenant and himself by slowing housing construction and increasing its cost.
“He may get a great deal for a client, but is that good for society?” Barnett said.
The Extell chief also challenged the assumption that the wealthy are buying opulent condos like his not as a place to stay but to “park their money.”
“That is a dumb expression,” Barnett said. “Why would you park money in real estate when you can’t move it out easily?” (It often takes years to sell an apartment for tens of millions of dollars.)
He argued that although relatively few people can afford to live at Central Park Tower, it contributes plenty to the city in other ways, including by generating nearly $20 million in annual taxes and employing building staff.
The developer commented on several policy issues, notably 421a, a property tax break for rental projects that include affordable housing.
“421a did a tremendous amount,” Barnett said, before alluding to its pending expiration June 15. “We need more programs, and hopefully the government will get their act together.”
On the topic of converting obsolescent office buildings into residences, he said without proper tax incentives, it’s simply too costly. Offices tend to have wide floor plates; the housing code requires a window in every bedroom.
The developer touched on the likelihood that a casino will be allowed in the city, saying Times Square — where Extell recently completed a 446-key Hard Rock hotel — is already busy enough and not the right place for a gambling venue.
He did not say where a casino should go, but did say who the developer should be.
“If it’s coming,” Barnett said, “I want to build it.”