October 2023

The City that Never Sleeps

Leave a Comment / Real Estate Development / By Sean Bukowski

I was lucky enough to travel to New York City to spend last weekend with my family.
New York is still a fantastic city, but it has some very difficult times in commercial real estate on the horizon.
With high vacancy and rising interest rates, office owners may need to come up with alternative solutions.

Last weekend was very fun for me. I was lucky enough to meet my family for a quick weekend getaway in New York City. And we got to celebrate my nephew’s 21^st birthday. It was quite enjoyable. And while I mostly concentrated on spending time with the family, as we were walking around, I could not help but notice some things.

New York is a fantastic city – one of my favorites. But it has some challenges. And that includes in the commercial real estate world. So that’s what we are going to talk about this week – the greatness of New York and some challenges it is facing.

New York is Still as Great as I Remember

Rockefeller Center – soon to be a skating rink.

When I was a young lad – a younger lawyer – I lived in Manhattan. I was working for Vinson & Elkins at its New York office and having a fantastic time. But after a couple of years there, I was ready to leave. Not that I did not still love the City – I did. But it was just time. And I hate cold weather. So I moved back to Texas.

Sadly, I have only been back a few times since I left in 2006. And I often miss it. So this weekend we were able to take it all in – walked all over the City, saw a show on Broadway, ate at an Italian restaurant, went to a jazz club, and visited MoMA. It was a great weekend.

And while I mostly concentrated on having a good time with the family, I couldn’t help but look around at all those buildings and wonder what was going on inside.

New York’s Coming Real Estate Issues

As everyone knows, New York has a lot of big, giant office towers. I worked in one at the corner of 52^nd and 5^th. So as we walked around Manhattan, I kept looking up and wondering what their vacancy rates are. I mean – I know what its like in Texas. I’ve written about it here. It has to be at least that bad with all of this office space, right?

Well, unsurprisingly, it turns out it is bad. Depending on who you read, as of the first quarter this year, vacancy rates were between 17% and 22%. That means there is more than 94 million square feet of vacant space. That’s a record – at least for now. Most people expect those vacancy rates to rise. Indeed, city officials expect vacancy rates to stay above 20% through at least the end of 2026.

We all know why this is happening – its been discussed everywhere, including in this blog. With COVID, a lot more people figured out that they could work remotely. And, as a result, companies are downsizing their office space.

But, of course, that’s not the only issue facing commercial real estates. Interest rates have also climbed significantly. And New York has $137 billion in commercial debt that expires in 2023. And almost $500 billion in the four years after that. With these skyrocketing interest rates, it is going to be very difficult for commercial owners and developers to sell or refinance. So what will everyone do?

One possibility that keeps being discussed is to convert some office space into residential. But its my understanding that is very difficult to do and extremely costly. And in New York, it would likely require a lot of rezoning. But that just may be one of the possibilities that commercial real estate owners are forced to explore. Because for at least the next few years, owning office space in New York is going to be extremely challenging.

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Doth Not Protest Enough About I-35 Expansion

Leave a Comment / Social Issues of Central Texas / By Sean Bukowski

TxDot has revealed and improved its plans for I-35 expansion through the heart of downtown Austin.
While I-35 does need fixing, TxDot’s plans are not the best route for it to take.
By adopting TxDot’s plans, we would be forgoing a much prettier, more unified city.

I have written multiple times in this blog about the I-35 expansion. But I think that is important. For one, it’s a huge project that is going to have a gigantic effect on the future of our city. And for two, the current plans are not great. They just do not provide what Austin really needs. Nor do they add to the aesthetics, tax base, etc. It will be a real shame if the current plans are the final version of I-35. So lets talk about what is planned.

What is the Current Expansion Plan?

Driving on I-35 in Austin stinks. I think we can all agree on that. It rarely matters what day or what time of day you are on it – there is heavy traffic. To allegedly fix those problems, TxDot has come up with an expansion plan. The basic highlights of that plan are the following:

Two additional lanes in each direction that are reserved for vehicles with two or more passengers;
The current upper levels of the expressway will be torn down;
The main lanes will be lowered from Oltorf Street to Airport Boulevard;
An elevated bicycle and pedestrian bridge at 15^th Street; and
“Boulevard-style segments” running through downtown with pedestrian and cyclist path improvements.

To do this, TxDot needs to acquire a significant amount of land along the expressway. As a result, many homes and businesses will be displaced by the expansion. TxDot has begun sending out eminent domain letters to property owners.*

The Problems with TxDot’s Expansion Plans

So why am I complaining about the current expansion plans? I already wrote that I-35 is a mess through Austin. And it clearly needs improvement. But even still, TxDot’s plan has a number of issues. This includes:

Lack of a cap on top of the new road: This is the biggest issue. It just makes no sense not to cap the highway through Austin – as we have discussed in this blog previously. A cap would help to reduce noise and pollution, and it would also create new public space and increase the property tax base. It is a no brainer.
Studies have shown that expanding roads does not actually lessen traffic. In fact, it often leads to more traffic. This is because when you build a new road, it induces more people to drive. If the point is to reduce the congestion on I-35, why are we following a plan that will not accomplish that goal?
The expansion of I-35 will displace hundreds of residents and businesses. This will have a devastating impact on the communities that are affected. For example, we know the expansion will force out a Spanish immersion day care.
It will not solve the divide between east and west Austin. The roots of I-35 and the division between east and west Austin are ugly and racist. Uniting our community by – at the minimum – capping the road and bringing the two sides together should be a focus of the expansion plans.

There are many (including Rethink35 – an advocacy group) that think all of this could be solved by moving I-35. Its plan would turn the current I-35 into a boulevard and move I-35 to SH-130. This would, obviously, solve the biggest issues that having I-35 cut through the heart of downtown causes. And it would send much of that traffic to SH-130. It is an ideal solution. I wish we all could get behind that ideal.

But that does not appear to be in the cards. As a result, it is essential to push back on the current plans put forward by TxDot. As it is currently envisioned, the expansion will likely increase traffic and displace lots of residents and businesses. While forgoing the unification of the City and increased the available space for housing and businesses. It just does not make sense.

* If you are a property owner and have received one of these eminent domain letters, you have rights. Please feel free to contact us to discuss what those rights are.

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Preparing for Impending Litigation in a Difficult Environment

Leave a Comment / Legal Awareness / By Sean Bukowski

These are difficult times in the world of commercial real estate.
During difficult times, unfortunately its much more likely that a commercial real estate owner will be drawn into litigation.
By preparing for litigation ahead of time, the owner can increase his or her chance of success.

It’s a crazy commercial real estate world out there right now. I am not telling you anything new when I say that these are complicated times. No need to rehash the particulars. But in times like these, we usually see a rise in litigation matters. Regardless of everyone’s best intention, litigation is likely to increase in difficult economic times. And while no one wants to be involved in a lawsuit, it is important to be prepared in case one does arise. So that’s what we are going to talk about this week.

The Importance of Gathering Evidence

A lifetime ago when I was just a lad, I participated in the Boy Scouts. And from that, I still remember our motto – Be Prepared. Well that is a good idea for commercial real estate owners also. Nobody wants to get into litigation but the better prepared you are, the better your chance of success. One of the most important things a commercial real estate owner can do to prepare for impending litigation is to gather evidence. Among other items, commercial real estate owners should gather –

Contracts: Contracts are essential pieces of evidence in any commercial real estate lawsuit. Contracts can establish the rights and obligations of the parties involved, as well as the facts of the case. This can include operating agreements, vendor agreements, etc.
Leases: Leases are another important type of evidence in commercial real estate lawsuits. Leases can establish the terms of the relationship between the landlord and tenant, as well as the facts of the case.
Appraisal reports: Appraisal reports can be used to establish the value of a commercial property. This can be important in lawsuits involving breach of contract, fraud, or negligence.
Environmental reports: Environmental reports can be used to establish the environmental condition of a commercial property.
Invoices: Invoices can be used to establish the cost of repairs, maintenance, or other services performed on a commercial property.
Photography: Photography can be used to document the condition of a commercial property.
Records of time spent: Records of time spent can be used to establish the damages incurred by a commercial real estate owner as a result of a lawsuit.
Expert testimony: Expert testimony can be used to explain complex technical or legal issues to the court.

How to Gather Evidence

So how does a real estate owner go about getting all of this evidence? The key is to start early and … Be Prepared. Once you become aware of a potential lawsuit, you should begin gathering all relevant documents. You should also start keeping detailed records of all communications with the other party and any expenses you incur as a result of the dispute.

If you are unsure what type of evidence is necessary, you should consult with an experienced commercial real estate lawyer. A lawyer can help you identify the relevant evidence and develop a plan for gathering it.

Also – if you are facing potential litigation, it is very important to preserve all the evidence. This includes not deleting emails, destroying paperwork, etc. That evidence will be essential in the coming litigation. Having a preservation policy, therefore, is important.

Additional Tips for Gathering Evidence and Keeping Good Records

Create a system for organizing and storing your records. This will make it easier to find the information you need if you are involved in a lawsuit.
Back up your records regularly. This will protect your records in case of a fire, flood, or other disaster.
Know what type of evidence is relevant to your case. This will help you to focus your efforts on gathering the most important evidence.
Be honest with your lawyer about your records. Even if you have some negative evidence, it is important to be honest with your lawyer so that they can develop a strong case for you.

By following these tips, you can increase your chances of success if you are involved in commercial real estate litigation.

Conclusion

Preparing for impending litigation is an essential step for any commercial real estate owner – especially in our current environment. By gathering evidence and keeping good records, you can increase your chances of success if you are involved in a lawsuit.

If you are facing impending litigation, it is important to consult with an experienced commercial real estate lawyer. A lawyer can help you to assess your case, develop a strategy, and gather the necessary evidence.

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