Despite the non-capitalist undertone of its name, Marx Realty and its parent company, Merchants’ National Properties, pioneered the high-commerce trend of fusing hospitality with offices.
Now it has proven beneficial to lure people back into the office who worked from the comfort of their home in the past year.
“We want people to be happy to be there when they walk into an office building,” says CEO Craig Deitelzweig.
Sixteen months of coronavirus-induced WFH showed how much the offices have not changed in the past few years.
“Just put a lot of white marble everywhere and call it a day,” he observes. “That worked for a while. But that’s over. “
Deitelzweig says these standard white marble lobby buildings don’t speak to the modern tenant experience and are now in trouble. Nearly 19% of Manhattan space is now vacant and 21% of downtown offices are vacant, according to real estate company Newmark.
Deitelzweig believes that moving away from generic office design sets Marx apart. Even before the pandemic, the retail specialist was a pioneer in the design of office spaces that are more reminiscent of luxury hotels or clubs. A uniformed doorman and an attendant greet people as they enter.
At 10 Grand Central in Midtown Manhattan, walnut, leather, velvet, brass and herringbone concrete tiles create an ambience that is reminiscent of the building’s original construction from 1931.
In contrast to most offices, Marx’s properties have a characteristic scent. Soft music wafts through the public areas. The inclusion of five senses awakens wellbeing, says Deitelzweig.
The repositioning of the building prior to the pandemic increased rents per square meter from $ 48 to $ 78, depending on the floor, to $ 72 to $ 97, depending on the floor. Deitelzweig had seen competitors visit the room – even while taking photos.
With roots dating back to 1815 and founded in 1928, Merchants’ National Properties acquired Marx Realty in 2006. Together they manage, develop and rent 71 office buildings and shopping centers in 16 states.
COVID-19 has hit the real estate industry. In 2020, however, Merchants’ National Properties reported gross rental and other income of $ 51.3 million, compared to $ 48.2 million in 2019.
Throughout the pandemic, 98% of Marx’s office tenants continued to pay rent even when employees worked remotely. Many companies are now planning to return to the office.
“The entire financial sector seems to be back to work by September,” says Deitelzweig. Many tenants who have moved out of their offices are letting their leases expire.
“All of a sudden, they realized, ‘We’re going to be a runaway. We need space now. ‘ We’re seeing a lot of it, ”he adds. Tenants from the financial sector and private equity tenants in particular are showing interest in his company’s properties. At 10 Grand Central, five proposals go to various private equity firms interested in renting out the 21st and 23rd floors.
A new look and feel
Another building, 545 Madison Avenue, was redesigned to look like a hotel for $ 24 million. Deitelzweig describes how rounded edges and curved furniture lines create a more sensual experience instead of the typical, hard-edged, square shapes of offices. In March, Marx gave two rental tours of the property. That rose to 17 in May.
“We wouldn’t have had that with the normal model,” he comments. This property has rented space to two leading private equity firms. The Herald, the Beaux Arts building in Washington, DC that Marx acquired, refurbished and launched in April 2020, has signed three office leases.
Retailing proved to be more difficult. April 2020 retail collections were 45% across the portfolio and several tenants filed for bankruptcy. Marx worked with tenants and took individual circumstances into account. However, Deitelzweig makes it clear that it has drawn a tough line with national chains that should have paid rent but didn’t.
“We said we won’t accommodate you. You have to pay rent. You have been in our buildings for a long time. They have always done a good job and this is not the time to take advantage of us, ”he says.
“For the smaller companies, we knew that they were really suffering and that they might not have the money to do it without help.”
Marx Realty has worked with virtually all of its restaurants, most of which have now reopened. Rent collection from Marx’s retail tenants has almost rebounded to pre-pandemic levels. The majority pays the full current rent plus part of their deferred amounts. Since July 2020, Marx has consistently collected around 95% of retail rents.
Its malls outperformed other retail stores and benefited from open air and green space designs. They are anchored by supermarkets or other reliable sight and traffic drivers. The Cross County Center in Yonkers, New York, where a 130,000 square foot Target broke ground in March, is 98% busy. The mall’s rental income fell to 45% at the start of the pandemic. But since September 2020 they have been around 97%.
The malls don’t convey the same upscale narrative as Marx’s office space, but the solid mid-range mall puts a similar focus on the tenant experience.
To go for a walk
For his part, Marx kept his offices open during the pandemic. And in June 2020, 100% of the employees returned. Last year it was even expanded and five new positions were filled.
Communication was an important part of security protocols. Doormen and receptionists wore branded masks. The office practiced social distancing, installed bipolar ionization systems, and held meetings with the windows open. The company stepped up hygiene measures and bought touchless devices such as cappuccino machines that are activated via phone apps.
However, Deitelzweig did not want the office to contradict the company’s core principles of creating pleasant and inviting spaces. It placed PPE in attractive containers throughout the building.
“We made sure the signage was easy on your eyes. It wasn’t hostile in any way, ”he says.
The real estate industry has obvious motivations for encouraging people to get back into the office. Real estate also supports cities and provides about half of New York City’s tax revenue. Those funds are expected to decrease by $ 2.5 billion over the next year, what The New York Times Reports would be the biggest drop in three decades.
Deitelzweig mentions another reason for the reopening of offices.
“A vibrant and thriving office environment is critical to achieving the dynamism that creates the world-class street activity, dining, and city life ecosystem that we all love,” he says.
This story first appeared on PR week USA.