From his 44th-floor office atop Place St. Charles, Corporate Realty CEO Mike Siegel doesn’t literally have a 30,000-foot view. But the New Orleans skyline outside his window helps illuminate the big-picture perspective this seasoned real estate executive has of the local market.
Siegel has been at the helm of Corporate Realty for 35 years and believes the economic triple whammy that besets the real estate industry — spikes in inflation, insurance premiums and interest rates — is cyclical and will pass.
He’s more troubled by the lack of diversity in the local economy and the fact that New Orleans hasn’t built new office buildings since 1990. Siegel recently sat down to share his views on health of the local real estate market and economy – and what Gayle Benson’s acquisition of the business in 2021 means for its future.
This interview has been edited for length and clarity.
What is happening today with the local office market? Are people coming back to the office, or are we more in tune with big cities like New York and Chicago, where a lot of the workforce stays away?
I think what COVID has done is it’s okay to work from home, to have flexible hours, and it’s proven that for some people in certain industries it’s doable, you can operate . So I don’t think we’re going to put the genie back in the bottle. But, in New Orleans, huge numbers of people have returned to work in the office. In big cities, you have big corporate tenants, and they’re making decisions for a national workforce. We don’t have a lot of corporate tenants here, so we don’t have to make those kinds of decisions.
Our office tenants are more accounting firms, law firms, regional tenants and for the most part these people are coming back to work and gradually, I think even more.
What do the numbers show?
I think about 70-75% of office space that was rented before COVID has been reoccupied. But it is not the same as occupation. … Our occupancy rate is around 86% downtown and in Métairie around 84%, so we’re in the mid-80s. That’s pretty healthy.
The problem is not that we are an oversized market. We are sub-tenants.
What is the difference?
If you’re oversized but there’s a velocity of deals and leads in the pipeline, you’ll fill up over time. We haven’t built a new office building in New Orleans in 33 years. We don’t have enough demand. It’s my soap box. What we need is more white-collar tenants – demand.
It would solve many of the ills of New Orleans – recruiting and retaining more white-collar companies. Selfishly, I’d like to do this to fill office buildings. But beyond that, it’s the people who pay taxes, send kids to school, shop in stores and go to restaurants. … That’s what keeps the economy going. We need more than hospitality.
What do you see happening in retail? What’s hot?
People who said retail was dead were wrong. It’s not. It may be different. But Veterans Boulevard is expensive, more expensive than it’s ever been, and there’s a lot of demand. There are many retailers. So there is a demand in this sector. Magazine Street is hot. I think we may have reached a tipping point in terms of price, but there is still demand. There are still new businesses there. When something falls on Magazine, something comes right behind it. It’s pretty amazing, really.
Multi-family activity (apartments) is also exceptional. The occupancy rate in the city center and in the main markets is well over 90%.
But do you think 90% includes the actual people who live here, or are they absentee landlords, who sublet to short-term tenants?
Some of this is probably short-term rentals or Airbnbs or people who have second and third-party homes, but occupancy rates and levels in multi-family housing are high. That’s why it’s such a strange thing – despite the last six months with rising interest rates – but much of the underlying economy is still pretty good.
Tell me about the impact of these interest rate hikes over the past six months.
It was immediate. Think about it. If you used to underwrite a deal at 2, 3, or 4%, now it’s 6 or 7%, which has had a negative impact on the value of the property people want to sell. This made it more difficult to develop properties.
And the repercussions of that will reverberate for a long time. Many people who need to refinance will not be able to do so, and this has already slowed the development of single-family homes and the number of sales. Every tick up was felt. That said, there are still opportunities.
How problematic have insurance rate increases been?
Three or four things happened at once that took a little time out on some of the less well-capitalized opportunities. Insurance rates are double what they were a few years ago. General operating expenses are inflated – the cost of hiring someone to service commercial properties is on the rise. Then you have interest rates that have doubled. So insurance, interest rates, inflation, wages, plus the end of post-COVID deferrals and forbearance… it’s going to put a little time on some real estate-related opportunities. But it’s a cycle. You can’t ride forever. I’m hopeful and fairly optimistic that it won’t be a long cycle and, remember, in a down cycle there are also opportunities.
What do you focus on at Corporate Realty?
We were bought a year ago by Gayle Benson, and although we’re the same company we’ve been for 30 years, they want us to grow and expect us to grow. Thus, our goal is not just to do day-to-day business, but to grow the business.
How do you do this?
We are going to expand geographically. We will grow in the services we offer and the people. That’s what we want to do. Not everything will be in New Orleans. We’ll be in Baton Rouge, the north shore, the southern gulf. We are also going to be opportunistic and see where there are opportunities that we can take advantage of. There will be opportunities for us and having Benson’s name and capital behind us is a nice luxury. … We need to grow our agents, we need to grow our management business, geographically and the services we can offer. It’s easy to say. Executing it is not so easy. But we have good company. And great customers.
Is there a growth schedule?
Now. There is a lot of competition but there is a lot of business. Despite some of the city’s problems, there is real estate everywhere. The other thing is that none of the big companies are here. So there is an opportunity. It’s just a matter of finding a game plan and executing it.
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