‘What if there is a second wave?’ A New York developer wrestles with uncertainty

New York City celebrated its reopening this week after three months of coronavirus lockdown. But at the Moxy Hotel on 11th Street in the East Village, there was no sign of business resuming anytime soon.

Like other nearby storefronts, the hotel’s windows had been boarded up to prevent looting. Rubbish was scattered across the sidewalk. A few blocks away, protesters were gathering in Washington Square Park to commemorate the death of George Floyd.

For Mitchell Hochberg, the president of the real estate group that owns a trio of Moxy Hotels in Manhattan, uncertainty has been the defining feature of the past three months.

“9/11 happened and it was over. And then it was: how do we start building back?” Mr Hochberg, a veteran of real estate booms and busts, recalled. “The most remarkable thing about this, as compared with 9/11 or 2008, is the fluidity of it, and how it keeps changing week to week.”

Daily reports suggest a vaccine may, or may not, be close at hand; or that those who have been exposed to the virus may, or may not, have immunity. “What if there’s a second wave in the fall? What if we have to close again?” Mr Hochberg asked, predicting such an outcome would be “catastrophic” for business. 

Regardless of the city’s official reopening, many businesses in Manhattan were boarded up to guard against the possibility of looting after an eruption of civil unrest in the wake of Floyd’s killing by police.

For 68-year-old Mr Hochberg, president of Lightstone, a real estate private equity firm, the hotels are but one part of a $6bn portfolio that is now facing uncertainty on all sides. It will require the kind of management-by-gut that is not taught at business schools but may determine how the economy emerges from an unprecedented crisis.

There are the 16 shopping centres and outlet malls that Lightstone owns across the US. About a third of the tenants have stopped paying rent since the economy juddered to a halt in mid-March.

“I can’t manufacture revenue,” he said. “Either I’m going to have to go into my pocket or have a fight with my lender.”

There are the cash-strapped residents of Lightstone’s 16,000 apartment units. Many made good on their April and May rent. There is no telling if that will continue — particularly if enhanced federal benefits payments expire on August 1 as currently scheduled.

There are the luxury condominiums in Manhattan that Lightstone is now trying to sell via virtual tours. To Mr Hochberg’s astonishment, Lightstone has so far managed to sell 10 units — at prices from $2m to $5m.

Yet the hotels may be the most challenging part of his portfolio. In the wider real estate universe, no asset class has been worse affected by the pandemic. A recent report by Green Street Advisors, a property consultancy, called the outlook “scary”.

Mitchell Hochberg, president of Lightstone, a real estate private equity firm that owns Moxy Hotels © Michael Kleinberg

David Stern, president of Townhouse Partners, a due diligence specialist for commercial real estate, said demand for hotels was so moribund that many lenders would rather ease terms for delinquent borrowers than repossess properties, as they did after the 2008 financial crisis. 

“A lot of lenders are just giving hotels months of forbearance. That will be the last asset class to come back,” Mr Stern predicted.

Many of Lighthouse’s 34 hotels are the no-frills, serviced variety that are popular among business travellers.

Of greater concern for Mr Hochberg — a lawyer, by training, who grew bored of his day job and became a developer — are the stylish Moxy Hotels in Manhattan. Not long ago, the Moxys were welcoming the likes of actor Leonardo DiCaprio and supermodel Heidi Klum. Within weeks they were closed and then renting rooms to the National Guard.

The big question is how, and when, will guests feel comfortable returning to hotels located in the epicentre of a pandemic that killed more than 21,000 New Yorkers?

Mr Hochberg and his management team have been studying the experience of hotels in Singapore, which suffered the pandemic before New York, and conferred with Marriott, a Moxy partner, to glean any insights from its far-flung properties. “At the end of the day,” Mr Hochberg explained, “it’s 100,000 data points and then just sitting in a room and making your best guess as to what the best business decision is.”

Some reservations are beginning to trickle in for late summer and early fall. The Moxys are installing Lucite shields at reception to protect guests and allow them to check in by smartphone to minimise contact.

At the bar, tape will be placed on the floor to help separate patrons. Meanwhile, an open-air rooftop bar will be emphasised. Room cleaning will be conducted less frequently but more intensively. A new air-filtration system is being installed.

Then there are the restaurants. The soaring Cathédrale — a cross between a house of worship and a nightclub — was meant to play a starring role, both financially and stylistically, at the Moxy East Village. It is now boarded up and will have to be revamped. 

Menus will be slimmed down and guests may be asked to sign up for rigid seatings that start and finish at set times. Silverware will come in sealed packets. “Can you operate in a way that it can break even?” Mr Hochberg wondered. 

After revenues collapsed he was forced to furlough about 1,000 workers. After polling employees, Mr Hochberg discovered that many did not want to expose themselves to the risk of coronavirus infection — especially given the currently generous federal unemployment benefits.

“How do you transition to the new normal?” Mr Hochberg asked. “What does that transition look like, and how long does it last?” Then he observed: “There’s no playbook for this.”