Despite the non-capitalistic overtones of its name, Marx Realty and its parent company, Merchants’ National Properties, pioneered the high-commerce trend of fusing hospitality with offices.
Now, to lure people working from the coziness of their homes for the past year back into the office, being ahead of that curve has proven advantageous.
“We want people to enjoy being there when they walk into an office building,” says CEO Craig Deitelzweig.
Sixteen months of coronavirus-induced WFH has highlighted how much offices hadn’t changed in recent years.
“Just put a lot of white marble everywhere and call it a day,” he observes. “That worked for a time. But that’s over.”
Deitelzweig says those commodity, white marble lobby buildings fail to speak to the modern tenant experience, and are now in trouble. Nearly 19% of space in Manhattan is now vacant, with 21% of Downtown offices empty, according to real estate firm Newmark.
Deitelzweig believes steering away from the generic office design differentiates Marx. Even pre-pandemic, the commercial specialist was at the forefront of designing office spaces more akin to luxury hotels or clubs. A uniformed doorman and attendant welcome people upon entering.
At 10 Grand Central in Midtown Manhattan, walnut wood, leather, velvet, brass and herringbone concrete tile flooring create an ambience linked to the building’s original 1931 construction.
Unlike most offices, Marx properties are infused with a signature scent. Soft music wafts through common areas. Engaging five senses evokes a feeling of well-being, says Deitelzweig.
Pre-pandemic, repositioning the building increased per square foot rents, from a $48 to $78 range, depending on the floor level, to $72 to $97. Deitelzweig had seen competitors visit the space — even taking pictures.
With roots dating back to 1815 and incorporated in 1928, Merchants’ National Properties acquired Marx Realty in 2006. Together, they manage, develop and lease 71 office buildings and shopping malls, across 16 states.
COVID-19 battered the real estate industry. However, in 2020, Merchants’ National Properties reported grossed-up rental and other income of $51.3 million, compared to $48.2 million for 2019.
Throughout the pandemic, 98% of Marx’s office tenants continued to pay rent, even with employees working remotely. Now, many businesses are planning to return to the office.
“It seems the entire financial sector is coming back to work by September,” says Deitelzweig. Many tenants who moved out of their offices let their leases expire.
“All of a sudden, they realized, ‘We’re going to be an outlier. We need space now.’ We’re seeing a lot of that,” he adds. Tenants in the financial industry and private equity tenants in particular are showing interest in his company’s properties. At 10 Grand Central, five proposals are out to various private equity firms interested in leasing on the 21st and 23rd floors.
A new look and feel
Another building, 545 Madison Avenue, underwent a $24 million, hotel-like re-design. Deitelzweig describes how rounded edges and curved furniture lines evoke a more sensual experience instead of the typical hard-edged, square shapes associated with offices. In March, Marx gave two leasing tours of the property. That jumped to 17 in May.
“We would not have had that with the normal model,” he comments. That property has leased space to two premier private equity firms. The Herald, the Beaux-Arts building in Washington, DC, which Marx acquired in April 2020, renovated and is introducing to the market, signed three office leases.
Retail proved more challenging. April 2020 retail collections across the portfolio were at 45% and several tenants filed for bankruptcy. Marx worked with tenants, accounting for individual circumstances. But Deitelzweig clarifies it drew a hard line with national chains that should have been paying rent but weren’t.
“We said we will not accommodate you. You have to pay rent. You’ve been in our buildings for a long time. You’ve always done well and this is not the time to take advantage of us,” he says.
“For the smaller businesses, we fully understood they were really suffering and maybe didn’t have the wherewithal to make it without some help.”
Marx Realty worked with virtually all of its restaurants, most of which have now reopened. Rent collection from Marx’s retail tenants has almost recovered to pre-pandemic levels. The majority are paying full current rent, plus a portion of their deferred amounts. Marx consistently collected approximately 95% of retail rents since July 2020.
Its shopping malls performed better than other retail, benefiting from open-air and green space designs. They are anchored by supermarkets or other reliable drivers of visibility and traffic. The Cross County Center in Yonkers, New York, where a 130,000 square-foot Target broke ground in March, enjoys 98% occupancy. The mall’s rent collections dipped to 45% early in the pandemic. But they’ve been at about 97% since September 2020.
The shopping centers do not convey the same upscale narrative of Marx’s office spaces, but the solidly middle-class mall similarly focuses on the tenant experience.
Walking the walk
For its own part, Marx kept its offices open throughout the pandemic. And in June 2020, 100% of staff returned. Over the last year it even expanded, filling five new positions.
Communications were a key part of safety protocols. Doormen and desk attendants wore branded masks. The office exercised social distancing, installed bipolar ionization systems and held meetings with open windows. The firm increased sanitation measures and purchased touchless devices, such as cappuccino makers activated by phone apps.
Yet Deitelzweig did not want the office to conflict with the company’s core principles of creating pleasant and welcoming spaces. It placed PPE in attractive containers throughout the building.
“We made sure the signage was pleasant to your eyes. It wasn’t hostile in any way,” he says.
The real estate industry has obvious motivations to encourage people back to the office. Property also supports cities, providing roughly half of New York City’s tax revenue. These funds are projected to plummet by $2.5 billion next year, which The New York Times reports would be the largest decline in three decades.
Deitelzweig articulates another reason for reopening offices.
“A vibrant and thriving office environment is critical to achieving the dynamism that creates the world-class ecosystem of street activity, restaurants and city life we all love,” he says.
This story first appeared on PRWeek US.