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A blockbuster Facebook office deal is a make-or-break moment for the future of commercial real estate. 3 leasing experts lay out the stakes.

  • Facebook has been in negotiations for months to lease over 700,000 square feet at the Farley Building on Manhattan's West Side. 
  • Office leasing activity in the city has plummeted, giving the blockbuster deal even more importance as a sign of life in a suddenly lethargic market.
  • The coronavirus has spurred a deep downturn in the economy that is already being felt in the city's commercial real-estate market, prompting a big slowdown in leasing activity.  
  • The rapid expansion of tech in recent years has propelled the city's office market. Real estate execs say that Facebook's big deal is a key barometer. 
  • The crisis also raises questions whether tenants will ever occupy office space the same way as companies and their workforces around the world grow familiar with remote work. 
  • Click here for more BI Prime stories.

Leasing activity in New York City's multi-billion-dollar commercial office market has dropped precipitously as the coronavirus has battered the market and raised questions of when — and even if — tenants can return to the workplace in a post-Covid world.

Amid the growing concerns the crisis will smother what had been robust demand for office space, eyes in the city's real estate industry have turned to a pending blockbuster deal on the West Side that could offer a signal of confidence to the market.

Facebook is in talks to take over 700,000 square feet of space in the Farley Building, a block-long property across Eighth Avenue from Penn Station.

"If that deal happens, then this market will be just fine," said Peter Riguardi, the New York area chairman and president of JLL. "If the deal happens but it's renegotiated, it will be fine, but it will be a trend that every tenant can follow. And if it doesn't happen, I would be very concerned about the market."

Read More: Inside the drama over control of the iconic Chrysler Building: A real-estate tycoon and a prestigious college are renegotiating a critical $150 million deal.

Facebook's NYC real-estate footprint

Last year, Facebook signed on for 1.5 million square feet in the Hudson Yards mega-development just west of the Farley Building, taking space in three new office towers at the project.

For months the $600 billion Silicon Valley-based social media giant has been in negotiations for even more space at the nearby Farley Building, whose interior landlord Vornado Realty Trust is redeveloping to include newly built office and retail space.

Vornado had originally expected to complete the deal with Facebook in early March, according to a source familiar with the negotiations. The talks have continued on as the virus pandemic has brought commerce and social life to a virtual halt. The source expected the lease, which will commit Facebook to pay hundreds of millions of dollars in rent for the space over the life of the lease, to soon be completed.

In a conference call with investors and analysts on Tuesday to discuss Vornado's first-quarter earnings, the company's CEO Steve Roth also hinted that the Facebook deal was still on track.

"There's another large tenant that has been rumored to be that we've been in dialogue with," Roth said, not directly naming the company. "That conversation is going forward aggressively and hopefully maybe even almost complete."

Rapid growth in Big Tech leasing before coronavirus

Recent real-estate decisions by Facebook and other tech companies have worried real-estate executives that they may reconsider their footprint after years of dramatic growth. Facebook on Thursday revealed that the bulk of its over 40,000-person workforce will be asked to work remotely for the remainder of the year, a timeline that appears to show the company is using caution in returning to its footprint.

Read More: Neiman Marcus just filed for bankruptcy, and it could mark a major blow to NYC's glitzy Hudson Yards — one of the most expensive mega-malls in US history. Here's why.

Real-estate executives have expressed concern that tenants may become accustomed to offloading a portion or even the bulk of their workforce to a remote-working model, leading them to drastically reduce their office commitments.

At a minimum, the economic upheaval has appeared to spur a newfound sense of caution in tech companies that have grown rapidly in recent years. Alphabet called off negotiations to expand its San Francisco offices by over 2 million square feet in recent weeks, according to a report from The Information.  

Tech has been a big driver of demand for office space

In recent years the tech industry had become one of the most voracious takers of space in the city, helping to push up commercial rents and spur the construction of new office space.

In 2019, tech firms accounted for 24.5% of the 31.6 million square feet of leasing activity in Manhattan, eclipsing the financial industry as the city's biggest space-taking sector for the first time, according to data from the real estate services and brokerage firm CBRE.

In 2010 tech leasing comprised just 4% of the 24.2 million square feet that was leased in the Manhattan market that year, CBRE said.

"Nothing has buoyed the confidence of landlords more in recent years than tech tenants," said Sacha Zarba, a leasing executive at CBRE who specializes in working with tech firms. "It didn't matter where your building was. If it was attractive to tech, you would stand a good chance to lease your space. If that industry retrenches a bit, it removes a big driver of demand."

The Manhattan office market has slowed rapidly in recent weeks as the virus crisis has battered the economy and shut down daily life.

About 844,000 square feet of space was leased in Manhattan in April, according to CBRE, 64% lower than the five-year monthly average. In the first four months of the year, nearly seven million square feet was leased, a decline of 30% for the same period a year ago. 

So far, however, there are signs that tech continues to snap up space.

After scuttling plans to develop a 25,000 person second headquarters space in Long Island City last year, Amazon purchased 424 Fifth Avenue, a former flagship department store for Lord & Taylor, for nearly $1 billion in March. That property totals about 660,000 square feet. Late last year, before the pandemic hit U.S. shores but had flared in China, Amazon also leased 335,000 square feet at 410 Tenth Avenue.

The commitments of major tech companies absorb millions of square feet in the city, but they also help fuel a larger ecosystem of tenants that occupies an even larger footprint. That means that a decrease in the real estate of just a few big tech players could be multiplied across the market as smaller players in the sector follow suit.

"Those big tech firms do a fantastic job of training and credentialing tech talent on the city," said Matt Harrigan, a co-founder of Company, a space incubator at 335 Madison Avenue that provides offices and community for both startups and more established tech firms. "Google and Facebook spin off talent who start or join other tech ventures that take space. That's what's so important about having the large presence of those companies here."

Have a tip? Contact Daniel Geiger at dgeiger@businessinsider.com or via encrypted messaging app Signal at +1 (646) 352-2884, or Twitter DM at @dangeiger79. You can also contact Business Insider securely via SecureDrop.

SEE ALSO: What to expect when you're back in the office: 7 real-estate experts break down what the transition will look like, and why the workplace may never be the same

SEE ALSO: Major tenants are delaying big leases in NYC as they re-think their office space needs for the post-coronavirus world

SEE ALSO: As WeWork and flex-space rivals stumble, 18 million square feet of space in NYC is at risk. Here's what that means for the real-estate market.

SEE ALSO: BI Prime Edit in Viking Neiman Marcus just filed for bankruptcy, and it could mark a major blow to NYC's glitzy Hudson Yards — one of the most expensive mega-malls in US history. Here's why.

Join the conversation about this story »

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Silicon Valley VCs have a new obsession that perfectly captures the grave danger facing startups : How long is your 'runway'?

Startups are facing what could become the worst economic downturn in several decades, and VCs are begging them to take drastic measures to improve their chances of making it through. 

Most Americans who lived through the 2008 financial crisis will know that a savings stockpile or rainy day fund can mean the difference between surviving and thriving during tough times, but as recent studies have shown, many tech startups and VC firms don't have a similar first-hand experience; many have only known boom times and are now venturing into uncharted waters.

One thing VCs agree on is that startups need to quickly rein in growth plans — ideally as soon as yesterday — and start scrutinizing expenses. Anything nonessential should be cut or suspended indefinitely, headcount should be reduced, and pricey office leases eliminated if possible, all with the goal of extending a startup's "runway."

In Silicon Valley, runway refers to how much cash a startup has on hand to put against its operating expenses. If, for example, a startup has roughly $100,000 in monthly operating expenses and has $1 million in the bank, they are looking at a 10-month runway, assuming revenue stays roughly flat.

In the days before the coronavirus pandemic, a startup's runway dictated when it had to start looking for additional funding. Instead of cutting expenses, the popular solution was to simply put more VC money in the bank. This helped high flying startups like Uber and Airbnb expand at a breakneck pace — VC dollars kept pouring in and the companies remained unprofitable as they chased growth at all costs.

But now, VCs are saying that's no longer an option. Founders Fund general partner Keith Rabois said on a podcast recently that profitability is now being rewarded much more than high-growth. 

For startups that aren't profitable, that means hunkering down and ensuring there are enough reserves to last through the crisis.

So how long does the runway need to be? 

Many VCs that Business Insider has spoken to are advising their startups to have at least 18 months of runway. But some VCs say startups should have upwards of 3 years' of expenses saved up. 

The length of time can vary depending on the startup, one investor told Business Insider, pointing to the startup's age and industry as important factors. An early-stage company with a handful of employees and low-overhead costs might easily stretch a $500,000 seed check, whereas a growth-stage biotech startup with hundreds of employees, expensive hardware, and pricey office space might struggle to make tens of millions of dollars in funding make it through 12 months. Those that can't cut costs will be forced to fundraise with poor terms and risk the dreaded downround

"You can always easily dial back up the aggressiveness and risk profile if we get more optimistic visibility, but if you don't take action right away — to preserve capital, cut your burn rate, have fundamentally attractive unit economics, edit the product to make more sense in the new world order — if you don't do those right away, the opportunity to do those things and survive is probably lost forever," Rabois said in the April Talkshow broadcast.

Rabois is in the camp of pessimists, generally speaking, who think the economic downturn will not only drag on through 2020, but could eventually turn into an economic depression the likes of which could rival the Great Depression of the 1930s. He said that his VC peers are starting to rein in the freewheeling deal-making that has defined the last two decades of the Silicon Valley startup ecosystem, and are now treading cautiously. It's time that startups do the same, he said.

SEE ALSO: Lower valuations and a long wait for funding: Two top early-stage VCs dish on how they are counseling startups to withstand long-term economic uncertainty

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As dating apps try to pivot to virtual events, some users are trying to get people to violate social distancing rules

  • Dating apps like Tinder, Bumble, and Hinge have reported increased use amid the coronavirus pandemic, while touting virtual dating alternatives for users instead of meeting up in person.
  • Swaths of users are still encouraging matches to break quarantine to have sex and go on dates, despite social distancing guidelines and fines to comply with them.
  • An illustrator on Instagram has been collecting screenshots of these situations, and told Business Insider that users will brand themselves as "badasses," dispute the effectiveness of isolating, and lash out in anger and hurl abusive language when they're rejected.
  • Spokespeople for Grindr, Tinder and Bumble told Business Insider they've informed users to adhere to social-distancing guidelines, but did not respond to inquiries about actions they're taking against users in places where violating lockdown orders can be against the law.
  • Visit Business Insider's homepage for more stories.

As millions remain confined to their homes to prevent the spread of coronavirus, the desire for human contact and connection has risen dramatically and led some to search for ways to break those social distancing rules.

Popular dating apps — including Tinder, Bumble, and Hinge — have reported significant increases during the outbreak of swiping activity, matches between users, and messages exchanged. It's also led to the introduction of a breed of users who are interested in shirking lockdown orders, and are encouraging their matches to join them in doing the same.

Dating app users have shared stories across social media, and recently with Mashable, about messages they've received from matches who ask them to come over or want to hook up. Artist Samantha Rothenberg, who uses the handle @violetclair on Instagram, has been collecting these screenshots from followers, and told Business Insider she's received close to a thousand of such stories.

"Because of how common it is, I can honestly say that anyone who is on a dating app right now has dealt with this," Rothenberg told Business Insider. "People are horny, and a lot of people are putting that ahead of the risk and the danger."

For dating platforms whose end goal is inherently to bring its millions of users together in real life, the coronavirus outbreak has put them in a curious predicament. Dating apps are forced to balance a desire to keep people on their platform for the sake of business, with a moral responsibility to discourage users to engage in behavior with potential life-or-death implications.

Since the start of the outbreak, apps have rolled out in-app virtual dating options and touted ways users can go on virtual dates. However, the prevalence of users who are trying to meet up in person, as documented by Rothenberg and screenshots across social media, raise questions about whether these dating platforms are doing enough to stymie such behavior in the time of coronavirus.

Rothenberg has long collected screenshots of users' horror stories from dating app interactions, which she often will depict in illustrations she posts to her Instagram account. But ever since the pandemic led states to instill lockdown orders starting in March, nearly all of the screenshots she's received have had to do with coronavirus.

These lockdown-violating users fall into a few general categories, according to Rothenberg. There's the users who try to paint themselves as "badasses" for breaking the rules, though Rothenberg says they're more like "a--holes." There are the matches who propose meeting up and, after getting rejected, reverse course to say they're were joking or "testing" you, she says. You'll also encounter the anti-quarantine user, whose reasoning is based on claims about herd immunity and the ineffectiveness of social distancing measures.

The last group is made up of users who react to "no" with anger and verbal abuse, Rothenberg told Business Insider. Women told Mashable recently about encounters with men on dating apps who badgered and harassed them after they turned down in-person meetings, going to the point of gaslighting.

These types of users are what led Rothenberg to launch a petition on Change.org to hold dating apps responsible for enforcing social distancing guidelines during the pandemic. She's also been active about calling out dating apps in her Instagram Stories she posts with screenshots she receives.

"People are angry, they tell me, 'can you believe this, this is disgusting, this is wrong,'" Rothenberg said. "Because I have this platform, I feel I have a bit of a responsibility to put these [stories] out in the open and share, and bring some light into what's going on out there to people who may not know."

In late March, platforms sent out various messages and alerts to their users that Rothenberg documented on Instagram. A message to Bumble users from CEO Whitney Wolfe Herd said: "Please don't meet your Bumble matches IRL for now." Hinge users were told to "stay safe and keep connected."

Tinder, arguably the most well-know dating app, also discouraged users to meet up in a platform-wide message sent March 26.

"We know there's a lot to stay to each other as we all do our best to stay healthy and prevent the spread of the coronavirus," the message from Tinder said. "We hope to be a place for connecting during this challenging time, but it's important to stress that now is not the time to meet IRL with your match."

Dating apps' responsibilities to pivot from IRL to TXT

As companies across industries adjust business to stay afloat, dating apps have transitioned to emphasize alternatives to in-person meetups. Although online dating success has long been measured by the amount of conversations that turn to real-life connections, platforms are forced to rethink their strategy as users continue turning to them en masse. A poll conducted by Hinge found that 70% of its users said they were open to going on dates on Zoom, FaceTime, and other video platforms.

Some dating brands have introduced new features amid the pandemic. Hinge launched "Date from Home" in April, where users can indicate to a match they're ready to move their conversation off-app. Plenty of Fish started rolling out a livestreaming feature in March to users in the U.S. to allow matches to go on short virtual dates. Tinder, relatively late to the game, announced this week it was launching a video chat feature by the end of June.

A spokesperson for Match Group — the parent company on Tinder, Hinge, Plenty of Fish, and other dating platforms — told Business Insider that it made updates to its products "to help users better navigate stay-from-home policies and date digitally via phone or video."

Other apps that already enabled video chat and voice call, like The League and Bumble, are pushing these features to their users more than ever. 

But while users on these dating apps are swiping and messaging at new highs, the transition to virtual-only hasn't been as seamless for those on Grindr, the most popular dating app for gay men. Steve, a 26-year-old living in Washington, D.C., told Business Insider that activity on Grindr is "completely dead." He said he doesn't check the app nearly as often any more, but messages he does get on the app are largely from people who say they want to meet up despite the quarantine.

Grindr, like other apps, has attempted to pivot to virtual dating: The platform recently introduced Circles, where groups of up to 20 users can join chats centered around certain topics and interests. However, Steve said he's seen these groups largely dissolve into "all d--k pics."

"I dont think Grindr has the ability to rebrand itself honestly at this point for something other than hookups," Steve said. "They tried to take the opportunity to rebrand itself as something else, and it just right away became sexual."

A Grindr spokesperson told Business Insider it had sent in-app notifications to all users asking them to "refrain from in-person meetings right now."Nonetheless, an app-wide message sent to users — and shared by users on Twitter — made no mention of asking users to social distance. 

For users across these dating apps who encourage the violating of social distancing guidelines, it's unclear how much responsibility platforms have to keep their users' indoors. In some states under lockdown, authorities have doled out fines and even arrested residents found failing to follow at-home guidelines.

Grindr, Bumble and Match Group — the parent company of Tinder, Hinge, Plenty of Fish and others — told Business Insider in statements they have encouraged users to adhere to coronavirus guidelines from the World Health Organization and the Center for Disease Control.

None of the companies responded to Business Insider's requests for comment about whether asking to violate social-distancing guidelines on the platforms is a breach of policy or would garner any ban or suspension on a user.

SEE ALSO: What you need to know about Grimes, the Canadian musician who just had a baby with tech billionaire Elon Musk

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