In this episode, Craig Deitelzweig shares how he reimagined office spaces through hospitality well before it became a trend. Craig shares the vision behind transforming traditional, generic buildings into experience-driven environments that people actually enjoy coming to. From taking a struggling property and dramatically increasing its value, to rethinking tenant experience through design, service, and amenities, this conversation dives into the strategy, risks, and mindset behind redefining what an office can be.

Transcript

Hal Coopersmith: So I’ve heard you say hospitality in office space. and that’s certainly a big thing now post pandemic, but you were doing it before the pandemic. What were you seeing then?

Craig Deitelzweig: So the reason I did it originally was multiple fold. One was, I just don’t like space that feels generic. I, I just don’t like that. I don’t, I was very sick of the white marble lobbies and the gray marble lobbies. And, also I just felt buildings felt very hostile. You know, the security guards seem really hostile. It just, and you’re going there every day and it just felt that it should be someplace that you enjoy going. That was really the genesis for it. And then also, you know, thinking about it, you’d love going to hotels. Everyone does. Those are special places, and you always have the best time. And I didn’t see why you couldn’t, you know, marry office. And hotel. And that’s really what we sought to do. initially when we did it, we got a lot of pushback actually from brokers. Our own broker team at the time was very against it. really didn’t understand it. thought why would we take rentable space and, take that away from, you know, our cash flow? And really our thinking was we’re not taking away from our cash flow. We’re actually by doing that, we’re creating this real experience and therefore we’ll have. More tenants come faster and we’ll get higher rents and, really make it a special place to be. And that was our goal.

Hal Coopersmith: And so how were you able to. Show that the math would work. What was kind of the business plan behind that?

Craig Deitelzweig: We assumed, and the first building we did, it was actually 10 Grand Central. So just to go back at that time it was 7 0 8 third Avenue. It was the worst building on Third Avenue. So our rents at that time,

Hal Coopersmith: What made it the worst?

Craig Deitelzweig: We had the lowest friends on third Avenue. which is not, a good thing. so our rents on the base floors. Were in the thirties and our rents on the top, were in the forties. So we wanted to change that because that isn’t a viable, option really. You know, we underwrote that we could get to rents, you know, at the top of the building in the seventies and the bottom in the fifties. And, you know, we surpassed that by, you know, our rents in the top would go for 115 a square foot here, and on the base it’s about 80. So we surpassed our underwriting dramatically, and that was really from doing this work, if we didn’t do the, hospitality infused office product here at 10 Grand Central, it just. We would have had to hand the keys back to the lender. that, and I also always felt that, I felt that, you know, real estate has changed way before COVID even, you know, it used to be where you can just sort of sit back and collect your checks and didn’t have to be proactive. And I just felt that. You needed proactive asset management to make it a wonderful experience for tenants. And if you do that and you know, not nickel and dime them and make it a really great experience, it actually will pay for itself because these tenants will grow and stay in the building. They’ll recommend you to, their colleagues. And that’s exactly what’s happened.

Hal Coopersmith: How quickly did you surpass what you underwrote?

Craig Deitelzweig: Immediately

Hal Coopersmith: Immediately?

Craig Deitelzweig: Immediately. So as soon as we did it. and also, you know, our brokers were telling us at that time that this won’t, appeal to a great universe of tenants. They were saying, you know, maybe it will be the creative tenants that would like this. You know, they were saying it was too cool, or whatever they were saying at that time. And, our first tenant was actually MassMutual. So a tenant that’s, you know, not it’s a financial tenant, not necessarily, I mean, we love them, but they’re not necessarily the coolest tenant. And really what that tenant wanted and all tenants want is just beautiful space. And they want to be able to have to, for their employees, to want to come to the office to be more productive and love it. And so what we found really early, and found really early is that those employees. Would stay late. You know, they would actually get together with their, colleagues and have a beer after work or a pizza party on our terrace, you know, stuff like that and that’s wonderful. And what was happening was the C-suite was seeing that and just. Couldn’t get enough of it. You know, they were trying to make their employees engaged and more of a team, and this was happening naturally because of the space.

Hal Coopersmith: Did you have an avatar of a tenant when you were putting in the amenity space or repositioning 10 Grand Central and have a concept, I want this type of square footage tenant? Or is it, we’re going to build this, we have an idea it’s going to work, and here come the tenants.

Craig Deitelzweig: We wanted to make sure that it was broad based, you know, especially here at Grand Central, in this submarket, you know, the tenants are just, there’s financial, there’s law, there’s, you know, we have the Rock Dwayne Johnson’s production company here. You know, there’s just a whole universe of tenants. We wanted to make sure that we weren’t not focused on all of those tenants. So whatever we didn’t want it to be trendy. We just wanted it to be classic and elevated and have broad appeal. At 5 45 Madison, we did have an avatar there ’cause it is a little bit more spec specific there. So there it was a private equity and fashion. And actually we, that is who is in the building right now. so it really worked there. And and that design, there was a little bit more sort of razzle dazzle, a little bit, not overly, but just a little bit more. and that was part of it. Just thinking of what these tenants would want

Hal Coopersmith: What goes into repositioning a building. I know that’s a broad question, but you’re looking at, okay, if I don’t. Increase the rents, we’re going to have to give the keys back to the lender. Then what’s the next step?

Craig Deitelzweig: I mean, so the way we look at the repositioning is we really want it to be authentic. So all of our buildings will be authentic to what the building should be. So the building we’re in today, it’s a building from the 1930s, so it felt authentic to us to bring some of those elements back. So we have terracotta columns, for instance, which are behind the walls in the 1930s building. You know, we have art deco elements throughout, but we also want to do it in a way that doesn’t feel like Disney World. We want it to feel very modern and can. Temporary and have brought appeal as I was saying before. that’s kind of the trick to doing it. and then figuring out. What that experience is like and making sure that experience just feels very consistent throughout every element of the building.

Hal Coopersmith: But repositioning is hard because if it were easy, a lot of landlords would do it. So how do you kind of, you know, eat the snake one bite at a time?

Craig Deitelzweig: so first off, what we don’t do is, decision by committee. I find that a lot of landlords who try to do what we do, they have this big committee and, you know, someone has this opinion, someone has that opinion, and at the end of the day have a very generic concept that’s delivered. We’ve had lots of guests here who wanted to emulate what we’ve done. So some of the biggest REITs have, we’ve seen them here. Sometimes they come invited, sometimes not and they’ve tried to replicate what we’ve done and they’ve actually even hired the same architect and the architect will tell us, they said, do. Do that. And the end product looks nothing, as it should. And the reason for that is there’s just too many people trying to put their input and sort of saying, this wont appeal to this one, and this won’t appeal to that one. And then you just don’t have that vision that’s consistent throughout and really what you need, it is very detail oriented. I think that tenants can tell immediately if something feels fake or not. Right? And so you want the entire experience to feel consistent from not just when they’re in the lobby. Even from the outside, you know, so all of our buildings, you know, we have doorman outside and they’re dressed in a way that feels appropriate for the building. We have a house car that also feels appropriate for the building. Each building has a different one, for that very purpose. And then even the amenities we offer are different for the different buildings because it feels right for that building.

Hal Coopersmith: So no committee. Who’s, the person that’s providing the expertise? Is it you?

Craig Deitelzweig: I mean, I think I do have to be really hands-on in all of that. And sometimes something will be built and it just feels wrong and, you know, you’re like, what did I, you know, how can I fix that? Because you need to fix it and you need to see it before others. And I know half the time, or maybe 90% of the time, I don’t think anyone else would notice it but there are definitely tenants who do, and they’ll even comment on it. And, that makes me really happy because it means that they’re really understanding the whole vision for the whole hospitality infused office that we delivered.

Hal Coopersmith: So if someone wants to provide more service or reposition the building first thing, have a vision and kind of be detail oriented around it.

Craig Deitelzweig: Right, right and believe in your vision, because there will be people who will say, you know, crazy or that’s overboard. Or, you know, when we did a fireplace, you know, suspended from the ceiling at that time, no one did that in office buildings. And, you know, they were like, you’re not. Going to do that. And I’m like, yeah. I mean, that’s what this space needs and it should be the focal point of the space. And so I think you really have to believe in your concept and the execution of it. And, you might not know this, but I’ve probably, I repositioned more office buildings than probably anyone in New York, like I can’t even, not even office, hotel, residential. So it’s sort of something that I’m passionate about and I think that when you do it so much, you kind of know what works and what doesn’t work. So some of it just comes you know, learning by doing.

Hal Coopersmith: And in terms of the office buildings that you do reposition, are there areas even now that you think. should be repositioned or, is it a building by building, basis for repositioning? How do you identify something that can and should be repositioned?

Craig Deitelzweig: So you’re saying like location wise.

Hal Coopersmith: Location or building, is it an area or do you look at a specific building?

Craig Deitelzweig: it’s an area as well. so we are focused on Midtown and Midtown South, just because this is where the, tenants want to be. So we want to be where the tenants want to be, and then it’s a building and it’s sort of when we go through a building, just what, how can this building be better? What does it want to be? And sometimes it’s like you get that, you know, immediately, like you do X, Y, and Z and this will feel so much better. Sometimes it’s a challenge, you know, just trying to figure out like, what is the story for this building? and we look at buildings as a brand. So I think it’s very different than other landlords in that way too. Each of our buildings is its own brand and has its own brand colors. Its own brand music. It’s, everything is sort of consistent with the building brand. And then that. All has to be consistent with the Marx brand. So there’s some things we do everywhere. So our signature scent, that’s not even true. I was going to say our signature scent is everywhere, but 545 Madison, we have a different signature scent because we co-branded there with Bacaro. And so in that building, you know, b it’s a baccarat scent that’s being infused into the spaces. and there we worked very closely with. The Bacaro brand to make sure that building, was consistent with that. So we had all of the Bacaro chandeliers and barware and accessories and things of that nature.

Hal Coopersmith: So when you are adding amenities How do you pencil out what the ROI is? I’ve heard you talk about the Marx Mobile and the scent. How does. Having a car and whatever it costs a year, I’m not even sure. My guess would be a hundred thousand dollars, but you probably know. Is it more is it less?

Craig Deitelzweig: That’s a good guess.

Hal Coopersmith: Yeah. How does it. Pencil out in terms of an ROI, what is the cost of a car per foot in your building

Hal Coopersmith: you know, and how does that return an investment?

Craig Deitelzweig: So we don’t look at it that way. We look at it more holistically. You know, it’s all of these amenities taken together as what gets you the ROI and it works. I mean, we’ve, you know, doubled our rents and, and might we have doubled the rents if we didn’t have a house car. Perhaps, but we really do want it to be a better experience for our tenants. And by providing that, we think it’s well worth it. And what we’ve seen is, you know, our tenants just keep expanding in place. You know, we ran out of space as a result of it. And, you know, this last year we raised rents, I think four times here. so it’s just, you know, part of it is the market, but part of it’s also because of the experience we deliver. So I think you can’t really, you know, say if we. Didn’t have a signature scent or if we do a signature scent, you know, we get this. But I think when you look at it all together, that’s how you get the results that we get.

Hal Coopersmith: So you’ve doubled the rents, and you won’t say itemized costs.

Craig Deitelzweig: Actually more than doubled the rents.

Hal Coopersmith: More than doubled the rents. Yeah. But what’s the ROI about on the investment kind of overall for the amenities and the repositioning?

Craig Deitelzweig: So the amenities, in addition to it being, driving, you know, new tenants to the building and, the velocity of leasing and getting the higher rents, we also do charge for the amenities too. So tenants can actually rent out the spaces, for, you know, parties that they do, or big conferencing, things of that nature. So actually the. ROI, you know, we, actually put a rental figure based on the ROI to this space, to the, amenity spaces. And it ends up being, depending on the building, somewhere between a $90 to $110 a square foot. So it’s not like we’re just, you know, giving it away. It actually is, impactful on our bottom line too.

Hal Coopersmith: And you are also thinking about the building holistically. If you’re not thinking about, let’s say, the, avatar of an office tenant, you’re thoughtful about the retail. Too, I noticed that it just makes sense for Midtown. it’s, quick service food that’s thoughtful or a coffee shop. Were you thinking about the retailers as you were repositioning the building?

Craig Deitelzweig: A hundred percent. So when we first repositioned the building, we had a nail salon adjacent to us that this is just not the right look that we wanted. It wasn’t even a nice nail salon. you know, we, actually bought them out, to bring in a new tenant. And then, we really wanted Little Collins, which I don’t know if you’re familiar with them, but they’re just a great retailer restaurant group and, probably the best cappuccino in New York according to the Wall Street Journal.

Hal Coopersmith: That was a personal preference. You wanted that cappuccino?

Craig Deitelzweig: Yes, I did. Yes. so we worked out a deal to bring them here and then it’s the same as everything. You know, you have one, retailer that’s a great retailer. They attract other retailers. And then we really wanted kava. So I actually, called the CEO of Kava and had and induced him to come here, but he got it pretty quickly. So that was really great and there’s just a real need for that in this neighborhood. And then the fast casual restaurants actually, because there’s not enough, a lot of seating, a lot of our tenants will actually eat in our amenity spaces, because there’s that they want a place to eat you know, that’s. So in the summer they’re using our terraces, but all year round people are using those spaces and we like that too. We like our spaces to be activated and in use and that makes us really happy. And when we first did the amenities spaces, it was instant that happened. We also offer free cap coffee, cappuccino, gelato, all those things to attract people to go to this space and make it be part of their day. And then once we did that, it just, you know, became their routine. And so those spaces are very active all the time, and that’s what you want to see. And that’s. That’s what tenants want to see when they tour a space, they want to see spaces that, you know, are being used by employees of companies and it makes them want to be in that building. In the early days, we would see folks when we would tour, take photos, especially young people and, you know, of the space. And they would post it online on their own. and that’s when we knew, did we have something here that’s really working?

Hal Coopersmith: In terms of the brand for hospitality and what you’re trying to do and the vision that you’re communicating through the building. How do you train a team, of various different people in the building from mechanical and security, all the way up through the, your professional suite in terms of what you’re trying to do? Because it’s different than what a lot of people would be used to.

Craig Deitelzweig: Yeah. we’ve been really fortunate. We have wonderful people that work here. I think some of it is, you know, we hire people who have that natural hospitality way people pleasers, and I think that’s important. you know, they have a smile. You know, we found it really hard, to actually hire the right doorman. it’s such an important position because they’re the first person you see in the morning and we want them to like. Like people and smile and greet you and make your day, you know, so finding those types of people. And the same on the property management side, you know, it’s the customer’s always right. it’s a very different approach than a lot of landlords have. I mean, I’ve been in business for a long time and my first couple of companies, it was the opposite. It was where the big bad landlord and, you know. that’s your problem kind of thing. And they, and we think of it entirely different. We just want our tenants to be happy. And the best way to do that is from, you know, that personal touch. And so the property managers that we have, you know, will reach out and just make sure that you know that the tenants are happy when they move in, but not just when they move in. But throughout and sometimes stuff happens, you know, there’ll be some issue that will happen and just making sure that you’re on top of that and actually anticipating, instead of being reactive, I think is a really big part of hospitality as well.

Hal Coopersmith: Is there something in a broker that you are working with, who’s leasing out the space that, in terms of that vision that you have for the building and the, and your team that you want communicated?

Craig Deitelzweig: Definitely. So we want, so the brokers that work with us are ones who really, A, they understand what we’re doing, they understand how unique it is, and they can sell that, vision and I think they need to be. Passionate about it. They need to like really get in and understand why that’s special and those, you know, those are the best ones because I think when someone’s touring a space and they can actually tell the broker isn’t just sort of, you know, just doing the walk and doing the talk, but actually is do you see this difference? And do you see this and this, you know, ownership thinks like this and when you’re here, this will be that experience. And then we also find on the tenant broker side, we have a lot of tenant brokers who are repeat. Customers here. And I think the reason for that is they know, they feel confident that their client will be happy here and that makes them look good. And we find that a lot of those brokers also, you know, just understand the value that we deliver by offering this type of experience, you know, by not having to leave a space for their employees. You know, we just opened the speakeasy, that opened last Friday actually. and the speakeasy, you know, we wanted that to be something that our tenants can use and it’s just in the building so they can entertain clients that way they can celebrate someone’s success or a birthday, all those types of things. And to have it in the building where you never even have to leave is just something that’s so wonderful. And that’s something that happens in hotels too. You know, the best hotels, you really have it all there. You never have to leave that building. And that’s really what we wanted to provide here too. And so I think you asked about the tenants brokers, but I think those tenant brokers really understand what the offering is and they can tell the difference between some space that’s just vanilla and cookie cutter. Check the box. You know, a lot of brokers talk about, you know, checks the box and we never want to check the box. if we’re going to do something, we want it to, for surpass what anyone’s expectations are for a space.

Hal Coopersmith: And you said you weren’t trying to be the big, bad landlord. And let’s say there are two tenants looking for a space. I imagine rent obviously is a key factor, but is there a way that a broker could position. Best position A and financial strength, but is there a way that a broker could best position a tenant for your space.

Craig Deitelzweig: So that happens quite a bit. Recently, you know, there’s been bidding wars and at the end of the day, it’s not the extra couple of dollars. It’s about who the tenant is and yes, we love tenants who actually. Love the building. You know, like if, you know, if a tenant’s passionate about the building and just you know, they’re going to be so happy here. we love that too. And we think of it as a community. we also think about it that way. Sometimes it’s like a venture capital firm that could help other. Tenants in the building and form these relationships. we have a bunch of those here and we love those types of tenants. Or it could be just a very, a really creative group where you’re like, wow, it’s so cool to have them in this building. We love that too.

Hal Coopersmith: And you mentioned how. You say, employees of a tenant are engaging with the space and they’re really happy they’re taking photos, but do you have any other sense of how they actually feel while they’re here? Obviously they’re engaged and doing things, but is there a way of tracking like how the employees actually feel in one of your buildings as opposed to other buildings?

Craig Deitelzweig: I mean, we listen, we’re using the same space as they are, so we’re actually listening to what they’re saying. And then you could also see when they, you know, we have it. Often these employees will bring in, you know, the younger employees will bring in their moms, you know, to show off the space, you know, something like that, which kind of is a big giveaway or, or they’ll bring in their. Friends, like you have to see our space and, you know, come here for a drink or something like that. And so it’s a lot of that type of stuff. And then, you know, we also see how much they’re actually engaging with the space, you know, so if they didn’t, if they didn’t enjoy the space, they wouldn’t actually spend time. You know, in our common areas. And we also tend to build out all of the tenant spaces too. So we want that hospitality experience to be in their spaces too. you know, we tend to not use the color white. we think it’s a pretty harsh color. so we’ll use warmer. Pallets, warmer lighting, you know, those types of things as well as task lights to make sure they can do the work. But having those types in our cafes, which is what others call pantries, we call cafes, you know, we want those to be engaging spaces too. And to the extent that they’re using all of those more, we think that’s really great.

Hal Coopersmith: If you weren’t Marks and you were a brand that were not real estate, hotel, anything else, what brand would you be?

Craig Deitelzweig: So we actually would be different brands for different buildings. because we, every building kind of has its own brand, I would say it’s probably more of a boutique-y type of experience. Maybe the Belmonts, you know, who does it really well, where each of their brands are. Hotel hotels themselves are sort of unique in special properties, or Rosewood does it really well on the service side. We think of Four Seasons. They do it really well. But we do think of all of, whenever we think of ourselves, we do think of ourselves in terms of. A hotel brand, and we think of our competitors that way too.

Hal Coopersmith: And what do you think New York City would look like or Manhattan would look like if it full office space with your brand the dominant brand as opposed to. The other brands that are out there,

Craig Deitelzweig: I think it would be a much more beautiful, much more happy, much more joyful place. I do, I think that people would like love going to work, and I can imagine that, you know, instead of people, you know, rolling outta bed and being annoyed that they’re going to work, they’d all be really happy. And then there would be all these different activations occurring in those spaces too. I think that would be amazing. I think you have a good idea there.

Hal Coopersmith: If you saw hospitality in real estate before the pandemic, what do you think is kind of around the next corner?

Craig Deitelzweig: I think it’s just, a more concentrated version of that. I think hospitality is the future of office, and I think just figuring out more ways to make the spaces more engaging, more design oriented, more beautiful, more healthy, all of those types of things. that’s the future.

Hal Coopersmith: Our target in these types of interviews is real estate brokers. So do you have any advice for real estate brokers? Maybe they’re either senior or getting into the business, but something that pass along to them?

Craig Deitelzweig: Rent out of Marks building.

Hal Coopersmith: That is a great note to end things on. Craig, thank you for being a part of Broker’s Angle.

Craig Deitelzweig: Thank you.