The world and local investors are still banking on New York City’s bricks to park their funds, yuans and loonies.
“More countries choose New York properties to safeguard their monies than any other city in the world,” said Douglas Harmon, senior managing director of Eastdil Secured, who is now marketing 730 Fifth Ave.
According to NGKF Capital Markets research, foreign investors made 21.2 percent of their US investments in Manhattan.
Roughly 30 percent of the city’s investment buyers are now foreign. Said Scott Latham, vice chairman of JLL, “This is significantly higher than what we’ve seen in the last 20 years and reflective of how positively viewed New York is right now.”
Sales of investment properties over $10 million this year total $30 billion, though likely won’t reach the 2007 city record of $48 billion, Latham said.
This year foreign investors spent about $12 billion in Manhattan compared with $8 billion in 2013 and $7 billion in 2012, according to NGKF. Of the $12 billion invested so far this year, $8 billion comes from just four countries: Canada, China, Singapore and Norway.
Marketed by Eastdil, Canada’s Ivanhoé Cambridge is in contract to buy 1095 Ave. of the Americas for $2.25 billion, while the Chinese Anbang Insurance Group Co., Ltd. is in contract and awaiting US approval to finalize the $1.95 billion purchase of the Waldorf Astoria New York hotel that will push the final foreign investment numbers higher.
The Chinese invested $2.66 billion this year compared to $2.27 billion in 2013.
“The Chinese are used to 7 to 8 percent returns, so they tend to chase the repositioning opportunities,” explained Bill Shanahan, a vice chairman of CBRE, who sold 1 Chase Manhattan to the Chinese group Fosun International for $725 million last year, among other deals.
This year, CBRE is selling the old Mony Building at 1740 Broadway for Vornado Realty Trust to Blackstone for $605 million. Vornado is using those proceeds to buy a 75 percent stake in the St. Regis retail for $700 million.
After a learning curve, foreign buyers are also getting involved in many deals without local partners. “There continue to be new entrants from countries that we haven’t seen before,” observed Woody Heller, executive managing director of Savills Studley.
Locals like this year’s most active investor, David Werner, are on an equal footing when it comes to sealing the deals, as no one wants to overpay.
Land pricing is also being impacted on several fronts. Investors are becoming cautious because there are many ultra-luxe residential condominiums on the market and under development.
At the other end of the income spectrum, city politicians are creating affordable housing policy and requirements on an ad-hoc basis for any project that must go through the Uniform Land Use Review Procedure.
In June 2015, developers are facing the end — or “sunsetting” — of the 421a tax abatement/exemption program. And at the same time, there are not enough Housing Finance Authority tax exempt bonds for financing, so their use is being limited to just the affordable apartments.
There is also no Midtown East rezoning plan, so it is difficult to price and identify assets that may be included.
“This is creating havoc in a lot of ways,” said Heller. “If you are on the precipice of having the rules change, you don’t know how to price something.”
Investors are also finding fewer opportunities to make money by riding the market up and then flipping the property. “They are more focused on finding opportunities where they can create value,” Heller said.
Broad Street Development, for instance, sold both 55 and 61 Broadway this year after improving and renting up the assets for over a decade.
“The exit was fantastic and we are [still] incredibly bullish about the growth of Lower Manhattan as evidenced by our acquisition of 80 Broad,” said Daniel Blanco, a partner in Broad Street Development, which paid $173 million — or $408 per foot — for the 423,403-square-foot downtown office building that was marketed by Eastdil Secured and will be improved by BSD.
“Overlay slowly improving fundamentals within the favorable confines of our stable political climate and I think today’s large New York property bets pay off big time in the near future,” Harmon concluded.
After several recessions, all investors recognize the city’s ability to bounce back. “Buying New York office buildings is like buying the blue-chip stocks of the Sixties,” said Newmark Grubb Knight Frank’s President Jimmy Kuhn.
“You used to buy IBM and GM and now you buy Park Ave.,” said Kuhn.
