No matter how you count ‘em, commercial sales are on track to surpass the 2007 records and end 2015 with anywhere from $75 billion to as much as $90 billion in closed deals.
While the experts agree the actual number of sales is lower, the booming prices have set the blistering pace for the record year.
JLL recorded $42.5 billion in deals sized at $10 million and up that have already closed with another $6 billion under contract that should close this year.
At Cushman & Wakefield, Robert Knakal says they start counting at the lower price point of $1 million and go up, which brings their number to $75 billion, already shattering the $62.2 billion sold in 2007.
“The dollar value will absolutely set an all-time record,” Knakal said.
Even so the number of transactions will be down roughly 10 percent to 15 percent from last year’s record 5,532, but which itself was 10 percent higher than the previous record.
“The average transaction is much higher, and it is a function of the values that have steadily been increasing,” Knakal said. “We have seen folks willing to accept lower and lower rates of return on their investments and it’s been remarkable how the market has been reacting, and presently there has been no impact.”
“Anything coming up for sale in the other boroughs is in demand,” said Richard Baxter, vice chairman of JLL. For those wanting trophies, Baxter says, “There is so much demand and so little product to look at.”
A few large offerings are percolating including a new attempt to sell Stuyvesant Town through investment broker Douglas Harmon of Eastdil Secured.
Harmon is also marketing two Class A Midtown office properties at 1285 Ave. of the Americas and 787 Seventh Ave. which comprise a full block and are expected to become a $4 billion sale, and not yet counted in the statistics.
“You can’t blame potential sellers for finding todays’ prices compelling,” said Knakal.
But not all sellers want to walk away and many simply want to take some equity chips off the table. “People are intrigued by capitalizing on the current pricing but don’t always want to sell,” explained Woody Heller, who heads capital markets for Savills Studley.
Owners can always refinance but if the market shifts they could be “upside down” on their loan, Heller says, thus owing more than the building is worth.
In some cases where recapitalizations occur, the non-operating partner is a fund that is at the end of its investment horizon and wants to cash out. “It is more appropriate then to bring in another financial partner,” Heller said.
This is resulting in recapitalizations which allows the seller to not only retain control of the building, the asset management and all the fees, but also to attract a new capital partner that they can go to for other deals, explained Darcy Stacom, vice chairman of CBRE, who guided Trinity Real Estate in bringing in Norges Bank to venture on 5 million square feet in 11 buildings in Hudson Square for an expected $3.3 billion. Stacom declined to discuss the financial terms which have not been released. That deal is also yet to close.
“Right now you can move a billion dollar deal and a two billion dollar deal, and in residential a half-a-billion-dollar deal,” said Stacom, who is also offering the apartment building at RiverTower for around $400 million. “The people who write these checks are very global and want to diversify and also put their money into Europe and Asia.”
But that has also resulted in deals that were voted down by investment committees because, Stacom said “they can get a better return in London or Hong Kong.”
Nevertheless, developer Steve Witkoff said, “New York operates like a safety deposit box for capital looking to flee from unsettling conditions.”
According to JLL, foreign investors now make up 40 percent of the buyers; private capital nearly 45 percent; and real estate investment trusts about 15 percent. “More foreign investors are drawn to New York City because it is a safe haven [for their money],” said Baxter.
Downtown leasing broker John Wheeler of JLL says the recapitalizations and sales Downtown show the smart money is buying into the long term vision and continued growth. “There were times in the past where Lower Manhattan wasn’t of interest to institutions and that’s turned around,” Wheeler said.
The latest building on the Downtown sales block is 61 Broadway which was purchased by Scott Rechler’s RXR Realty just one year ago for $330 million, and now being shopped through JLL with an expected result of $450 million. While it seems somewhat `pie in the sky,’ the pricing is based on Downtown rent growth of some 55 percent in the past three years with 16 percent of that in the last year, Baxter said.
The rent rise has been dramatic in that building as in 2012 61 Broadway signed a full floor deal of 23,750 feet at $23 per foot. By 2013, asking rents were in the high-$30s per foot and in 2014, the Bjarke Ingels Group signed a high floor, full-floor deal with an asking rent of $51 per foot.
“Right now we are seeing a confluence of factors that are all pointing to positive factors,” said building owner Leslie Himmel, a partner with Himmel + Meringoff.
