The storm clouds are gathering even as deals chug along.
One major investment broker, on condition of anonymity, confided, “I’m telling clients — and not making public — that we think we are past the peak and they should get realistic and drop the price, take the bid and move on.”
There are thousands of pricey, available residential condo units, and he pointed to Gary Barnett’s decision to market a group of rental units at One57 through Eastdil Secured at a large discount as a move that will send shivers through the market. “If one developer does it, will others?” he wondered.
His clients are also watching the hotel market as that will react quickly to any changes in tourism and business.
As lenders are asking for more equity from developers, and contractors are so busy they are jacking up prices and taking longer to get to the jobs, they are adding to the reasons investment buyers are balking.
Oh, and don’t forget the current mayoral administration that wants to include more affordable housing and rent controls, but forgets free-market investment decisions and conditions.
Manhattan is still strong, our source noted, but secondary and tertiary markets and projects are taking the hit.
Cap rates, which are indicative of the going-in return on investment, had been plunging, but are just starting to rise again as some prices fall.
Vornado Realty Trust, which is developing 220 Central Park South and enjoying great success, held a conference call last week with analysts. At the end, Chairman and Chief Executive Steve Roth said, “Trees don’t grow to the sky, and the easy money clearly has been made. Pricing is very aggressive. I don’t know which way interest rates are going, but people seem to think they’re going up. I don’t know which way cap rates are going, but people seem to think they can’t go much lower. And so it seems that this is the time to begin to think about preparing for the next cycle. If you’re in a position like we are, running a company like ours, and you don’t start thinking like that, you’re not being responsible.”
There will be more discussions about the temperature of the market today at the NYC Real Estate Expo at the New York Hilton, where I will take part in a 1 p.m. panel along with Will Zeckendorf and others.
Global buyout advisers BC Partners has just relocated to 650 Madison Ave., where it will eventually have the entire 23rd floor of 13,000 square feet. Until its build-out is completed, the company is in temp space on the 15th floor.
Keith Caggiano, Roshan Shah and Stephen Siegel of CBRE represented BC Partners in the 10-year deal.
A JLL team of Frank Doyle, David Kleiner, Dan Turkewitz and Mitch Konsker represented the ownership. The owners, a venture of Vornado Realty Corp. and Oxford Properties, had an asking rent of $140 per square foot.
BC Partners, which owns PetSmart, moved from its prior digs nearby on the entire 19th floor of 9,000 square feet at 667 Madison Ave.
The CBRE team was able to sublet that space, with an asking rent of $105 per square foot, to Anthony Westreich’s Monday Properties, which was repped in the three-year deal by Alex Chudnoff and Ben Bass of JLL.
