Brokers say the investment market has slowed, but at least a dozen deals have closed this year of over $500 million, with six of them over $1 billion.
High-profile sales include 787 Seventh Ave., 1285 Sixth Ave., 550 Madison Ave., and 388-90 Greenwich Ave., along with partial interests sold in 1095 Sixth, 11 Madison, 1 New York Plaza and 10 Hudson Yards.
There are also a few sales in process that include a stake in the Deutsch Bank-leased 60 Wall St.
Class A pricing in Midtown and Midtown South has averaged $1,120 per square foot while Class B has been averaging $910 a foot in Midtown and $820 per foot in Midtown South.
“It’s an exciting yet perplexing time in our markets: it’s strong but insecure, robust but not the same across all asset classes,” says Douglas Harmon, the world’s No. 1 investment sales advisor, who just joined Cushman & Wakefield as chairman of capital markets. He was responsible for sales and recapitalizing the majority of the top transactions. “There are cracks forming in some areas, yet great pillars of strength and security in others. This is a market for only the experienced to navigate.”
Harmon joined the firm along with Chairman Adam Spies, and Executive Managing Directors Kevin Donner and Adam Doneger. Harmon says he can now provide clients the full global reach afforded by Cushman & Wakefield.
But without the literally dozens of multibillion-dollar transactions of years past and large residential portfolios, the city’s overall 2016 sales may not tally up to match the record $60 billion sold in 2015 or even the $48 billion completed in 2007.
Nevertheless, observes Stephen Shapiro, senior vice president of JLL, “If we finish the year close to $40 billion, it will still be the third most active year in history.”
Sellers don’t believe this is best time to sell, explains Woody Heller, head of capital markets at Savills Studley. “It is hard to get yesterday’s price, the dead deal pile is as large as it’s ever been, and if you don’t need to sell at this moment you don’t,” Heller says. “The market is by no means dead, yet it is selective and thoughtful.”
Strong submarkets include the Hudson Yards area, Chelsea and the Garment District. That’s where Anthony McElroy, head of acquisitions for Herald Square Properties, focuses on buying mid-block buildings of 150,000 square feet with light and air. “Now institutions and foreign money are chasing these; so there is a lot of competition for that product,” McElroy says.
There is also a lack of replacement properties for profit rolling; no 421-a tax abatement to validate construction costs; a lack of construction financing; a glut of hotel rooms competing against Airbnb rentals; an overhang of high-priced apartments in places like Brooklyn and Manhattan; and worries about the presidential race, future taxes and the economy.
Will Silverman of Hodges Ward Elliott believes buyers need to have a longer-term outlook. In Brooklyn, for instance, investors are bullish on retail condos but worried about the oversupply of apartments. “Not buying Brooklyn residential because of next year’s deliveries is like not buying a convertible because it might rain this weekend,” Silverman says.
Vanbarton Group principal Richard Coles says, “There is a definite plateau and lack of momentum that has created more of a sharpshooter’s market. Eighteen months ago you could buy and flip two days later. That’s no longer the case.”
‘Not buying Brooklyn residential because of next year’s deliveries is like not buying a convertible because it might rain this weekend.’
— Will Silverman, Hodges Ward Elliott
The sales slowdown is most dramatic in land transactions, observes James Nelson, vice chairman of Cushman & Wakefield. Citywide, land pricing is down 12 percent from $295 a buildable foot to $261.
The downward trend would be “much more dramatic,” Nelson says, if owners dropped their pricing rather than pulling the listing.
“The Bronx is one of the good stories,” advises Peter Hauspurg, chairman of Eastern Consolidated. Land prices there have increased 18 percent as buyers seek a lower-priced frontier.
The office condo market is also hot. says Michael Rudder, principal, Rudder Property Group. He adds, “We’ve seen no slowdown yet in that market.”
Office condo sales averaged $862 a foot in the first half of 2016 but included larger sales made downtown for lower prices. Most now are in the $1,000 per foot and up range, Rudder says.
Multi-family pricing is flat, in part due to two years of frozen stabilized rents set by the city. Nelson says, “You want rents to keep up with the expenses, but the buyers are also hoping for vacancies, and it is always about creating value.”
But the pool of buyers has diminished, notes Hauspurg, as they worry about getting both equity and construction financing. Banks have cut the loan-to-value (LTV) ratio from 65 percent to 55 percent and even 50 percent. It was 80 to 90 LTV a decade ago.
Michael Lefkowitz, an attorney and partner with Rosenberg & Estis, says, “This is affecting construction sites but is creating an opportunity for those who want to buy debt and own the real estate.”
Adds attorney Jay Neveloff, head of real estate at Kramer Levin, “As long as the loan-to-value ratio is appropriate, financing is there.”
Despite the slowdown in the highest end of the condominium market, Neveloff has clients in the early development stages who are planning new towers. “Whatever is going on now. people are viewing as an adjustment that is correcting over-exuberance,” Neveloff says. “But fundamentally, great real estate gets great prices.”
The city is also benefiting from foreign buyers spooked by Brexit who are retreating from London until the politics and policies are sorted out. Manhattan’s 4 percent cap rates are also helping it remain an investor target.
“It’s the best house on a bad block,” says David Colen, managing director of NGKF Capital Markets.
His NGKF colleague, Alex Foshay, senior managing director, notes, “There is also all this office space coming on in New York in new projects, but office rents have held up — that’s the headline the investors focus on.”
Foreign investors are still active. China Investment Corp. bought 49 percent of 1 New York Plaza from Brookfield for $700 million, revaluing the building at $1.4 billion.
And 693 Fifth Ave. sold to French billionaire Marc Ladreit de Lacharrière for $525 million. Meanwhile, Qatar Diar invested $700 million with Tishman Speyer in a Long Island City tower, and the Qatar Investment Authority bought a 9 percent stake in the real estate investment trust (REIT) that owns the Empire State Building and 14 others.
“A lot of smart people with a ton of equity are chasing everything, and every day it gets harder [to buy] than the day before,” says Eric Meyer, a principal of Meyer Equities, who recently left Colliers to manage and bulk up the family portfolio.
“I’ve sold as a broker to many people, and every deal is so expensive. And then you look back, and they got the deal of the century,” says Meyer. “There is never a bad time to buy as long as you are creative and don’t over-leverage.”
