New York market not yet overheated: panel

Compiled and condensed by Adam Pincus

Despite the sharp contrast between the steady rise in investment sales prices for New York City’s trophy buildings over the past year and a sputtering national economy, a group of local real estate professionals said the Manhattan market was still heating up. Adam Spies, a sales broker and senior managing director at Eastdil Secured, moderated a four-person panel last night on the rooftop of the Olivia residential rental building, at 315 West 33rd Street, that touched on property values, office rent pricing, hotel occupancy and residential development, sponsored by the real estate division of the Friends of the Israel Defense Forces (see photos above). The four panelists were David Schonbraun, co-CIO of office landlord SL Green Realty; Neil Luthra, principal with hotel owner Highgate Holdings; Scott Alper, principal at the property investment firm Witkoff Group; and Avi Banyasz, managing principal at private equity firm TPG Capital.

Spies: Is the (investment sales) market overheated? Are values getting ahead of the fundamentals?

Schonbraun: The simple answer is, no. I think we are seeing the values supported by a couple things. Values are more than fair now and will continue to increase as rents increase. I am sure you share that view.

Spies: We share that view in our underwriting. What is the underwriting in rental rate growth?

Schonbraun: People are underwriting 20 percent to 40 percent growth over a five-year period. I think the people who are winning auctions now are probably in the 40 percent range. We are probably a little more conservative.

Spies: How much are hotel [sales] values up off of the bottom?

Luthra: In the national market you are probably off about 30 percent from peak values. In New York you are off about 20 [percent] to 25 percent.

Spies: There is an awful lot of development on the horizon. How is all that new development affecting your underwriting?

Luthra: From the supply picture, there are 75,000 [hotel] rooms in New York City. You have another 8 percent coming online in the next three years, which is a huge growth. So we are definitely cautious.

Spies: Is [residential] development justified right now?

Alper: We like the development space where you get to the ground today, meaning over the next six to nine months — where you still have the opportunity of buying construction cheap.

Spies: Based on where you are seeing land trade now, do you think the market it overheated?

Alper: We have seen land bounce back quite quickly. A lot of the land [acquisitions] we are focused on are unique opportunities, off market [deals]… where we need to come in and recapitalize.

Spies: You have seen a lot of private equity and hedge funds get into [distressed acquisitions]. Is the space getting too crowded?

Banyasz: I think the space is fairly intriguing [since] you need a significant amount of equity capital. Because very few investors — both hedge funds and private equity — in the real estate space can write investments of $500 million-plus in equity.