Demand for investment returns slows sales

By Adam Pincus | September 10, 2009 03:43PM

While some small investors ought to consider buying properties and be satisfied by a modest return, many larger investors are holding out for returns above 20 percent, further slowing sales volume, panelists at a Midtown event told an audience of real estate professionals this morning.

Owners of low-cost properties can make a nearly 10 percent annual return for their money if they buy a property under a triple-net lease scenario, said Marilyn Kane, managing director at Sperry Van Ness/Butler Kane, one of six speakers on a panel organized by the real estate-focused NYC Network Group.

Groups of small investors that are pooling their money to make investment purchases should consider buying triple-net leased properties, or properties in which the tenant pays all taxes, insurance and maintenance, she said. There were opportunities to buy with capitalization rates — or annual yields on an investment — of 8.5 percent or 9.5 percent.

“We like that very much. We are comfortable suggesting that,” she said.

But Phil Restifo, president and chief investment officer of real estate investment and management firm Haveland Estates, said many institutional investors want a much higher return, and prices remain too high for buyers.

“How high of a return do investors want?” he was asked.

“The short answer is 50 percent,” he said jokingly, drawing laughter from the crowd.

Because the reduction in loan-to-value ratios from approximately 80 percent to about 60 percent meant investors were tying up more equity in a given deal, they wanted a greater return. He estimated buyers want annual returns of at least in the low teens, and prefer a return in the mid-20s.

“The investor is demanding a higher return on equity because so much more [money] is required in a given transaction,” he said.

At the same time, George Constantin, president and CEO of Heritage Realty Services, said he was looking to purchase retail condominiums, which currently have “attractive pricing.”

The other speakers on the panel were Douglas Ruttenberg, partner with accounting firm Eisman, Zucker, Klein & Ruttenberg; John Kazazis, president of title insurer A.R.S. Abstract; and John Stratakis, partner at law firm Poles, Tublin, Stratakis & Gonzalez.