Michael Stoler — NYC building

Promising new data has emerged, but skeptics remain
By Michael Stoler | August 01, 2010 12:00PM

alternate text Is it a bull or a bear market for New York City’s commercial real estate investment sales?

On the positive side, Cushman & Wakefield reports property sales (over $10 million) closed and under contract for the first six months of the year totaled $5.8 billion, up 132 percent from the $2.5 billion closed and under contract at midyear 2009. According to Eastern Consolidated, sales of multifamily residential for the first half of the year totaled $1.96 billion, up from $560 million in the first half of last year. And Massey Knakal reports that during the first half of the year, $6.48 billion in sales took place in the five boroughs, up 131 percent from the same period a year ago.

This data makes many of New York’s prominent real estate leaders cautiously optimistic about the state of the market.

But there are skeptics, and I share some of their concerns. For one, last year was a low-water mark for the New York market, so it’s not a huge surprise that sales figures are higher by comparison.

And it’s not clear that New York is done with the downturn. Tim King, managing director at CPEX Real Estate, one of Brooklyn’s leading investment sales brokerage firms, said that we have not arrived at “reality realty.”

“There continues to be a strong disconnect between seller expectations and buyers’ willingness to pay these prices. There continues to [be a] slowdown in all sectors, with properties trading at one-third of historical sales volume,” King said.

And certain areas may be slower to come back when it comes to investment sales, said the CEO of Eastern Consolidated, Peter Haupsburg.

“Despite the unexpected strength of pricing in recent closed deals, the possibility of a ‘double dip’ is hard to rule out if you believe the volume of the overhang in lending that we all have been reading about lately. However, my opinion is that any such dip will apply to the boroughs and secondary markets, and not Manhattan.”

Still, there are clearly positive signs. Ofer Yardeni, the cofounder and managing partner at Stonehenge Partners, has noticed a dramatic turnaround in the last six months. Stonehenge was the winning bidder last month for the apartment building owned by St. Vincent’s Hospital at 555 Sixth Avenue. Along with a joint venture of Canadian-based Caisse de dépôt et placement du Québec and the Public Sector Pension Investment Board, Stonehenge agreed to pay $67.3 million for the building. Just six months earlier, a joint venture of Taconic Investment Fund and a private equity fund were in contract to purchase the property for approximately $48 million.

Yardeni said, “In our portfolio, we rented over 275 units from early January. Vacancy is around 1 percent.”

Joseph Koicim of Marcus & Millichap said there’s been a surge in buyer demand for trophy properties. “While prices have come down from the peak, we have seen much greater price erosion in secondary and tertiary locations throughout the city,” Koicim said. “Values on well-located assets have stabilized and in some cases increased due to demand.”

Prices are on the rise for office and residential rental buildings. “Rent-regulated apartment buildings in Manhattan Below 96th Street are trading in the $300 to upward of $650 per square foot range depending on location and condition. Less than a month ago, we executed on a sale of a prime West Village walk-up building in pristine condition for just over $650 per square foot, over $670,000 per unit, at a 5 percent cap rate,” added Koicim. (Investors look for high cap rates, which are based on future operating income.)

Alan Miller, senior director at Eastern Consolidated, said residential rental properties, mortgage notes and land are selling at impressive prices. “Earlier this year, a site at 345 West 14th Street that we sold in 2007 for $517 per square foot was restructured/recapitalized, with a new developer paying $19.5 million for the parcel, at a still strong $315 per buildable foot. We are marketing a prime location on Ninth Avenue off of West 57th Street that we expect to trade in the 4.5 percent cap rate range.

Frank Liantonio, an executive vice president at Cushman & Wakefield, said inventory will rise, but statistics for the first half of the year show that demand doesn’t appear to be letting up in the short to medium term. “We will continue to face a bifurcated market of ‘the best and the rest,’ but both sectors will supply product to a market that has been starved for opportunity.”