Manhattan I-sales tumble as LA takes over top spot

Deal volume fell 55 percent in the first half of 2017: RCA

New York /
Jul.July 21, 2017 04:45 PM

Manhattan investment sales tumbled by 55 percent in the first half of 2017 allowing Los Angeles to take over the top spot as the country’s largest investment market, according to research firm Real Capital Analytics.

The ballpark numbers are preliminary and could change slightly before RCA releases its report next week, but are unlikely to change much, said RCA’s Jim Costello. Los Angeles saw around $13 billion in commercial real estate sales close in the first half of the year, followed by Manhattan with almost $11 billion (see chart). In the first half of 2016, investors had closed on $23.9 billion worth of Manhattan property deals.

Market observers say the stark decrease reflects a gap between sellers who are emboldened by last year’s record deals and want to cash in and increasingly cautious buyers who no longer want to pay peak-market prices.

The result has been more sellers taking their properties off the market after testing the waters, some deciding to take advantage of low interest rates and refinance instead. For example, Walton Street Capital last month abandoned plans to sell its 49 percent stake in 237 Park Avenue and refinanced the building with an $850 million mortgage.

The first half of 2017 saw only two $1 billion-plus commercial property trades in Manhattan: HNA Group’s acquisition of 245 Park Avenue for $2.21 billion and GIC’s 95 percent stake purchase in Deutsche Bank’s headquarters at 60 Wall Street for $1.04 billion.

“There is stuff that is still being priced basically (on the level of) a year and a half ago that’s not moving,” said Greg Kraut of real estate investment firm K Property Group. Most investors no longer expect property prices to rise in the near future as the market cycle nears its end, making it “harder and harder to justify” low cap rates, Kraut said.

Sources said that, over the past year-and-a-half, core properties in Manhattan would often sell at cap rates of slightly above 4 percent. Now buyers often won’t go beyond pricing that translates to cap rates of close to 5 percent, which is more in line with Manhattan’s long-run average rate.

 

In Los Angeles, meanwhile, deal volume fell 11 percent from $14.6 billion a year ago, but it was enough to take over the top spot as the country’s largest market ahead of Manhattan, Dallas, Boston and Atlanta.

“Buyers just aren’t willing to make as many big bets,” Costello said, blaming a range of factors including uncertainty over federal tax policy. “Why make a big bet if you don’t know what will happen to your interest deductibility,” he said, adding that he expects deal volume to remain low for the rest of the year.

Other observers are more optimistic, arguing there’s still plenty of demand for Manhattan properties amid decent leasing activity and employment growth. “For stuff that’s priced well, it moves,” Kraut said.

Hodges Ward Elliott’s Daniel Parker, who along with Will Silverman and Paul Gillen recently brokered the $126 million sale of a Midtown South office building at 31 West 27th Street to Savanna, said he expects deal volume to grow again in the second half of the year because sellers have already become more realistic in their pricing.

“Twelve to 18 months ago, there was a bigger disconnect between buyers and sellers. Now we are seeing more sellers who acknowledge the state of the market,” Parker said. “There is no argument that 2017 sales volume is down overall in the market, but investors can’t sit on the sidelines forever.”


Related Articles

arrow_forward_ios
Bronx Section 8 housing, West Village dorm top mid-market sales
Bronx Section 8 housing, West Village dorm top mid-market sales
Bronx Section 8 housing, West Village dorm top mid-market sales
Gravity CEO Moshe Cohen and Related CEO Jeff Blau (Getty, Gravity)
Related partners with electric vehicle startup to bring charging stations to NYC
Related partners with electric vehicle startup to bring charging stations to NYC
(Adam Popper via LinkedIn)
Adam Popper joins Thor Equities as VP of acquisitions
Adam Popper joins Thor Equities as VP of acquisitions
A rendering of St. John's Terminal with Google CEO Sundar Pichai (COOKFOX Architects, Getty)
Google shatters pandemic record in $2.1B office purchase
Google shatters pandemic record in $2.1B office purchase
Two years after its IPO fail, WeWork will go public
Two years after its IPO fail, WeWork will go public
Two years after its IPO fail, WeWork will go public
Marcus & Millichap says it was the target of a cyber attack
Marcus & Millichap says it was the target of a cyber attack
Marcus & Millichap says it was the target of a cyber attack
2307 Beverley Road in Flatbush, Brooklyn (Getty)
Sears closing up shop in New York City
Sears closing up shop in New York City
All Storage CEO Jay Schuminsky and CBRE CEO Bob Sulentic (All Storage, CBRE)
All Storage courts $1B-plus sale with CBRE
All Storage courts $1B-plus sale with CBRE
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...