The Real Deal New York

HNA’s $2.2B purchase of 245 Park Avenue was a “freak last deal,” Joe Sitt says

Pros talk frothy NYC market, uncertainties ahead
By Kathryn Brenzel | September 28, 2017 04:43PM

From left: David Weinreb, Joe Sitt, Francis Greenburger, Larry Silverstein and Nelson Mills

Blockbuster deals like HNA Group’s $2.21 billion purchase of 245 Park Avenue may be going the way of the dodo bird as the flow of institutional Chinese cash in the United States slows to a trickle.

“I think that was a freak last deal,” Joseph Sitt, CEO of Thor Equities, said. He noted that the Chinese government has started cracking down on the billionaire CEOs of some of the most active investors, including Anbang Insurance Group and the Wanda Group. “I think a lot of that funny money is gone. And I think it’s more sensible money and intelligent money that’s [now] in the marketplace.”

During the first two panels of Eisner Amper and iGlobal Forum’s Global Leaders in Real Estate Summit on Thursday, the discussion turned to the various uncertainties gripping New York City real estate, including the decline in international buyers and investors and the various unknowns in how the government will handle interest rates and how President Trump’s tax plan will play out.

“On a scale of 1 to 10, predictability is probably negative 4,” said Larry Silverstein, head of Silverstein Properties. “It’s a time of enormous uncertainty.”

The Federal Reserve has indicated that it will continue to raise interest rates, with the latest hike — the third this year — expected in December. Peter Sotoloff, managing partner and chief investment officer of Mack Real Estate Credit Strategies, said that the interest rate hikes will level-off asset values.

“We’ve been fed a lot of crack cocaine to support asset values over the past 7 to 8 years,” Sotoloff said. “It’s been artificially inflating asset value.”

In a speech on Wednesday, Trump outlined his proposal for sweeping tax cuts, but many details on the plan remain unclear. William Mack, chairman of the board of directors at Mack-Cali Realty Corporation, said some of the proposal “could really send real estate on its ear.” (The Real Estate Board of New York has spoken out against the president’s proposal to eliminate deductions of real estate property taxes from homeowners’ taxable income. The group says the change will make New York and the country less competitive for real estate investment.)

Sitt noted that various markets have reacted to the dynamics of the Trump administration — such as whether Steve Bannon or Jared Kushner had more influence in the White House.

“I think it’s gotten to the point where the markets have given up,” he said.

The panelists also discussed their migration to other markets. Sitt said he views the East Coast market as “troubled” and has largely focused on the West Coast, Latin America and Europe in the past 10 years. Nelson Mills, president and CEO of Columbia Property Trust, noted his company’s recent partnership with Allianz Real Estate to acquire class-A office properties on West Coast.

“The New York office-based REITs are getting hammered,” Mills said. “The public markets have spoken, and New York is out of favor for the time being.”

As for international investment, Mack said he’s hopeful that the U.S. won’t “close [its] borders to international investment” but is troubled by a global rise in nationalism.

“I see it happening for China right now, they are trying to keep their money there. The banks are getting queasy about loaning to real estate of any kind, especially retail, and secondarily office,” he said. “I have grave concern that the next step will be a diminution of capital coming into the country or capital that is available in the country for real estate lending.”