Editor's note: A problematic property market that needs propping up

By Stuart Elliott | May 01, 2017 11:00AM

Stuart Elliott

The New York City real estate market really needs a shot in the arm right now — but is a painful kick in the pants more likely?

President Trump’s tax cut plan, amid a stock market that has rallied during his first 100 days, might be a welcome boost for New York’s residential and commercial property markets, which are showing some worrying signs overall. Under the plan, the “business rates” for taxes would come down from 35 percent to 15 percent, even for pass-through entities like LLCs, which is how most real estate is owned in the city.

That might provide a much-needed jolt, but the more imminent question is whether, given market fundamentals, it would be something like prescribing a 5-hour energy drink at a later date to ward off a coma today.

As we detail in our cover story in this big issue, after years of spending heavily in New York, Chinese investors are now pulling back amid new capital controls in Beijing. A significant drop-off has already been felt on the residential side, and investors in U.S. commercial property are expected to spend 50 percent less in the next five years than they did in the last five. See the story on page 34.

But it’s the retail market that is perhaps the most concerning sector of real estate right now, as we explore on page 130. It doesn’t take an industry expert to see the profusion of empty storefronts in many neighborhoods in the city: Availability rates across Manhattan saw a 25 percent increase during just the first quarter. Developer Billy Macklowe bluntly summed up some of the prevailing sentiment as TRD went to press, saying “I think retail is f*cked, plain and simple.”

The outlook for the city’s building sales market was not much better, with a 50 percent drop off in dollar volume in the first three months of 2017 compared to a year prior (see page 30). “Dollar volumes were abysmal,” lamented Cushman & Wakefield’s Bob Knakal.

More than commercial real estate, the residential market — particularly the luxury new development sector — had received the lion’s share of handwringing and concern in the past few years. And to be sure, the number of stalled residential development projects is multiplying, a sign that developers are clearly having a tougher time making projects work (page 80).

But some apartment sellers seem to be getting the message and are becoming more willing to negotiate, actually leading to an increase in resale deals at the start of the year (see page 72). Developers are getting the memo as well, offering more incentives. And there have even been some sales in the Manhattan townhouse and Brooklyn new condo markets that recently broke price records, though brokers caution it’s not reflective of a new market reality (pages 24).

Going forward, how the Trump administration will deliver for New York City real estate — tax overhaul, infrastructure spending or otherwise — remains to be seen, of course. And how things shake out in D.C. could impact the fate of publicly traded real estate companies too (see page 118).

But one thing is for certain: There is no shortage of real estate trade groups and lobbyists beating on the door of the White House with a developer-in-chief in office. We survey the biggest players in that realm in a story on page 66.

In this issue, TRD also takes a deep dive into the construction industry, the muscle behind real estate. We have a first-ever ranking of the most active general contractors in the city on page 102. And we look back at the legacy of the late 102-year-old developer Leonard Litwin on page 56.

Finally, don’t miss our annual NYC Real Estate Showcase & Forum in Chelsea on May 15, where panelists will include the likes of former Governor Eliot Spitzer, billionaire John Catsimatidis, superbroker Dolly Lenz and many more. Go to therealdeal.com/events for more info and tickets.