The Real Deal New York

Searching for returns — outside of NYC

As profits get harder to pencil out, a close-up of the other U.S. cities sucking up NYC investors
By Dennis Lynch | November 01, 2017 10:00AM

Just how much the New York City real estate market is struggling (or not) depends on what statistics you look at. Condo developers are deepening their concessions, and Manhattan investment sales volume was down 55 percent in the first half of 2017. Meanwhile, investor Joseph Sitt, of Thor Equities, recently referred to the East Coast market as “troubled,” and the CEO of Columbia Property Trust, a real estate investment trust focused on high-end office buildings, said New York office-based REITs are getting “hammered.” So it’s no wonder that New York developers, investors and brokerages have turned to other markets — all with more runway for returns. High costs have made it “hard to get the yield” in traditional hubs like New York, said Real Capital Analytics’ Jim Costello. “Houston, Atlanta, Dallas offer higher yields than Manhattan in office.” The trend, of course, is nothing new: High-profile players like Gary Barnett and Steve Witkoff have recently made headlines for projects in Utah and Los Angeles, and many others have come before them. But some say the march to other U.S. cities is on the rise. Greg Kalikow, whose Kalikow Group has been active outside of NYC for over a decade, said he’s recently seen interest from New York-based investors in his projects in the Carolinas, Florida and Texas. Below is a look at how NYC stacks up to some of these other locations — and at the conditions luring them into those markets.

4.3%

The average cap rate — or return based on the income the property is expected to generate — for Manhattan office buildings valued at $100 million during the last 12 months. That’s far lower than more than a dozen other major U.S. cities and metro areas. Austin had the highest cap rate in the U.S. for pricey office buildings, at 6.5 percent.

$354

The average square-foot cost of building in NYC as of last year. That was the highest in the world and a change from 2015, when Zurich was the priciest city on the planet. San Francisco clocked in as the world’s second-priciest city for construction at $330 a foot. Other top U.S cities included Seattle at $280 and Houston at $233.

$40M

The record price for a condo at the Four Seasons’ One Dalton tower in Boston’s Back Bay. The city’s previous record was a $35 million sale at Millennium Tower by the Manhattan-based developer Millennium Properties. Average condo prices in Beantown are $751 a square foot. That’s far lower than Manhattan’s $1,773 per-square-foot average, but still high.

Howard Lorber

560

The number of agents residential megabrokerage Douglas Elliman has added to its now 7,000-plus U.S. headcount with this year’s acquisition of the Beverley Hills-based Teles Properties and its pending acquisition of Otis & Ahearn in Boston. Elliman Chairman Howard Lorber said the company is looking for markets where it can “make a real dent in new development.” Boston is clearly one of those markets — its downtown area alone has 30 condo projects, with nearly 3,000 units in the pipeline.

2,400

The number of acres Gary Barnett’s Extell Development is buying outside of Park City, Utah, for a master-planned ski village. If approved, the Wasatch Mountains getaway would include 254 residential “estate lots” and 500,000 square feet of commercial space.

19%

The population jump the Austin, Texas, metro area saw between 2010 and 2016. The phenomenon is not going unnoticed by developers. New York firm Sackman Enterprises is constructing a 34-story condo tower there with units asking between $400,000 and $5 million.

Six Fifty 17

$13B

The amount of money investors spent in Los Angeles in the first half of 2017 — $2.1 billion more than they spent in Manhattan in  that same period. Manhattan has traditionally been the most active market in the country, but volume dropped by a massive 55 percent year over year, allowing the City of Angels to take the lead.

1,000 ft.

The proposed height of Greenwich Realty Capital’s Denver skyscraper, dubbed Six Fifty 17. If constructed, the New York-based developer’s glassy, 90-story supertall, which was designed by Carlos Ott, would dwarf every other building in the Mile High City.