Peter Hauspurg is the co-founder, chairman, and CEO of Eastern Consolidated, one of the nation’s leading full-service real estate investment services firms. From that perch, Hauspurg, a veteran of 25 years in New York real estate, has a wide view of the city’s building sales market.
And that market, according to Hauspurg, remains firmly in the midst of what he described in a recent podcast interview with The Real Deal as a 13-year boom. (For a contrary take on the building sales market, see “Building prices no longer on the rise”.)
Hauspurg said foreign money is pouring into an investment sales market already flush with capital, and that the overall strength of New York City’s economy is only helping.
THE REAL DEAL: Can you give us an overview of the New York City investment sales market now?
PETER HAUSPURG: We’re now in the 13th year of a rising market, if you consider 1993, as I do, as the first year where prices really started to inch up after the disastrous markets we had here in the late 1980s, early 1990s. And just when we thought the events of September 11 had to mark the peak of our market, instead, it paused for maybe three or four months, and, then, instead of going down, it took off straight up. Since September 11, we’ve actually seen values increase 2 to 4 percent a month in some cases, which is truly an amazing rate.
Anyway, this upward volatility we’ve seen over the last few years has produced some really wild re-sales of properties at sharply increased prices just months after the prior sale. We’ve also had a perfect storm of skyrocketing land values for residential development in conjunction with the rezoning of blocks of land all over Brooklyn and the West Side, which has made multi-millionaires out of [owners] of formerly worthless land parcels or marginal land areas.
TRD: Are you surprised by the resurgence of the hotel industry since September 11?
PH: Everybody’s surprised. They went years and years with having a lot of rooms available and rates were low. And, then, over the last five or six years, occupancy has been 90-plus [percent] in many cases. There’s also been the well-publicized removal of hotels from the market as they’ve been converted to condos, but people haven’t realized that a lot of new hotels have been built in New York to make up for this conversion shift.
TRD: What are some of the factors causing the boom market?
PH: A lot of it’s due to an enormous movement of capital in our market, which sort of began when the tech stocks were collapsing in 2000 and 2001. This produced a wave of disappointment with Wall Street, and investors took a look at our market in real estate. And, all of a sudden, pension funds started increasing allocations that normally would’ve been 2 to 4 percent in real estate, all of a sudden, to 7 or 8 percent. And the results sent billions of dollars chasing after a fixed supply of real estate — because, of course, it takes us a while to assemble land and build buildings, and, in the meantime, this money came over us in a matter of a couple of years, forcing cap rates down and prices up. We’ve never had this much capital in our market.
TRD: Can you give some details of how your firm finds deals before they reach the open market?
PH: New York City’s a funny market. The rest of the United States operates by hiring an exclusive broker if you want to sell a property and putting the property out to the market. New York City has never been like that. Often, the most interesting trades and sometimes the most lucrative ones are the ones that are done off-market. And the reason is the players in this market are a real varied group.
The real active players include the Israelis, the Iranians, the Russians, the Germans, the Chinese, the local Syrian community, [and] the Orthodox from Brooklyn. But many of these groups will never sign any sales agreement or other such agreement. But that doesn’t mean they don’t trade property; they trade a lot of property. So, what you end up doing is forming a lot of relationships with people who are multiple traders. And, again, you’re in a city where very few of the trades are institutional. They’re almost all done by individuals of all these different nationalities.