$100M-plus properties driving sales

Sales volume of buildings worth less than $50 million dropping

From left: Robert Knakal, Garrett Thelander and Robert Shapiro, all from Massey Knakal, On the Ave Hotel and the Park Central Hotel

While the New York City property sales statistics are vastly improved from 2010, the
market is still “slogging along,” according to Massey Knakal Realty Service’s mid-year
property sales report. The report, which covers all investment sales throughout the five
boroughs, shows dollar volume increased to $12.6 billion in the first half of 2011 — 74
percent more than 2010 on an annually adjusted
basis. In fact, $8.6 billion worth of sales were recorded in the second quarter, the most
since the fourth quarter of 2007. But sales volume, perhaps a better read on market
activity, increased just 15 percent on an annualized basis, to 1,920, less than 40 percent of
the 5,018 sales achieved in 2007.

That discrepancy can be explained by the fact that high-end, $100 million-plus properties
are driving the market, Robert Knakal, the firm’s chairman, said at a breakfast covering
the data this morning. Sales and dollar volume of buildings trading for more than $100
million both doubled in the first half of 2011. In the second quarter, 22 properties sold
for at least nine figures each, a significant rebound from 2009 when all of seven such
properties sold.

“Tens of billions of dollars have been raised in investment funds, but inventory is still
short,” Knakal said.

Lenders are active, and many lenders have already exceeded their 2011 allocations,
Garrett Thelander, the firm’s director of capital services, said this morning.

“Even life [insurance] companies increased allocations in real estate investment,”
Thelander said. “They believe fundamentals are stable and improving.”

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With all the money out there, property owners see this as a good time to sell.

“Sellers are taking advantage of the supply-demand conditions,” Knakal said. Combine
those factors with the “historically low” interest rates, and conditions are ripe for buying
high-priced property. While the high end of the market is strong, Knakal said that it’s a
relative characterization, and should be taken in context of the rest of the market, which
hasn’t fared as well.

The firm recorded just a 13 percent increase in the number of properties traded at less
than $100 million in the first six months of the year, and there was a 7
percent drop in the sales volume of buildings worth less than $50 million, compared to
the second half of 2010. Overall, prices and activity are stabilizing, but they’re growing
only modestly and well below peak levels.

Manhattan hotels are the strongest segment of the property sales market, as nine such
properties traded in the second quarter at an average price of more than $465,000 per
key. Lehman Brothers Holding’s $191 million purchase of On the Ave Hotel, at 2170 Broadway near 77th Street, led the way at $715,609 per key.
But, the $405.5 million sale of the Park Central Hotel on Seventh Avenue was the most expensive hotel trade of
the quarter. Because hotels are rented on a nightly basis they are best able to move with
market conditions and therefore recover fastest, according to Knakal.

Meanwhile, multi-family properties are driving the Brooklyn and Queens markets,
especially walkups, which usually come with higher turnover and therefore, more
opportunity to raise rents. Development site sales in the Bronx were strong in the first
half of 2011, as prices reached $36 per buildable square foot, well above the typical mid-
$20s rate.

Interestingly, the newly expanded rent regulation laws haven’t affected
sales in multi-family dominated Northern Manhattan, Robert Shapiro, the firm’s first
vice president of sales in the area, said. Most of the new laws, he said, have little effect
on landlords in the relatively low-priced region of the borough. Shapiro also said that
developers have honed in on the area, engaging in bidding wars and paying about $54 per
buildable square foot — just a few dollars less than prices in 2005 and 2006.