Amirian Group president David Amirian was on CNBC’s “Power Lunch” on Tuesday to discuss heightened banking regulations and other factors that have contributed to a slowdown in the Manhattan real estate market.
Amirian pointed to a steep drop in investments sales for Manhattan development sites, in particular, through the first three months of 2016. Despite “an upward trajectory for three years in a row” that saw development site deals in the borough hit $903 million in the first quarter of 2015, Amirian noted that first quarter development site sales in Manhattan totaled only $164 million this year.
“It’s a 82 percent drop, year-over-year,” he said. “We’ve absolutely hit a wall because of a myriad of reasons.”
Those reasons may well include new banking regulations like the Basel III reform measures, according to Amirian, which are designed to put “certain mechanisms” in place to oversee risk management within the banking sector.
The reforms include requiring banks “to have more reserves in place in case of a downturn,” while also increasing equity requirements for development projects, he said.
Banks also “are no longer giving developers a stepped-up basis, based upon what the market calls for,” when it comes to financing development projects.
“So if you bought a property in 2000 and you’ve been sitting on it and assembling and putting together a huge site, the bank is only going to give you credit for the amount you paid for the land – not a stepped-up basis (based on land values today),” Amirian said, adding: “This is changing the economics of development.”
Lenders have also increasingly pulled back on financing luxury condominium projects, reflecting broader uncertainty regarding the Manhattan residential market’s near-term prospects, as The Real Deal reported in February. [CNBC] – Rey Mashayekhi