NYC Investment Sales Hit a Wall in Q3

Fears that rising interest rates would bring about a slowdown in investment sales became reality in New York City last quarter.

Dealmakers traded $7.86 billion worth of commercial properties in the third quarter, a 30 percent decline from the second quarter, according to a report from Ariel Property Advisors. The 568 deals, involving 701 individual properties, represented declines of 25 percent and 28 percent from the second quarter, respectively.

Those figures represent an improvement over the same period last year, when 557 transactions combined for $6.26 billion in dollar volume, although this year’s third-quarter total was largely inflated by a single office deal that closed for nearly $2 billion in September.

The quarter-to-quarter drop off in late summer could be felt across nearly every asset class, including multifamily, industrial and development sites.

Deals for multifamily properties totaled $3.63 billion, down 30 percent from the previous quarter’s $5.15 billion, but up 13 percent from $3.21 billion a year ago. The 366 deals, which involved 445 apartment buildings, each represented declines of 23 percent from the second quarter, but increases of 13 percent and 15 percent from last year’s third quarter.

Industrial properties saw the largest declines, both quarter-to-quarter and year-over-year. Sales of industrial assets, which include warehouses and manufacturing sites, plummeted 72 percent, from $1.22 billion in the second quarter to just $335.5 million in the third quarter. That’s down from $390.6 million in the third quarter last year.

Sales of development sites fell by 31 percent, from $1.22 billion in the second quarter to $846.4 million in the third quarter. There were 57 such deals in the third quarter, a 38 percent drop from the previous quarter, and a 22 percent decline from the same period a year ago. Still, dollar volume jumped 13 percent year-over-year.

One asset class that saw dollar volume increase from the second quarter to the third was offices, which jumped 34 percent from $1.59 billion in the second quarter to $2.13 billion in the third quarter, nearly quadrupling the $536 million seen in the third quarter last year.

But that total was driven overwhelmingly by SL Green Realty’s $1.8 billion takeover of 245 Park Avenue from HNA Group in September, which ended a long-running legal battle over the Midtown East office tower. The next largest office deal in the third quarter was NYU’s acquisition of 3 Metrotech Center in Downtown Brooklyn last month for just $122 million.

The disparity in dollar volume does signify at least one trend in the market: Class A properties are expected to remain in demand as older buildings get left behind.

“New York City is seeing a tale of two office markets,” Ariel Property Advisors’ Shimon Shkury said. “Institutional investors are paying a premium for well-located, Class A, Manhattan office buildings with a high tenancy and attractive amenities, while Class B and C buildings in less desirable locations aren’t generating the same level of interest.”