NYC Investment Sales Dropped 55% In 2023 As Sellers Hung On And Buyers Lay In Wait

A late push from international investors didn't prevent New York City’s investment sales market from having its worst year in more than a decade.

Across the city, there were $9.7B in commercial properties sold last year, a 55% drop from 2022 and 72% below the trailing 10-year average of $34.2B, according to Avison Young data shared with Bisnow.

Despite Prada dropping more than $820M on neighboring Fifth Avenue buildings in the waning weeks of 2023, the dollar volume was the lowest in the city since 2009, the depths of the Global Financial Crisis. 

Instead, the year was dominated by the wait-and-see pattern adopted by much of the market since the outset of the pandemic, Avison Young principal and Head of Tri-State Investment Sales James Nelson said.

“Sellers hoped that rates would reverse so the market would improve and become more suitable to sell,” he told Bisnow. “Meanwhile, buyers waited, hoping that the rise in rates would lead to better deals down the road and more distress.” 

There were just 464 sales for the year, 13% less than in 2022 and 49.5% below the 10-year average of 937. The lows were the result of the Federal Reserve’s continued interest rate hikes suppressing buyer appetite, but that could change in 2024, Nelson said. 

“Many hope that there will be rate cuts this year,” he said, adding that 2024 has already seen a surge in buyer inquiries. “Many are sitting on quite a bit of dry powder. My sense is that many also feel that they might’ve missed the bottom of the market, so they’d like to jump in while there are still opportunities.”

More loans are also coming due in 2024, reflecting and accelerating a pattern seen throughout 2023, he said. Many owners with debt that matured last year weighed whether they could afford or wanted to complete a cash-in refinance to cover debts or sell.

Private sellers represented roughly 69% of the total deals this year, a huge jump from the previous high over the past 10 years of 40%, Nelson said. 

“That's a huge, huge increase,” he said.

The same issues are likely to motivate more sales this year, he added.

“Either the borrower does not want to pay down the mortgage or does not have the ability,” Nelson said. “We've seen that driving a lot of multifamily and retail sales.”

That perspective was echoed by capital markets players in Miami Beach this week during the Commercial Real Estate Finance Council's conference.

“The fence-sitting that's been going on between lenders and borrowers is going to come to an end in 2024,” Tad O'Connor, co-chair of real estate litigation practice at New York-based Kasowitz Benson Torres, told Bisnow at the conference.

The year’s top multifamily sale was Kushner Cos.’ six-building, $57M portfolio sale in the East Village. The next largest was Jacob Chetrit’s prewar rental acquisition in Midtown, a 28-unit property at 1009 Park Ave. that sold for $32.8M.

The top retail sale was Prada’s $425M purchase of its 68K SF flagship store at 724 Fifth Ave. from Wharton Properties. The next biggest was the Niarchos family’s $38M purchase of 8K SF of retail in Manhattan’s Financial District occupied by Chick-Fil-A, commanding a price per SF of $4,406.

Prada’s $397M acquisition of the 114K SF office and retail building at 720 Fifth Ave., also sold by Wharton Properties, was the year’s largest office trade. The next largest office sale of the year was the 277K SF sale of 100-104 Fifth Ave., which Sovereign Partners acquired from Clarion Partners for $126.5M. 

A bigger deal is still waiting in the wings. SL Green is under contract to sell 625 Madison Ave. for $632.5M to a global investor, it announced in December. The deal has yet to close.

Sovereign's purchase of 100-104 Fifth Ave., which was for $103.5M less than Clarion paid for the building a decade prior, is more indicative of the types of sales that could become commonplace in 2024.

“With respect to Class-B and C office, I don’t think we’ve seen the lowest sales prices yet in some neighborhoods,” Nelson told Bisnow. “There will be some sale prices per foot that we haven’t witnessed in 10-plus years.”

Extell Development scored the largest land sale of the year when Riu Hotels & Development bought a site with 288K buildable SF at 1710 Broadway for $173M. The price was still well below the $268M that Extell paid in 2018.

Retail-zoned sites made up the other largest land deals for the year, with a notable absence of land sales for housing development. The land sales that took place were largely for condo developments rather than rental housing, Nelson said. That doesn’t bode well for the city’s attempts to address its housing crisis in the short term, he said. 

“It looks like residential rents might have reached their peaks,” he said. “But long term, I don’t see how fair market rents come down, as there has been such anemic rental development since the expiration of 421-a.”