'Improved Math And Improved Sentiment' Drive 63% Rebound In NYC CRE Sales
Buyers and sellers in New York City's commercial real estate market are shaking hands a lot more often these days.
Investment sales in Manhattan CRE totaled $3.2B in the third quarter, more than double the total in the same period in 2023, according to Avison Young data provided to Bisnow. It was the fourth straight quarter of growth and the most active quarter since 2022.
Across the five boroughs, a total of $4.9B in properties traded hands, a 21% increase from the second quarter, according to Avison Young. Investment sales in the city on an annualized basis are ahead of 2023's volume by 63%.
The increased activity is seen as a sign that more investors have confidence that prices are unlikely to fall much further.
“The rate moves over the past 60 days have improved the math to make the same asking price from a month ago actually make sense now,” Avison Young principal and Director of Operations for Tri-State Investment Sales Operations Erik Edeen said in an interview. “With the signaling of interest rates coming in, it just creates a bit of FOMO amongst investors realizing, ‘Yep, the trough has passed.’”
Activity had already been on the rise in the first six months of the year, but a handful of large deals inflated dollar volume. That trend turned in Q3, with 149 sales throughout Manhattan, Brooklyn, Queens and the Bronx closing during the quarter, representing a 12% jump from the three months prior.
The increased sales and dollar volumes were in part due to the long-anticipated September interest rate cut from the Federal Reserve, and in part fueled by buyers and sellers finally seeing eye-to-eye on pricing after years of holding out for more favorable deals, Edeen said.
“What I think is happening here is a combination of two things: improved math and improved sentiment,” he said.
While activity is up, prices aren't. Per-square-foot prices for office, multifamily and retail properties are at or near five-year lows, per Avison Young's data. But buyers and sellers seem to agree that values have reached their floor, said James Nelson, principal and head of Avison Young's Tri-State investment sales group.
“It's a matter of buyers getting off the sidelines,” Nelson said. “Last year, they simply said, ‘I am not buying. I'm not looking at transactions.’”
The recovery in deal volume is also linked to lenders becoming less cautious, Nelson said, pointing to the return of CMBS lending as a “saving grace.”
One of the driving factors for the quarter’s robust investment sales was optimism about potential future tax incentives and the value they could add to the city’s real estate, Nelson said.
Development sites and conversions accounted for a combined 42% of all transactions during the third quarter, driven by developers looking to take on ambitious projects in the heart of the city's commercial districts.
Related Cos.’ $632.5M purchase of 625 Madison Ave. was the biggest ticket item, which the Jeff Blau-led firm plans to tear down and replace with a luxury tower after buying it from SL Green. Bushburg Properties dropped $160M on 80 Pine St. from Rudin, and David Werner & BLDG Management bought 100 Wall St. for $116M, both of which are planning on residential conversions.
“What's amazing to me is that all this uptick in development, sales and conversions is really happening without the help of 485-x and 467-m,” he said. “Right now, we're having a lot of conversations on large-scale development opportunities where developers are running the numbers, figuring out how it will work.”
That bottoming-out feeling was felt most acutely in the office sector, where two of the three largest deals of the quarter were short sales.
Banyan Street Capital sold 180 Maiden Lane, a 41-story, recently revamped office tower, to Canadian biotech entrepreneur Carlos Bellini for $297M or $275 per SF. MHP Real Estate, in which Banyan Street later purchased a controlling stake, paid $450M for the glassy Financial District building in 2015.
KPG Funds sold the six-story, five-unit SoHo office at 446 Broadway to Spear Street Capital for $52M. KPG spent $46M on the property in 2018 and shelled out $10M in renovations. Both were short sales, with the lenders taking a loss on their debt, according to Avison Young’s analysis.
The largest office sale of the quarter was JPMorgan Chase’s $320.3M purchase of 250 Park Ave., a 35-story office close to the financial company’s planned new headquarters.
Overall, Nelson believes that the improved transaction activity through the third quarter is an indicator of what may follow for the rest of the year.
“It's really encouraging,” he said. “What this is really saying is that even in April, May, June, going into early summer, the mood was already starting to change.”
