Investment Sales Activity Nearly Triples As NYC Sellers Face Reality

New York City commercial real estate buyers and sellers are increasingly willing to negotiate, and investment sales are picking up across the city.

After a sluggish 2017, which saw Manhattan investment sale dollar volume drop by 45% from the year before according to Cushman & Wakefield, hopes have been pinned on an improved 2018.

There is no doubt sales are increasing. Dollar volume in the first quarter jumped by a whopping 175.3% in Manhattan — up to $8.8B from last year's $3.2B — and the number of sales went up by 28.6% year over year, according to analysis from Avison Young.

Even since the quarter ended, big-ticket sales are still grabbing headlines. Silverstein is reportedly buying ABC’s Upper West Side headquarters for more than $1B. SL Green and Ivanhoé Cambridge are under contract to sell an office condominium at 1745 Broadway to an institutional owner advised by Invesco Real Estate for $633M, which is tens of millions less than their original asking price.

Earlier this month, Brookfield agreed to pay $165M to Somerset Partners and Chetrit for a mixed-use development in the Bronx.

Sources told Bisnow that pent-up demand, as well as a shrinking gulf between buyer and seller expectations, means 2018 is going to see more deal flow as the year goes on.

“The bid-ask spread is compressing and sellers are coming down. That capitulation is what is driving this increase in volume,” said Cushman & Wakefield Chairman of New York Investment Sales Bob Knakal, who added sellers usually take 18 months to two years to adjust to market realities. “Volume is definitely up, but there is still downward pressure on value.”

Last year, prices in Manhattan were down in every asset type, Knakal said. But he believes that 2018 is a “transformation” year, marking the end of the correction after the 2015 peak.

When volume starts to pick up, as is happening now, a rise in prices will follow suit.

“I believe 2018 will be a replay of 1993 and 2010; values will hit a low point and volume will increase,” he said. “In 2019, volume and values will go up again.”

C&W figures indicate that in the first quarter, sales volume increased by 38% when compared to all of 2017, although it is worth noting that Google’s purchase of the Chelsea Market for $2.4B  — the second-largest single-asset sale in New York City history — pushed up the overall figure.

“Sellers have realized it’s not 2015 and buyers have realized it's not 2010,” Hodges Ward Elliott Managing Director of Investment Sales Will Silverman said.

While Silverman said there is capitulation on behalf of both buyers and sellers, there are certain parts of the market that are still extremely competitive.

“Buyers have become more choosy but are willing to be aggressive on certain subsets,” he said. “It used to be that when the market was hot, it was collectively hot.”

He noted high-end office buildings in prime locations like the Meatpacking District — not far from Google's new building — are in high demand. The market for last-mile industrial and workforce housing is also strong. Vacant retail assets in secondary locations and land that has not had its price adjusted are more challenging to sell.

“The third part of the equation is that debt markets are strong,” he said. “Buyers might take a leap of faith on a deal, and the debt that comes in is better than expected.”

Colliers International New York Capital Markets and Investment Services Vice Chairman Scott Latham said investment sales picking up is largely because buyers feel comfortable investing.

“The reasons most investors spoke to [about holding off on buying] was tied to political uncertainty [and] tax uncertainty,” he said. “There is a huge amount of pent-up capital in the systems that is looking for real estate transactions, and I don’t think that’s going to change too much.”

Colliers’ figures show 29% of the $8.4B worth of sales in the first quarter of the year were paid for with money coming from offshore. That is up from $3.4B from a year earlier. Although Chinese investors have withdrawn significantly from the United States real estate market amid strict restrictions on outbound investment, sources said the city’s investment sales sector will still benefit from foreign buyers. New York is still seen as a safe place to invest globally.

“Japan is now in the market … Hong Kong is here,” Avison Young head of Tri-State investment sales James Nelson said. “There continues to be a lot global appetite for New York that is filling [China’s] void."