Investment Sales In New York City Are Past The 'Trough' But Still Way Down
New York City investment sales picked up from the deathly quiet start to the year, but are still well below their historical pace.
Nearly $2.8B of New York City commercial property sales closed in the second quarter according to Avison Young data provided to Bisnow. While that represents a 26% increase from the first quarter, it is a 38% drop from the trailing four-quarter average.
New York is on pace to see some $10B of sales this year, compared to a historical 10-year average for the city of $34.2B.
“I think at this point, we've reached an inflection point, and everything in this report would signal that we're back up in the way of transactional volume,” Avison Head of Tri-State Investment Sales James Nelson said in an interview, adding that the first quarter "was really the trough here."
The start of last year saw significant sales volume, he said, but as interest rates began to crank up, the slowdown began to hit investment sales volume. The Federal Reserve raised its benchmark interest rate by 5% from the start of 2022 before pausing its rate-hiking campaign last month.
“Sellers' motivation is really what's driving this activity, and these loans that are coming due, where if you want to refinance, you have to pay down the loan," Nelson said. "This is going to drive a lot of sales activity.”
The office market's challenges are clear in the data. There were just seven office buildings sold in the second quarter, trading at an average price per SF of $588 — a 25% decrease. There were $403.1M of office buildings sold in the second quarter, a 44% decrease from the trailing four-quarter average, according to Avison Young.
Sellers are not necessarily all in distress, nor are properties trading “upside down," Nelson said. But the top two office deals of the quarter were “short sales," with 126 East 56th St. topping the office sales list at $113M. Sovereign Partners bought the building from Pearlmark Real Estate for roughly the same price of the debt on it. The buyer plans to renovate the building, which is 80% occupied.
Silverstein Properties sold 529 Fifth Ave. for $107.6M, which Avison Young also characterized as a “short sale." The deal was for $410 per SF and the buyers were Empire Capital Holdings and Namdar Realty Group. The building is 63% leased.
The total dollar volume for multifamily sales was $899M, a 42% drop from the trailing four-quarter average. Cap rates were up 46 basis points to hit 5.26%. The biggest sale of the quarter was at 265 East 66th St., a piece of the Black Spruce Management/Orbach Group acquisition of the Solow portfolio, which traded for $402M. The second largest trade was 600 Columbus Ave., a $120M sale at a 4.4% cap rate. A joint venture of Slate Property Group, KABR and Avenue Realty Capital bought the building from KB Cos.
But while the big sales in the market are few and far between, that doesn't mean activity has dried up everywhere.
“Because financing is more expensive today, you're seeing that smaller transactions are happening [that don't] require as much equity,” Avison Young Executive Director Brandon Polakoff said. “I can say anecdotally, we're extremely busy. We're constantly signing contracts every week. There's no shortage of activity.”
He said the buyer pool is largely foreign groups, value-add investors looking for buildings to fix up and those looking to execute 1031 exchanges.
Retail, which has been experiencing something of a rent renaissance lately, saw just eight sales for a total dollar volume of $40.9M, a 71% drop off the trailing four-quarter average. But values have stayed firm, with the average price per SF down just 2% from the four previous quarters.
Among development sites, Sedesco's $77.5M acquisition of 37 West 57th St. was the biggest deal in the period. The sale is the final piece of six-lot assemblage that has approved plans for a 530K SF tower, according to Avison Young. Land sales reached a total dollar volume of $174.3M, down 33% off the four-quarter average.
"Properties that are priced well, we've seen buyers really pile on and there are bidding wars that are happening, which is kind of surprising," Nelson said. "But it's very selective for the right product where you have motivated sellers."
The market hasn't been easy on commercial brokers. The Real Estate Board of New York found that the current confidence level for commercial brokers at its lowest level since REBNY started running the survey six years ago.
“There are many owners out there that are ready to list. But when you complete a valuation for them, their expectations are far from what the current market is,” said Stephanie Botchway, a broker who started in the investment sales business just nine months ago at Ripco and who is currently between firms. “Many are stuck in our close past of low interest rates.”
Botchway said while the market is slower, it is a good time for brokers to develop experience and connections that go beyond transactions.
“When things are a bit slower, you can really take your time to get to know the business,” she said. “It’s all about relationships … There are people that I made cold calls to in November that even are starting to call me back today.”
Ariel Property Advisors’ preliminary midyear numbers showed that in the first half of 2023, the market “slowed down considerably," dropping 12% in activity from the second half of last year.
Still, there are some bright spots. Industrial transaction dollar volume and transaction volume grew by 9% and 11%, respectively, when comparing the first half of this year to the last half of 2022.
“[The market] is starting to move a little bit,” said Shimon Shkury, the president and founder of Ariel Property Advisors. “Yes, we're still at a very low transaction period, but what's happening now is you see that there are mortgage maturities and mortgage resets, and they force a decision. And I think that's part of what we're going to see at the end of this year, probably throughout next year.”
