Manhattan Investment Sales Slide Amid Political Uncertainty

The Manhattan investment sales market got off to a sluggish start this year, as cautious buyers and sellers considered the shifting political climate. But while the number of sales may be down, people are paying more for assets they view as a safe bet.

There were $3.7B worth of sales across all asset types last quarter in the borough, across some 79 transactions, according to Avison Young’s quarterly report provided to Bisnow. That represents a 13% drop year over year in sales volume, and a 25% drop in the number of transactions. This year is on pace to experience a 40% dollar volume drop from 2018.

Despite fewer sales, actual values increased for all assets except land sales, according to the report.

“It’s rent regulations, Amazon, the talk of commercial rent control — there are a lot of issues swirling around,” Avison Young Head of Tri-State Investment Sales James Nelson said, noting that buyers are looking for core, stabilized assets.

“When you look at the information, it does seem like there are opposing forces. On the one hand you have volume, which has dropped from last year — but you have prices that have gone up.”

The investment sales market in the city has been coming down from its peak for a few years now, with overall total sales volume last year down 50% from the high in 2015. 

Brokers told Bisnow uncertainty is now keeping some people on the sidelines. In some cases, investors are focusing on free-market residential buildings and previously out-of-favor assets like retail buildings.

When broken down by asset class, the office investment sales sector saw $2.1B worth of sales, a 35% drop year over year, per Avison Young figures. The average price per square foot increased, however, jumping 13% to hit $1,098.

In multifamily, there were 31 sales totaling $677M. The price per square foot jumped from $995 to $1,121 per SF.

There were just nine retail sales totaling $185M, a $500M drop from the first quarter of last year.

A total of 12 development sites sold during the quarter for a combined $286M, with prices from $400 to $800 per buildable square foot.

“There is a lot of pent-up demand [and there are now] owners out there who are saying I’m done with this ... I’m not rolling the dice, you are going to see [more] sellers this year and volume will pick up,” Nelson said.

Major trades so far this year include Work Property Investors buying the Lord & Taylor building on Fifth Avenue for $850M from Hudson's Bay Co., and Jacob Chetrit and his sons’ $422M purchase of 850 Third Ave. from HNA Group. 

GFP Real Estate and Meadow Partners paid $81M for 301 First Ave., and British jeweler Graff bought its longtime home at 710 Madison Ave. for $66.5M, which worked out to be nearly $8K per SF.

“This ebb and flow is not suggesting it is an up and down market, it is not another downturn. It is recognition of 10 years of a really strong bull market [and it is] smart investing, not investors pulling back," Avison Young analyst Ethan Bidna said.

A report from B6 Real Estate Advisors, released last week, found first-quarter dollar volume for Manhattan, Northern Manhattan, Bronx and Queens was down nearly 40% from the same period last year.

“The market is still in a weird place,” Ackman-Ziff Managing Director Marion Jones said.

While there are a few pockets of rent growth, that is not happening marketwide, she said. In February, she was part of the team that brokered Lightstone Group’s $59M purchase of a development site in the South Bronx.

“The lack of demonstrable rent growth in the immediate past few quarters, and the volatility in debt markets coupled with some perception of political risk, have all kept the market in a bit of a funky spot,” she said.

With a cloud hanging over stabilized multifamily assets, some brokers said buyers will shift their focus to other sectors.

"Multifamily in New York City remains one of the most attractive asset classes, but for the next few months the market is in limbo until there is clarity on rent stabilization," said Hodges Ward Elliott Managing Director Daniel Parker, who was one of the brokers who arranged the $88B sale of two free-market multifamily properties in the Bronx’s Castle Hill area. 

"Now is a great moment to put free-market buildings on the market," he said. “Capital is flowing to those assets because there is more certainty."

Compass Vice Chair Adelaide Polsinelli believes investors will flee to deregulated units and other assets if rent reforms are severe.

“We are at the point in the cycle that we are in the bottom. … Now is the time to be buying,” she said, pointing to retail assets as an increasingly attractive option. 

“There is light at the end of the tunnel. … Rents have come down, leases are getting signed.”

And, she said, opportunity zone legislation is still generating interest for investors.

“Hopefully that is the magic bullet that saves the day for real estate,” she said.