Buyers Want A 27% Price Cut On NY CRE, But Sellers Aren't Budging Yet
As investment sales have come screeching to a halt in New York City, buyers and sellers remain oceans apart when it comes to pricing.
Right now, commercial real estate buyers in the New York metro area have price expectations that are 27% below what investment property owners want, according to Real Capital Analytics and the MIT Center for Real Estate Price Dynamics Platform.
Analysts arrived at that figure by examining the price adjustments that would be needed to keep deal volume at a historical average, RCA Senior Vice President Jim Costello said. He notes the RCA Commercial Property Price Index for office assets in Manhattan came down by just 2% between February and June.
Certainly, closed deals are on ice. During the second quarter, sales volume in the borough dropped by nearly 80% from the year earlier, per data from Avison Young. Costello pointed out that the delta between buyers' and sellers' expectations is more extreme now than it was during the financial crisis in the New York area, but it doesn't necessarily mean sale prices will be so severely discounted when trades do happen.
“Until that uncertainty over what is going to happen next is dealt with, I think we’ve got a period of lower deal volume for a while,” Costello said in an interview.
Only sellers who are forced to part with property would agree to sell right now he said, and relief from lenders is likely playing a role in some owners' decision to hold on. That can't last forever, however.
“There will be a reckoning at some point on the income shortfalls [owners] are facing — and that may force some hard discussions with their lenders that could lead to some distressed sales,” he said. “We aren’t there yet, but that should be coming … There will come a point where owners cannot count on forbearance to come from their lenders.”
This week, Ashford Hospitality Trust announced that it had sold its Embassy Suites by Hilton Hotel in Midtown, in order to meet demands from lenders. It first defaulted on payments in April and was issued an "acceleration notice" from Wells Fargo, the CMBS servicer, in May.
Plus, many sales deals that were in the works were put on ice as a result of the pandemic, and brokers told Bisnow this week scores of contracts had to be renegotiated and asking prices reduced in many cases.
B6 partner DJ Johnston said of the 30 listings his team is now marketing, there is an average of between 5% and 10% discount on each.
“Everything is harder. It's 100% harder," he said. "You just have to find the angle where you can create a premium.”