NYC Investment Sales Continue Downward Spiral As Economic Fallout Drags On
Fewer than two dozen commercial real estate properties sold in New York City in the third quarter of 2020, a stagnation of one of the world's most valuable investment markets not seen in over a decade.
In total, there were 21 transactions over July, August and September in Manhattan, according to Avison Young’s quarterly report, which is the lowest level hit since the third quarter of 2009.
Total sales volume for the borough was at $1.1B, a 74% year-over-year decrease. Between the second and third quarters this year, sales slid by 30%. Two major deals in Manhattan accounted for more than 60% of dollar volume: Savanna’s deal to buy 1375 Broadway for $435M in July from Westbrook Partners, and RFR Realty’s purchase of 522 Fifth Ave. from Morgan Stanley for $350M.
“It’s not a huge surprise. After March, what happened was the market basically froze up," Avison Young principal and head of Tri-State Investment Sales James Nelson said in an interview. “Sellers, unless they had a real reason to transact, took their properties off the market.”
The pandemic’s impact on the city’s market was immediate, but only really started to show in the data in the second quarter. At the start of 2020, investment sales numbers remained firm from the last quarter of 2019. However, volume plunged by 80% in the second quarter of this year as the shock of the crisis filtered through.
Brokers have spent much of the last six months trying to salvage deals and guide spooked buyers and sellers through the uncertainty; signed contracts have been paused and in some cases renegotiated with discounts. Nelson said the figures indicate that New York City is on pace to record at least 50% less in investment sales dollar volume than last year.
The brokerage predicts $8.4B in sales volume in 2020, which would be a 69% drop on the 10-year average.
“The product just came off the market,” Nelson said of the past few months. “As a result, I am not surprised the trades continued to drop in the third quarter … The boroughs basically did the same.”
The RFR and Savanna deals were under contract before the coronavirus crisis, according to Avison Young. SL Green also sold a 126-unit multifamily building at 400 East 58th St. in Sutton Place for $62M.
“2020 is the year of the great reset,” Compass Vice Chair Adelaide Polsinelli wrote in an email. “The market has been reset while dealing with body blows to almost every sector.”
Polsinelli, who said she had just closed two multifamily deals, added most of the interest now in the city is coming from buyers who haven't invested here before.
“Most of the seasoned investors are still on the sidelines waiting for distressed deals and for the market to find its bottom,” she wrote.
The election, now less than a month away, could further chill the market, she added.
Development sales plunged, with a total of $141M worth of trades, a 56% drop. Retail, a market already challenged before the virus and that has since seen significant strain as a result of government-enforced closures, had just one trade during the quarter, a $1.5M transaction sold in foreclosure, according to Avison Young.
In the multifamily sector, pricing dropped 40% year-over-year to hit $553 per SF. There were just nine sales in the quarter in that part of the market, across $121M. That dollar figure marks an 82% decline from the year before. Many apartment owners in the market are now slashing rents and offering fat incentive packages in order to lock in tenants, as the city reaches record high vacancy rates.
Nelson said his team picked up 20 new listings in the last two months, half of which are sellers who have owned the asset for more than 10 years.
“What is happening right now is that we all know that New York is going to come back, but it’s going to take time,” he said. “A lot of these longer-terms owners are saying, ‘We’d rather just sell now rather than wait for another cycle.’ The good news for buyers is, [those kinds of sellers] have a lower basis, they can sell into the market and be realistic with their pricing."
Distress deals may emerge, but Nelson said he doesn't expect that until next year, and it will mainly be in hotel and retail assets.
“When a lender sells, they are looking for quick execution, they are not looking for dragging out a marketing campaign," he said. "We are going to see a lot of those going through."