NYC Commercial Property Sales Tick Down As Interest Rates Start To Dent Activity
Commercial property sales in New York City have been reawakening from their pandemic slumber in recent months, but rising interest rates are expected to slow the market down through the rest of the year.
Roughly $5.84B of commercial properties traded across New York City in the second quarter, according to Avison Young data. That total is 52% higher than the trailing four-quarter average, but a 19% decrease from the first quarter.
“It's just the uncertainty. … Buyers are obviously hoping the prices come down so they might just wait,” Avison Young Tri-State Investment Sales principal James Nelson told Bisnow. “Sellers are saying, ‘Well, hey, I'm not going to make a knee-jerk reaction and take a big discount.'”
Nelson said that the quarter-over-quarter drop is likely due to the fact that the first quarter of the year was dominated by some enormous sales, like Google’s $2.1B purchase of St. John’s terminal.
Manhattan saw more than half of the city's total investment sales, both in property and dollar volume, with 80 buildings sold totaling $3.94B. Sales in the quarter were strong, Nelson said, but questions remain over the rest of the year.
“That was really in line with some of the quarters in 2019, and even surpassed one of the quarters in 2018. So it was solid in that regard,” he said. “[But] I think a lot of people are expecting a big drop in transactional volume.”
The priciest sale of the quarter was a multifamily deal, 8 Spruce St., an 899-unit rental building Blackstone bought from Nuveen and Brookfield for $930M. Multifamily was the most active asset class in the city, accounting for $2.1B in sales in the quarter. Related sold 255 West 94th St., a 421-a building with 284 units, for $266M to Eugene Asset Management, and A&E Real Estate bought 140 Riverside Blvd., a 368K SF residential building with ground-floor retail, for $266M from Equity Residential.
Some $866M worth of office properties sold in the quarter, with 450 Park Ave. — which SL Green and foreign equity partners bought from Oxford Properties and Crown Acquisitions for $445M — coming in as the most expensive deal. Nuveen and Norges Bank's $291M sale of 475 Fifth Ave. to RFR came in second.
Development sites saw $275M in dollar volume, with 260 South St. selling for $78M from CIM Group and L+M Development Partners to the Chetrit Group. Premier Equities sold 204 East 75th St. and 1297-1299 Third Ave. to Elad Group for $61M. There was $151.1M worth of retail property sales, with 12 West 48th St. the most expensive deal at $49.5M.
In minutes from its June meeting, released this week, Federal Reserve officials made it clear they will continue to raise rates in an attempt to halt inflation. Last month, the central bank raised interest rates by three-quarters of a percentage point, the highest jump since the mid-1990s. It is likely to raise rates by 0.75% again this month, The New York Times reports.
While the specter of the highest interest rates in decades is dampening the market, not everyone is sitting on the sidelines, Nelson said.
“We put 13 deals in contracts in the last three months, we've closed another 13. We're getting traction even with the rate increases,” he said. “I think we got a lot of clients saying, 'OK, well, hey, you know, rates are going up, there is downward pressure on pricing. Let's bring this stuff out.'”
And while rates have risen, so have apartment rents in the city, with Manhattan’s median rent hitting a record $4K a month in May. Plus, widespread fears about the proposed so-called Good Cause eviction bill, which would’ve given free-market tenants the right to renewals and prevented landlords from making “unreasonable” rent increases, didn't pass before the legislative session came to a close in Albany.
Late last month, six free-market rental buildings went under contract for a reported $1.75B. The deal was a pandemic record, and largely seen as a boost for the sector.
But Meridian Investment Sales Managing Director Shallini Mehra said many deals are now having to be renegotiated, even after a contract has been signed.
“Buyers are saying, ‘Hey, I’ll only close if we readjust the pricing, because my financing has changed. You have deals that maybe you would close it out at $10M and now they're at $9M,’” she said.
“The stabilized buildings are tougher buildings. You know, there just isn't the upside that used to exist. So we've definitely seen the cap rates on these buildings go up. But I would say there's a lot of investor demand for buildings which have a portion that's free market with some upside and some value-add. ... We definitely have more of an interest in that kind of stuff.”
CORRECTION, JULY 8, 11:00 ET: A&E Real Estate bought 140 Riverside Blvd. from Equity Residential. An earlier version of this story misstated the company’s role in the deal.