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Manhattan Investment Sales Lose Momentum After Promising Start To 2018

Following a spurt in activity at the start of the year, Manhattan’s investment sales market slowed in the second quarter. But optimistic brokers say there are still bright spots in the market, and the sector may be seeing the start of a rebound.

Savanna's 5 Bryant Park in Midtown Manhattan.

The first half of the year saw some high-profile megadeals, with sales like Google’s $2.4B purchase of Chelsea Market closing in March, and Blackstone's sale of 5 Bryant Park to Savanna for $640M in May.

Still, the year is on pace to finish with fewer than 250 deals, according to Colliers International, which is 50% down from the peak of the market in 2015 and 2016.

“The beginning of the year felt good,” said Colliers International Senior Managing Director New York Capital Markets and Investment Sales Stephen Shapiro, who pointed to ongoing use of concessions in office buildings and rising interest rates putting a drag on values. "We had a good a first quarter, but things have been slowed down meaningfully."

The spread between bidding prices and asking prices remains wide, he said, despite predictions at the end of 2017 that this year it would tighten.

“If someone is in a situation that they don’t have to sell, they won’t," Shapiro said. "Many deals are coming to market, and they are not getting done.”

But investment sales experts said examining the market quarter by quarter doesn’t always tell the full story. Some brokerage figures show a jump from last year. CBRE’s analysis of investment sales across all assets in the city found that sales volume in the first half of the year reached $19.2B, a 30% year-over-year jump.

Manhattan office building sales, the largest sector of the market, increased 5% to $7.5B. CBRE’s figures are based on Real Capital Analytics data and based on transactions over $20M only.

“It’s really specific by asset,” Avison Young head of Tri-State Investment Sales James Nelson said. “[And] it all depends where you price your asset.”

Avison Young’s half-year report describes the the second quarter results as a “mixed bag”. Nelson said sales volume for the first half represents a year-over-year uptick of 13%.

222 East 41st St.

In total, the firm found that Manhattan is on pace to record just over $20B worth of transactions below 96th Street by the end of the year. That would make it the sixth-most-active of the last 10 years.

“I would not read too much in the quarter by quarter [figures],” Nelson said, adding that he is marketing a conversion site in SoHo that received 20 submissions by bid deadline yesterday. “The real time indicator is how many contracts are we signing. For the right opportunity, right price ... there is demand in the marketplace.”

The key factor, brokers say, is price.

Nelson said sellers can’t list property at a 20% premium and expect it to sell. Agents too, he believes, can’t afford to rest on their laurels.

"You have to be a lot more proactive," he said.

Avison Young's Jedd Nero, John Bralower, James Nelson and Marisha Clinton

A closer look at the figures shows not all the projections are upbeat. In the multifamily sector, trades are down, and by year's end, the dollar volume is expected to fall by 22% from 2017, according to Avison Young.

Pricing is strong, however, with price per SF at $1,086 and cap rates at 3.55%.

Meanwhile, sales volume in retail assets has picked up. A total of 68 properties are projected to trade this year. However, the average price per SF has fallen 20% to $2,089.

Office sales are projected to hit $13.34B this year, according to Avison Young. And land sales are expected to reach $1.7B this year, with prices now averaging $589 per buildable SF, compared to the $645 per SF at market peak.

In middle market, GFI Realty Services President Michael Weiser said there has been a lag between the first and second quarters, though his firm is on pace to do better than last year.

He said some sellers won’t adjust expectations, and some buyers are put off by the lending environment.

“There’s stuff percolating,” he said. “But, it’s like fishing — you can have a fish nibbling on the line, but until he’s in the boat you've got nothing.”