NYC Property Sales Continue To Slide As CRE Heavyweights Bemoan ‘Disaster’ Policies
As New York City's real estate market remains sluggish, industry players are pointing the finger at every level of government — and claiming it is now time for them to take a stand.
A total of $22.4B worth of commercial properties sold in the first half of the year, per a Real Estate Board of New York analysis released last week. That represents a slight overall increase in dollar volume, but a 17% drop in the number of transactions.
Multifamily was particularly diminished — total dollar volume fell 37% between the first half of 2018 and 2019, and transactions dropped 31%.
“The results were unsettling,” REBNY President Jim Whelan said at the group’s fall lunch Tuesday.
He said REBNY's analysis indicates the drop has already resulted in a $66M loss in tax revenue for the city.
"I would like to represent to you that the decline in investment sales was an aberration and won't be repeated. Our fear, though, is that it's the start of a trend,” Whelan said. “There's been a series of policy decisions at a federal, state and city level, the elimination of [the state and local tax deduction], rent regulation changes and the city's approach to reducing greenhouse gas emissions that we believe will lead to a significant disinvestment in New York City over time.”
The city’s investment sales market started the year down from its peak, and has continued to trend south through 2019. In the third quarter of the year, multifamily sales volume in Manhattan dropped some 60% year over year, a result of the city’s new rent regulations, real estate players say.
Leading up until June, when the details of the laws were announced and the legislation was passed, few people wanted to risk buying or selling without clarity on the changes, sources said. With the laws that restricted how rents on rent-stabilized units now in place, the market remains frozen as the market adjusts. Widespread uncertainty about the economic cycle is also adding to the reticence.
Those reforms — slammed by the industry, lauded by tenant advocates — are just one of the multiple policy issues impacting real estate business in the city. The local, state and city political climate, and its impact on business and real estate development, was a major topic examined at the lunch.
“The political environment is the worst I've ever seen,” L&L Holding Co. President Robert Lapidus said. "I always used to think that the mayor of New York City had a much bigger impact on my business life than the president. And now there's a situation where they're both having severe adverse impact.
“Whether you look at the regulations up in Albany, you look at chasing Amazon out, there's a lot of fingers to point," he continued. "Those are both disasters. They are disasters. And it’s hard to come back from that.”
Lapidus, whose current developments include the reimagining of Terminal Stores warehouse in Chelsea and a new Norman Foster-designed office gut renovation at 425 Park Ave. said he has little faith in the political will to enact change.
“I'm not convinced that many of the leaders out there in any party, in any jurisdiction I see, has the clout to stand up to these issues and really the desire to fix them,” he said.
Vornado Executive Vice President Glen Weiss, whose company is turning the Farley Post Office Building into a creative office hub with 740K SF of office space that both Apple and Facebook are reportedly considering leasing, said the city’s challenges include crumbling infrastructure, homelessness and “crazy” taxes.
“Certainly, we're not feeling great about the world and the atmosphere by which we're trying to do business in,” he said. “We've really got to take a stance on this for our industry … It has to get fixed. If it doesn't get fixed, all this talk about all these companies wanting to be New York, the war on talent and building buildings, it's going to end.”
From an investment sales perspective at least, brokers expect the impact of rent reform to extend through the rest of this year, dragging down overall sales volume in the last quarter.
JLL Chairman of New York Investment Sales Bob Knakal said in an interview that his firm’s figures suggest this year on pace to see $18.7B worth of investment sales properties priced over $10M in Manhattan to sell by the end of 2019. That represents a 34% drop from 2018 and 67% down from the peak of 2015.
“There are significant headwinds, from a policy perspective,” Knakal told Bisnow. “Until prices become the new normal, then you get seller capitulation. [But] at the early stages, it’s difficult for sellers to accept the lower price today than they could’ve got yesterday.”
CORRECTION, OCT. 24, 10:45 A.M. ET: Bob Knakal is the chairman of New York Investment Sales at JLL. An earlier version of this story misstated his title. This story has been updated.