This Morning's Big Reveal
Move over, 2007. This year's real estate market is ready to make that peak "look like a struggle," we heard at this morning's sixth annual Bisnow New York State of the Market. Expect some record-breaking numbers by year's end.
Massey Knakal chairman Bob Knakal, who kicked off our dealmaking panel, told the crowd of 550 at New World Stages' Avenue Q theater that this is the best year he's seen during his three decades in the business. "We're going to see record dollar volumes this year, and we've already seen a record number of building sales through Q3, at 5,100," he says.
Many of these acquisitions are from first-time buyers in New York with fresh perspectives and fresh capital, says Bob (above), and the market is more skewed to demand than it's ever been. "It's what the economists call a positive feedback loop," he says, with more owners willing to go to the sales block as demand rises. (Positive feedback loop is also how we get ourselves pumped looking in the mirror each morning.)
Everyone anticipates that interest rates will continue to be low, says Meridian Capital Group CEO Ralph Herzka. "Take advantage of the tremendous amount of financing options out there." There are plenty of debt and equity lenders out there, as well as funds that are doing deals as high as 85% to 90% LTV.
Hidrock Realty principal Abraham Hidary says that while it usually works with local and regional banks, it worked with funds for its recent Hilton Meadowlands purchase; it received a three-year term, which will allow it to make improvements and bring up its value. It's also in pre-planning for a condo project on 48th Street; he says there's a lot of demand for mid-market condos, one- to two-bedroom units ranging from $2M to $5M. It's nearly impossible to do rentals given land prices, adds Bob, who wonders how we'll get to the 200,000 affordable units that Mayor de Blasio has proposed.
CohnReznick's Ron Kaplan—who leads the accounting, tax, and advisory firm's commercial real estate industry practice—moderated the panel. Bob told him that one of the challenges with new investors is that "for every 50 buyers, 49 can't even buy a Monopoly house. You have to figure out who's real." He says that New York real estate is the Swiss bank account of this generation, and investors' main motive is more about asset preservation than yield.
Edward J. Minskoff Equities CEO Edward Minskoff, a self-described optimist ("you have to be if you're going to be a developer") lauded New York's dynamic market, which has filled his two recent spec projects, 51 Astor Pl and 101 Avenue of the Americas. He told Stewart Title EVP Bruce Hawley (right) during his keynote that the tech world just doesn't want to be above 14th Street and its workers don't want to live there (good for multifamily, like his 202-unit 101 Warren St building). Hudson Square, where that building is located, also has the lowest office vacancy of any market in the US, he says. If you're going to build residential, just don't build tall, he adds, noting his concern for the 57th Street corridor. "They're uneconomic and inefficient when above a certain height."
New York is interesting in that the cap rates are very low, says Ladder Capital Finance CIO Greta Guggenheim, who spoke on our financing panel—yet when an office building goes for sale, every investor clamors for it and will pay up. Office and street-level retail is easy to finance, she says, but she's concerned about escalating land prices. She's not as worried about interest rates rising, though, as the Euro benchmark is below ours, and there's no pressure for rates to go up in the global economy. With rates and spreads at historic lows, "it's a great time to be a borrower."
CCRE co-CEO Anthony Orso jokes that he used to have hair before he started financing condo and land deals. (When people say a tough deal has "hair" on it, maybe that's where Anthony's locks went.) He notes that over the past few weeks, the CMBS market has been quite erratic. "The best thing that happens is when the market stays flat, but electronic trading and all this up and down in the media has been causing volatility." His advice: close quickly if you can.
Arent Fox's Mark Fawer, who moderated the finance panel, is a partner in the law firm's real estate group, repping real estate developers, funds, REITs, CDOs, investors, and lenders. Stay tuned for more coverage from our event on Friday.