NYC's Market Moves So Fast, Investors Need Financing Before Finding A Deal
With the market changing, the commercial real estate industry needs to change how it does deals. Properties change hands so quickly that investors need to line up partners and financing before they even find their next investment target.
The importance of partnerships was heavily stressed by Savanna founder Chris Schlank (left) and Stonehenge Partners CEO Ofer Yardeni (center), at Bisnow's NYC State of the Market this week. The pair attributed their successes to their internal and external networks. Not only is fellow managing partner Nicholas Bienstock Chris’ friend of 35 years, he told the crowd, but he’s also the polar opposite in personality, forming a perfect “yin and yang” for a strong business.
“[Nicholas] is very analytical and does a ton of reading,” Chris told Hunton & Williams partner Carl Schwartz (right), "and I focus more on the design and tell people I don’t know how to read."
Ofer, on the other hand, acts as a coach for a larger team, helping to “elevate them to levels they never thought they could reach” to the point where he said he’s now his firm's weakest link.
But an external team is just as important as the internal one, Chris said. Developing a property is like shooting a movie, where everyone needs to have the same vision. While Chris has a variety of partners, Ofer chooses to work with only a few that he’s known for more than 20 years.
“Some people don’t even stay with the same wife for that time,” he says.
The biggest external party out there is foreign investors. Ofer described how Asian investors, who largely don’t have rental properties in their home countries, need to be told what multifamily is and why it’s valuable.
But, Guardhill Financial Corp CEO Alan Rosenbaum (right, with Kuafu Properties EVP Jeff Dvorett) said convincing them is worth it, since banks are focusing on "cookie cutter residential mortgages" and foreign investors can take the risks the banks won’t.
This is especially true, Soho Properties CEO Sharif El-Gamal (pictured) says, as skittish investors flee a post-Brexit UK.
But the panelists were quick to stress that not only are these foreign investors are coming from a variety of locales—Cushman & Wakefield NY investment sales chairman Bob Knakal (left) said C&W now works with 59 countries after a recent $62M contract with an Icelandic company—but the major Chinese market is more complicated than people think.
“It’s hard to put China all in one category,” Jeff says. “It’s such an economically varied country that has different preferences of what it's looking for.”
The only thing slowing foreign investment down is the lack of available deals, skittishness over the upcoming election and questions over interest rates forming a bubble, but Fosun Property Holdings managing director Erik Horvat (right) says he expects a pullback, with more prudent investing for both domestic and foreign investors given the current spread between the bids and asks.
Foreign investment is invaluable in the current lending market, which Greystone Bassuk president Drew Fletcher (far left) described as “decelerating and transitional.”
Blackstone Real Estate Debt Strategies senior managing director Tim Johnson (front) said NYC will always attract some form of capital, and Meridian Capital chairman and CEO Ralph Herzka (second from left) said the market’s fundamentals are still strong, despite the decline in lending.
Plus, Capital One commercial real estate head Rick Lyon (second from right) said, the market has begun self-regulating for the first time, slowing down on condo lending and finally moving away from CMBS, which he described as “dumb money that’s poorly priced given to lenders who didn’t know what they were doing.”
Freddie Mac SVP John Cannon (right, with Centennial Bank managing director Catherine Oniffrey) added that the GSE has stepped up its game in the NYC multifamily market that’s entered “a golden age” and shows no sign of stopping.
“We’re producing one million units of housing each year when we could be making 1.5 million," John said. "We’re undersupplied in housing and severely undersupplied when it comes to affordable housing, so there’s no way a bubble’s forming.”
But even with these high times and new capital flows, RXR Realty president Michael Maturo (left) told moderator and Goulston & Storrs partner Brian Cohen (right) that it’s more important than ever for his firm to line up its capital in funds months before making any moves. RXR is now raising its fourth fund with the intent to strike quickly on the big deals it likes to make, like for the Helmsley Building last year.
The increasing complexity of deals and rising price tags have also pushed companies into new boroughs and asset classes, with Michael discussing RXR’s work with urban-suburban markets like New Rochelle and Yonkers, Besen Group chief sales officer Ron Cohen’s focus Queens and the Bronx and Ariel Property Advisors president Shimon Shkury plans for East Harlem. Ron also pointed RXR’s surprising shift from office to residential development.