Commercial property

Commercial property sales in New York slow as interest rates begin to dampen activity

8 Spruce St. sold for $930 million in the second quarter, the city’s largest investment sale in that period.

Commercial property sales in New York have woken from their pandemic slumber in recent months, but rising interest rates are expected to dampen the market for the rest of the year.

About $5.84 billion in commercial properties traded in New York City in the second quarter, according to Avison Young data. This total is 52% above the average of the last four quarters, but down 19% from the first quarter.

“It’s just the uncertainty. …Buyers are obviously hoping for prices to come down, so they might just wait,” said James Nelson, director of tri-state investment sales at Avison Young. bisnow. “Sales people say, ‘Well, hey, I’m not going to do some knee-jerk reaction and take a big discount.'”

Nelson said the quarter-over-quarter decline is likely due to the fact that the first quarter of the year was dominated by huge sales, such as Google’s $2.1 billion purchase of the device. of St. John’s.

Manhattan saw more than half of the city’s total investment sales, both in real estate volume and dollars, with 80 buildings sold for a total of $3.94 billion. Sales for the quarter were strong, Nelson said, but questions remain about the rest of the year.

“It really lined up with some of the quarters of 2019, and even topped one of the quarters of 2018. So it was solid in that regard,” he said. “[But] I think a lot of people are expecting a big drop in trading volume.

The most expensive sale of the quarter was a multi-family transaction, 8 Spruce St., an 899-unit rental property that Blackstone bought from Nuveen and Brookfield for $930 million. Multifamily was the city’s hottest asset class, accounting for $2.1 billion in sales during the quarter. Bound sold 255 West 94th St., a 421-a building with 284 units, for $266 million to Eugene Asset Management, and A&E Real Estate sold 140 Riverside Blvd., a 368K SF residential building with retail at ground floor, for $266 million to Équité Résidentiel.

Some $866 million in office properties sold during the quarter, with 450 Park Ave. – which SL Green and overseas partners bought from Oxford Properties and Crown Acquisitions for $445 million – turns out to be the most expensive transaction. The $291 million sale by Nuveen and Norges Bank of 475 Fifth Ave. at RFR came second.

Development sites recorded a volume of $275 million, with 260 South St. selling for $78 million from CIM Group and L+M Development Partners to Chetrit Group. Premier Equities sold 204 East 75th St. and 1297-1299 Third Ave. to Elad Group for $61 million. There were $151.1 million in commercial property sales, with 12 West 48th St. the most expensive transaction at $49.5 million.

In the minutes of its June meeting, released this week, Federal Reserve officials made it clear that they would continue to raise rates in an attempt to stop inflation. Last month, the central bank raised interest rates by three-quarters of a percentage point, the biggest jump since the mid-1990s. It is expected to raise rates another 0.75% this month, reports the New York Times.

As the specter of the highest interest rates in decades dampens the market, not everyone is sitting on the sidelines, Nelson said.

“We’ve put 13 deals in contracts in the last three months, we’ve done another 13. We’re getting traction even with the rate increases,” he said. “I think we have a lot of customers saying, ‘OK, well, you know, the rates are going up, there’s downward pressure on prices. Let’s get this stuff out.

And while rates have risen, apartment rents across the city have also risen, with Manhattan’s median rent hitting a record high of $4,000 a month in May. Additionally, widespread fears over the so-called Good Cause eviction bill, which would have given free market tenants the right to renew and prevented landlords from making “unreasonable” rent increases not materialize before the end of the legislative session. close to Albany.

As of the end of last month, six open market rental properties were contracted for $1.75 billion. The deal was a pandemic record and widely seen as a boost for the sector.

But Meridian Investment’s managing director of sales, Shallini Mehra, said many deals now had to be renegotiated, even after a contract was signed.

“Buyers say, ‘Hey, I’m only going to close if we readjust prices, because my financing has changed. You have deals that you could maybe close at $10 million and now they’re at $9 million’ , she said.

“Stabilized buildings are more resistant buildings. You know, there just isn’t the advantage that was there before. So we’ve certainly seen the cap rates on those properties go up. But I would say there is a lot of investor demand for properties that are part of the open market with advantages and some added value. … We definitely have more interest in that kind of stuff.