New York City Real Estate

In the wake of Covid-19, New York City took an expected dive in real estate transaction volume in the second quarter of this year, dropping to $2.31 billion in sales.

• - A Decade of Success

In 2010, Google purchased 111 Eighth Avenue for $1.9 billion. This marked a tipping point in New York City’s status as a major technology and innovation hub. Many major tech players such as Salesforce and IBM followed suit by establishing large-scale presences in Manhattan. This modern jobs and office economy created a more sustainable real estate ecosystem able to weather industry downturns. The post-recession period saw major positive re-zonings, public and private initiatives and low unemployment. In 2018, WeWork became the second-largest office tenant in the city, while Hudson Yards and the Highline created a massive wave of activity.

• - Short-term Pain

That stated, the current adversity is severe. Hotel occupancy is now at 47%, which provides a real threat to this asset class in the near term. Retail properties continue to struggle with both low collections issues (approximately 30%, based on my conversations with landlords) and high vacancy (approximately 9%). The office market is also experiencing lower collections and there is expected to be more vacancies in the short and mid-terms, which will put pressure on office lease pricing. Office rents are predicted to drop by 20% this year. The multifamily market has been a mixed bag. Free-market landlords are experiencing higher vacancies, projected by Ariel Property Advisors to be 20%. Rent-stabilized units are experiencing low vacancies but also low collections, 75% at best and as low as 50% in some cases.

• - Signs of Improvement

The signs of brighter days ahead are already here, though. Lenders are increasingly active again, though they are generally looking for the right properties ones that produce income and have high collection rates and the right owners or asset managers. As of May, commercial mortgage-backed securities (CMBS) lenders are back in the market, while bridge lenders are extremely active. Debt prices have not dropped yet, and underwriting is still conservative, but there is a much bigger lender appetite for New York City properties compared to the early days of the pandemic.

New York City’s Phase 4 is also seeing the reopening of schools amid low Covid-19 rates, which should impact the real estate market positively.

Topics: Real Estate, New York, COVID-19

Work cited: Shimon Shkury, Forbes, June 30, 2020

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