Scott Fitzgerald once said that the test of a first-rate mind was being able to hold two conflicting ideas in your head at the same time while maintaining the ability to function.
Was Scott talking about the New York real estate market?
Because the signals are downright mystifying. For one thing, office traffic is still terrible. Like, really terrible. According to Placer.ai research, compared to May 2019, the total number of visits to office buildings in New York was down 40.6%. And that’s actually good compared to Chicago (down 45.7%) and San Francisco (down 67.8%). Yes, all three markets have shown year-to-date improvement (even though San Francisco office utilization declined in April), but those are bad numbers to see well over a year after the COVID vaccines have become widely available. If these types of trends continue, it could spell disaster for the office market.
How much of a disaster?
NYU Stern School of Business and Columbia University Graduate School of Business released a report indicating that US office buildings could lose $500 billion in value by 2029 – 28% of their overall value nationwide. The report used the word “Apocalypse” in his title.
And yet, multifamily ownership has never seemed more in demand or more valuable in Gotham’s 398-year history.
According to a report by Douglas Elliman, the average monthly rent in Manhattan now stands at $4,975. (That’s a record number.) The average studio – one room, for God’s sake! – on average $3,088, up 25% in one year. Additionally, the vacancy rate has been below 2% for the past six months, with listing inventory down 70% from a year ago.
In fact, it’s such a tight inventory that brokers are charging up to 40% of a year’s rent on their brokerage fees, and bidding wars are breaking out over sought-after apartments.
As good as that might be for multifamily landlords, it’s not a healthy or stable situation, and it’s certainly not good for New York City renters. Since the New York State legislative session ended with the future of the 421a essentially self-defeating development incentiveone would expect the problem to get worse.
Fortunately, on Tuesday Governor Kathy Hochul signed legislation expanding the state’s ability to transform hotels in difficulty into accommodation. Hopefully this will eventually alleviate some of the housing shortage in the city.
One place that seems to have similar multi-family demand (but not as severe work-from-home issues) is South Florida.
One of the early adopters of South Florida was legendary New York real estate figure Richard LeFrak, who began expanding in Miami in 2012.
“One of my executives was very high on Brazil,” LeFrak told Commercial Observer in a exclusive interview. “My eldest son went to Brazil and noticed that everyone who had money was taking him to Miami. So we said, ‘You want to invest in Brazil; you might as well invest in Miami.’
LeFrak continued, “I was watching actual, live numbers and a lot of this product was literally being inhaled by investors, foreign buyers, domestic buyers. What people thought was a 10 or 15 year supply was actually a two or three year supply. I told my sons that before the world figured out what was going on in South Florida, let’s see what we could buy.
Many of LeFrak’s out-of-town peers caught wind of it; This week alone, Denver-based AIR communities spent $211 million to buy Modera Biscayne Bay, a 296-unit apartment tower in Miami, one block from Biscayne Bay, of Mill Creek Residential. And that’s not even mentioning local players who continue to deal in real estate, like Dezer Development selling the North Miami Beach campus of Nova Southeastern University for $31.1 million to PPG Development; Where commercial properties exchange of hands.
Properties move too!
Of course, housing is in demand in many urban areas. It’s one of the reasons a real estate developer like Rick Caruso is do so well in the race to become the next mayor of Los Angeles. (Although Caruso is much more associated with retail than affordable housing.)
But, yes, there is a need for more housing, and other developers are also making plans. Local Development, a multi-family builder, plans submitted to construct a seven-story, 136-unit apartment building at 5101-5125 West Pico Boulevard in Los Angeles’ Mid-Wilshire.
And office real estate is traded too. Vectra Management Group has sold a largely vacant position 45,630 square foot office building at 640 North Sepulveda Boulevard, on the Westside of Los Angeles, to the J. Paul Getty Trust (the largest and richest arts institution in the world) for $32.5 million.
In Northern Virginia, Amazon picked up a 12 acre site called PenPlace as part of the second phase of its JBG Smith HQ2 for $198 million. (This will add 3.2 million square feet of office space and over 100,000 square feet of retail space to the project.)
And, yes, New York is seeing trades. SL Green Realty sold the office portion of 609 Fifth Avenue to an undisclosed “domestic investor” for $101 million. (SL Green sold the retail portion to Reuben Brothers in 2020 for $168 million.)
Keep calm and praise!
Whether or not tenants return to the office, leases keep pouring in.
Artistic Linen, textile manufacturer, took place at 10 West 33rd Street in Koreatown; K2 Integrity, a risk opinion solidify, subleased 40,000 square feet from TIAA at 730 Third Avenue; Warby Parker has renewed its 2,874 square foot store at 121 Greene Street (its first physical location); McKissack Group heads for 498 Seventh Avenue, where the family-owned construction and design business took up 14,113 square feet; PCCP is moving from its home at 444 Madison Avenue to 11,000 square feet at 505 Fifth Avenue; Indiana-based Merchants Bancorp took 10,000 square feet on the 24th floor of 10 Grand Central of Marx Realty; and restoration company Great Performances is add 10,000 square feet to his footprint at the Bruckner Building in the Bronx.
live and lock
One of the darlings of the proptech sector has been Latch, the smart locks company that achieved a $1.5 billion valuation last year after going public through a buyout firm in special vocation, or SPAC.
But SPACs seem to be falling into disrepute. Last week The New York Times reported that the vehicle has lost much of its shine in the eyes of many investors. Including When it comes to PSPC-supported proptech companies such as Latch.
“The overall market is more volatile than it has been for some time and companies are generally more cautious,” said Casey Berman of Camber Creek, who was an early investor in Latch. “Whether it’s a SPAC, a company’s IPO, or fundraising through private funding, companies are generally more cautious and cash-focused. There is uncertainty as to how long this volatility will last, so people choose the more conservative option. »
See you next week!