(Mark Your calendars: RealShare New York on October 12 at the Marriott Marquis.)
NEW YORK CITY-While New York City is faring well in terms of leasing activity, on the sales side, significant amounts of cap rate compression is squeezing the city’s class A office market this year, as noted in CB Richard Ellis’ “Global In-Sights New York City Office Market” podcast released on Monday afternoon. In the office sector, CBRE data shows that cap rates have come down from 2009 highs of 6.5% to 5.25% year-to-date, and in the multifamily sector, cap rates have come down by 1.48% from 2009 to 4.25% in 2011.
One of the reasons for this trend, says Pamela Murphy, senior vice president of market data services at CBRE, is based upon the lack of stabilized class A product up for sale. “There’s a lot of money chasing and little supply,” Murphy says during the podcast, noting that cap rate averages are based upon surveys of CBRE professionals estimating for a stabilized, prime asset. “That’s one of the reasons why cap rates are where they are.”
Due to this lack of supply, Murphy added that the largest transactions are trading in various “interesting” ways, such as recapitalizations, debt-to-equity transactions and partial interest transfers. Prime examples include Monday Properties’ $760 million recapitalization of 230 Park Ave. with Invesco Real Estate and the recap of One Park Ave., where Vornado Realty Trust purchased a majority stake in the 933,000-square-foot Murray Hill office tower. “Buyers are getting creative in the way they are acquiring properties, so acquiring debt as a means of ownership or having a majority interest in a property is one way,” she says. “It’s no surprise that these types of transactions are occurring, but it’s certainly something to keep an eye on the way that the majority interest is changing hands.”
Other investment sales firms are showing similar data in the first-half of 2011. New data from Massey Knakal Realty Services shows that cap rates averaged 5.24% in the first and second quarters, down 116 basis points from 6.87% in 2010. Based on this, Bob Knakal, chairman of Massey Knakal, previously stated at a Q2 press briefing that while the number of properties sold is increasing modestly in Manhattan, values are trending upward, but not uniformly. “We are clearly past the bottom in terms of volume and volume is steadily increasing,” he said.
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