NEW YORK CITY-After weathering the great Lehman collapse of 2008, Manhattan’s top players at Bloomberg Link’s 2011 Commercial Real Estate Conference were generally optimistic about the future of the New York City commercial real estate market despite looming clouds over Wall Street. From financing large-scale projects like One57, to the repositioning of the Empire State Building, the construction of the International Gem Tower and condo conversions on the Upper East Side, New York’s CRE industry is well-off the bottom--and has rebounded quicker than most.
The major reason, said Gary Barnett, president of Extell Development Co., is because New York had no major oversupply post-downturn. “In 2007, there were a bunch of projects that were ready to go and everything was swimming along. But when Lehman went bust, every deal cratered. We didn’t see new cranes in the sky until now,” he explained. “Contrary to the late 80s where we cratered and there were a lot of empty buildings, that wasn’t the case in New York City. There wasn’t a tremendous overhang of supply, so that’s why we came back so strongly. If financing was back for the go-go days, everybody would be back in the business and pretty soon, there would be an oversupply again. It is actually a healthy thing.”
And as demand for new space increases, the four major food groups--office, multifamily, hotels and retail--have all performed well. Anthony E. Malkin, president, Malkin Holdings LLC, said as a result, financing is freely available. “If you have a good deal or a good project in New York City, there is no shortage of folks who are looking to lend and no shortage of people who are looking to provide equity, and therefore, transactions are getting done at lower cap rates than they were back in 2007,” Malkin said, who is focusing on the retrofitting of Garment District and Midtown properties in the West 30s. “When I look at construction cranes, I think of the fact that we are putting a 29-story hoist on the side of the Empire State Building because we have a million new square feet of tenants to install. When I am looking at what we are doing with Garment Center properties, which is now tech, media, Internet and advertising, those properties have become very desirable and we have folks who would love to make loans on them.”
Describing that retrofitting can be more advantageous than ground-up construction, Malkin said media, tech and creative services tenants--biggest job generators in the city--aren’t necessarily going into brand new buildings, making it a good time to reposition old properties in an existing portfolio. This year, two major lease deals were completed in Malkin sites: LinkedIn has occupied the full 25th floor in the Empire State Building and eBay took 25,000 square feet at 1350 Broadway. “It is a very healthy market,” he said.
A similar strategy has worked for Harry B. Macklowe, chairman of Macklowe Properties. After his famous saga involving the sale of the GM Building, Macklowe is rebounding with projects at the Drake Hotel and a condo conversion on the Upper East Side. “Leverage is great, but it is a fickle mistress; it can easily turn against you," he said. "There are new ways to look at our business that we hadn’t before.”
And despite the positive sales environment, Steven C. Witkoff, chairman and CEO of the Witkoff Group--fresh off the 1107 Broadway deal--said the city is about to fight headwinds. “Things are great in New York today, but the more you talk about a millionaire’s tax, Dodd-Frank and the more bonuses that aren’t paid in this town, we haven’t seen the impact of that yet,” he said. “I can’t imagine anyone on this panel doesn’t worry about those things. Now it’s been wonderful, but there are some storm clouds headed for this town.”
But compared to five years ago, Macklowe said the New York market has regained its status as the top world market, making new projects more appealing to foreign investors. “The appeal of New York itself is something that is so strong internationally from Asia to the Middle East to Europe that we are going to be looking at this demand," he said. "That wonderful magical thing called New York City that has the glamour is just extraordinary and definitely perceived by people outside of it.”
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
