NEW YORK CITY—The flier for a panel discussion hosted by the Young Mortgage Bankers Association—held last week in Midtown—billed the event as a talk on the state of the industry in NYC today, but participants deemed several pockets of the market too hot to handle and are clearly focused on what lies ahead.
“Manhattan is dead as a rental business,” declared Philip Wharton, EVP, RXR Realty. “We're looking actively in Brooklyn, certainly there are opportunities in some neighborhoods but Downtown Brooklyn and Long Island City but could have some overbuilding so wary of those.”
He added, “Where I am spending time is looking at the regional suburbs, such as Westchester, Yonkers, New Rochelle, Long Island and New Jersey. There are opportunities there to make big moves and transform downtowns. Those areas are attractive to empty nesters who want to be in suburbs of urban areas without owning a house as well as renters being pushed out of Manhattan and Brooklyn.”
Quinlan Development has made a bet on creative office space in Brooklyn, noted Tyler Wilkins, partner. The company—in a partnership with Building & Land Technology—picked up a former storage space back in March for $90 million in one of the borough's largest ever single-asset sales.
“We looked at it as a residential property but there hasn't been any new office space of meaningful scale in Downtown Brooklyn for many years,” he said. “MetroTech is fully leased, the office vacancy rate is 3%, there's great access to transportation and we believe we can get rents in the $50s per square foot, so we're fine being in the shadows of the residential towers being built all around us.”
Lenders are feeling somewhat cautious but they too see a bright future, reported Brad Dubeck, New York executive, Bank of America. “Banks have been successfully filling their pipelines, and we see that continuing into 2016. Many of the real estate sponsors most followed by banks have been net sellers and will be next year too.”
He continued, “We expect banks to do a fair amount of lending in 2016, especially development lending for residential projects here. Certain sponsors are seeing opportunities in portfolios even if there's more guarded underwriting with regard to how long the cycle is going to continue. Some believe we are entering the later stages.”
One CRE pocket that is coming out of favor is high-end condominiums, noted Dubeck. “Given the increase in competition and supply, the upper-end of the Manhattan condo market is not as attractive to lenders as it was at one time.”
Added Wharton, “There are only so many homebuyers willing to pay $68 million. That part of the market has to slow down.”
The same could be said for parts of Brooklyn, noted Jonathan Nachmani, SVP, the Jackson Group. “I recently got a listing in Williamsburg that I was told would go quickly and it was $1400 a foot. Construction prices have gone up and with rising land costs, we're nearing over $1000 per square foot [as the norm]. There's cause for concern.
Still, he sees positive trends ahead for next year. “We'll see land prices cool off in Brooklyn—and in Manhattan too, though less so. We'r looking at outlying areas of Brooklyn where rents are north of $40 per square foot and development is less than $300 per square foot, especially in retail. There is rental growth in these areas and that will be the case for the next few years.”
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Rayna Katz
Rayna Katz is a seasoned business journalist whose extensive experience includes coverage of the lodging sector, travel and the culinary space. She was most recently content director for a business-to-business publisher, overseeing four publications. While at Meeting News, a travel trade publication, she received a Best Reporting award for a story on meeting cancellations in New Orleans during Hurricane Katrina.
