New York Investors Become Weary Amid Market Uncertainty

NEW YORK CITY – Capital providers have become weary in New York and are waiting for pricing to rebound to moderate levels from market saturation, and the political landscape to become less murky regarding rent regulation and tax abatement recension.

Despite market ambiguity and aside from New York investors on the bench trying to decide how to navigate the waters that appear to be riddled with hurdles, there is still a bevy of new capital allocators in line to deploy capital that continues to drive up pricing, according to panelists at the Asian Real Estate Association of America Manhattan’s East Meets West conference.

Over the past several years, New York investors were okay with buying at a 4 cap-rate, taking more risk and possibly a lower return because of high liquidity in the market. Now, that has all since changed with investors demanding a premium to stay in New York with all of the change, according to Jason Hart, managing director at The Carlyle Group.

And without the promise of that premium, more New York investors are turning to secondary high-growth markets like Nashville and Austin in droves because they have been able to buy property at a 6 cap-rate and yield a higher return, avoiding fierce competition, and political push back, than if they bought a New York property that may not yield as much and has more underlining risk, according to Hart.

Comments on the state of the market have centered on inflated pricing because of investor saturation, which many feel doesn’t reflect the current market environment that has naturally slowed because of rent regulation in multifamily and the pull back in tax abatements such as those in Downtown Manhattan like 421G for the renovation of older buildings.

“Many are not sure New York is where they want to plant the flag,” said Stephen Muller, managing principal at Vanadium. “I’ve been getting comments about whether I’ve been looking at Austin or here or there. Fortunately, I have.”

Eventually, prices are expected to pop, and everyone is going to want to leave at the same time, Muller added.  And although there is negativity surrounding New York investment, it is expected to sustain as well as nationwide because of foreign investors continually entering the market, Hart said. “America is still that shining star, and where international capital wants to be,” he said.

Regardless if you’re a new entrant to the market or an existing investor, one of the concerns in the long run will be rising construction costs, about which many are having to think strategically in their investments and more specifically proforma targets to pay down outstanding debt, according to Joshua Capri, owner of Caspi Development.