Photo courtesy of GreenPearl Events
First of all, I apologize to my readers for the long gap since my last blog post, but business has been very busy as of late and the blog has fallen by the wayside. Additionally, I’ve been waiting for something worth reporting on. Last week I attended the Massay Knakal CRE Investment Summit t the Hilton. Though I didn’t stick around for the full day, as the focus was more on retail and office than on multifamily, I did listen to the keynote talk given by Bob Knakal, Chairman and Founding Partner of the firm that bears his name. As always, Bob’s talk was filled with data gathered by his firm and offered a solid assessment of the state of the NYC commercial market.
In his overview, Knakal presented data that shows that building turnover has contracted from last year’s uptick and now suggests that the average hold period for a building in New York City is over 40 years. As widely reported, last year showed quite a transactional volume uptick due to anticipated changes in the capital gains tax rate, and thus Knackal is looking or a 20-25% decline in number of deals in 2013. He does, however, see potential for a slight increase in dollar volume due to the recovery in large office building transactions. The feeling is that rents will increase over the next year in all sectors with greatest strength in retail, followed by residential, followed by office. As an example of some of the startling changes in retail, it was reported that rents in Bushwick have doubled in the last nine months.
Knakal outlined five things to look out for in 2013:
1) Supply: Will be healthy this year as evidenced by the recent growth in Massey Knakal net exclusive listings during Q1 from 114 to 168.
2) Demand: Will continue to exceed supply. This is being fueled by:
- High net worth individuals who are chasing yields in this 0% interest rate environment
- Real estate families, who are, always looking to expand their portfolios
- Institutional investors, ripe with cash and again comfortable with the market
- Foreign sector investors, who see NYC as a safe haven to move cash to
Photo courtesy of GreenPearl Events
3) Interest Rates: This has been the rocket fuel that has driven the market. Knakal noted, though, that however artificial these low rates, investors seem not to be properly factoring the risk of what happens when rates do rise. He went on to suggest that rates could rise faster and sooner than people think. However, in a later “Borrower’s Brawl” session, a panel seemed less willing to guess when rates would go up. All felt it would eventually happen, and that it is a major risk, but no one would venture as to timing.
4) Jobs: This is the factor that can have the biggest impact on commercial real estate since it impacts all three segments–office, retail, and residential. Knackal noted that the current job market has the lowest percentage participation since 1979 and that nationally we are still 12 million jobs short of what is needed to “feel good” again. Given the Federal Reserve’s posture towards trying to promote job growth, I would conjecture that rates are safe until we start to see some convincing job growth.
5) Mayoral Race: New York City has been propped up by having had two consecutive pro business Mayors over the course of 5 terms. So, clearly there is a fear of having a less accommodating more liberal next mayor. Beyond the mayoral race, Knakal pointed to importance of maintaining state and local tax deductibility. His fear is that if this is pulled, it will sink the area, as people choose to work elsewhere in order to avoid the onerous resulting income tax disparity.
Look for my next blog to post within about a week. The NY Building Show is coming up this week and I plan to attend a special CHIP panel entitled, “Buy, Sell or Hold.” I’ll report on what the pundits have to say if this proves an informative panel.
NYC Multifamily Property Management - Tips from the Trenches 