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NYC Investment Sales Down Sharply in ‘17, But Fundamentals Hold Promise

Exterior of 1440 Broadway One of the largest transactions in the fourth quarter of 2017 was the $520-million purchase of New York REIT’s 1440 Broadway by CIM Group LP.

NEW YORK CITY—Investment sales total dollar volume and transaction activity here were down in 2017, but analysts point to stronger results in the second half of last year as key indicators of better times this year.

Overall investment sales activity in Manhattan, Brooklyn, Queens and the Bronx totaled $31.9 billion (3,053 transactions) in ’17, down approximately 40% from a year earlier, according to Coldwell Banker Commercial Advisors.

However, in the fourth quarter, a total of 718 transactions closed totaling a little more than $11.3 billion, which CBC points to as a clear sign that more investment in the retail market could be in the offing in the months ahead.

CBC says the Presidential election of 2016 and the uncertainty of proposed tax changes likely gave investors pause last year.

“Now a year into the new presidency and new tax policy passed, positive movement in the market is expected,” CBC managing principal Karen Dome says in her report on the investment sales market in New York City (excluding Staten Island). CBC notes the federal tax reform law benefits pass through entities, changes capital expenditure deductions and carried interest and also preserves the 1031 like-kind exchange provision.

“Although transaction and dollar volume were both down, fundamentals remain solid,” Dome says. “When looking at the change from the third quarter to four quarter, there was significantly increased activity in the fourth quarter. This momentum is expected to carry over into 2018 with steady activity in the year to come.”

Some of the more significant investment sales deals in New York City in the fourth quarter included the $520-million purchase of New York REIT’s 1440 Broadway by CIM Group LP; Unizo Holding’s $467.5-million purchase of 685 Third Ave. from TIAA-CREF Investment Management and Vanbarton Group’s $450-million trade of 180 Water St. to Metro Loft Management.

Retail Market Remains in Correction

CBC notes the retail market in New York City remains in a corrective period with average lease rental rates falling region-wide to $54.29-per-square-foot. The report cited Real Estate Board of New York data from the organization’s fall retail report that noted 13 of Manhattan’s top 17 retail shopping corridors suffering declines in average per-square-foot asking rents as compared to 2016. While there were some bright spots in Manhattan, such as the Flatiron Fifth Avenue District between 14th and 23rd streets, most retail landlords were lowering rents. The fourth quarter average asking lease rate in Manhattan was $97.07-per-square-foot.

CBC partners Catherine O’Toole and Gregory Gang say one of the more resilient markets in this rather gloomy retail environment is Brooklyn, which is benefiting from new hotel, office and residential projects that are increasing foot traffic throughout Kings County. Retailer interest has increased in rapidly evolving neighborhoods such as Bushwick and Crown Heights.

“One negative is the looming L-train shutdown putting the brakes on leasing activity,” they say. “Repairs to the L-train’s Canarsie tunnel will span 15 months, starting in April 2019. Some retail tenants spooked by what the closure could mean for their businesses, (will) promulgate requests for rent reductions.”

The report says a bright spot for retail is the planned expansion of NYC Ferry service this year, which could open up new retail opportunities in Manhattan, Queens and the Bronx.

 

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