How Will Demand for NYC Real Estate Be Impacted By The Mayoral Election?
Although the result from New York City’s mayoral election was not a surprise to most, we will now see how Mamdani’s win will impact investor demand for commercial real estate. There has been plenty of discussion on what power a mayor has over the operations of real estate, but there is now a question of if investors, both private and institutional, will step back from the New York City market or view this as a time to be opportunistic.
At the end of the day, real estate values are largely driven by supply and demand dynamics. Discretionary sellers must be confident enough that there is a buyer pool to list. Buyers, especially institutional ones, will want to follow capital flows. This is why the sale of 590 Madison Avenue for over $1 billion dollars is so significant – it demonstrates there is appetite for large scale office. When I heard Scott Rechler speak about the acquisition, he noted that the buyer pool was initially a dozen buyers deep. Then lenders shied away shortly after Liberation Day which shook the markets, but shortly thereafter returned to help bid the asset up again. This was a positive sign.
In the same vein, it is no doubt significant that Norges Bank Investment Management (NBIM) and Beacon Capital Partners jointly purchased 1177 Sixth Avenue, an office building in Midtown Manhattan, for $571.1 million from Silverstein Properties and the California State Teachers' Retirement System (CalSTRS). Norges assets under management are approximately $2.2 trillion so they certainly have more firepower. This also gives other institutions cover to invest in office, but the question now remains will they continue to target New York City or other top cities.Having just returned from ULI in San Francisco, I was happy to see that Brooklyn (#4) and Manhattan (#9) were both on their top 10 Emerging Trends survey for investment and development prospects. Jersey City (#2) and Northern New Jersey (#7) are no doubt driven by New York City. While Dallas claimed the top spot, Miami at #3 and Houston #5, there are other choices of course, but instructive to see the demand for the New York metro market. Once again, will this momentum continue to grow?
I am happy to report that Avison Young’s Tri-State Investment Sales team is on pace for a record year with 50 if not more closings in New York City. What is most interesting is that in the three months prior to the primary, our team averaged four contract signings per month. In the three months after the primary, we have signed the same average four contracts per month. Yes, some of the recent contracts were a result of sellers looking to “pull the ripcord” on New York, but others saw there is continued demand in the market to achieve reasonable pricing.
Ten-X also reports that demand is strong and deep for NYC real estate over the last year. In a recent study, they reported:
- The highest trade rates (meaning percentage of successful auctions) were in NYC, Boston, Atlanta, Chicago, and Philly
- The highest views and approved bidders were the NY Metro Area, Miami, Atlanta, Philly, and San Diego
- The highest bid to reserve were in DC, NYC, Atlanta, Denver, and Dallas
Anecdotally, I just spoke with an institutional buyer of multiple family whose firm has purchased $700 million of NYC multifamily over the last year. He told me that not only is he continuing to invest there, but he is now targeting rent regulation as he sees it as a real opportunity to buy at a higher cap rate and receive a positive cash on cash return. Similarly, in my ULI product council, a large pension fund investor also stated they remained positive in New York.
Thus, some of this continued interest in New York City isn’t just about its continued growth, but for the yields it offers. In my new national role, I can attest that much of the southeast multifamily is still a sub 5% cap market, so NYC cap rates north of 6% in some cases are certainly attractive. While I think all investors are now assuming that rent regulated rents will be frozen for the next four years, fair market rents should continue to grow under the Good Cause provisions of 5% over CPI. Meanwhile, NYC office rents continue to rise, as the city has the lowest availability rate in the country at 16%.
We will all wait to see how this new administration will continue to unfold in the New Year, but in the interim, the demand for New York City commercial real estate remains.