NYC Real Estate vs Other Major MSAs

For the first 15-20 years of my career, investors who came to New York City were mostly focused on our market. Post-Covid, we see domestic and foreign buyers alike not only consider other major US MSAs but even secondary and tertiary markets. As an investor, it’s always important to compare how a market compares to other options. Is it priced accordingly? 

For multifamily properties, you can check the price per unit, which is often available on public record. Also look at the cap rate, which is found by dividing the net operating income of the property by the sales price. Find out how the net operating income was determined, and investigate if projections were used, and whether the cap rate was reported by a data collection service or in the press. Look at the type of tenancy to see who is renting the property. A national credit tenant could have a tighter cap rate while a mom-and-pop business might have a higher one. Consider how long the place has been rented and how much time is remaining on any leases in place too.

Understand the Timing

As we’ve seen over the last several years, the market can have drastic swings in value. When you’re trying to price a property appropriately, you’ll need to price it in context to where the market is. As I mentioned earlier, comparable sales provide rear view indicators, and you’ll need to keep in mind that the transactions could have been carried out at a drastically different time. Starting in the middle of 2022, interest rates started increasing dramatically. A transaction in 2021 would have occurred in a very different market than what investors have faced since the middle of 2022.

Don’t Overprice the Property

It may be easy to think that starting with a high price will create room to negotiate lower, but this is often not the case. I have found that when a property is priced too high, serious buyers may not consider it as they will see the price as unrealistic. As a result, the property can linger on the market, and the longer it stays unsold, the more buyers may begin to question its value. They might wonder if something is wrong with the property or why it hasn’t sold, further driving down interest and perceived value. If later the owner has to drop the price, it could lead to a position of weakness during the negotiation process.

Avoid Underpricing the Property

On the flip side, underpricing a property also poses risks. While pricing slightly below market value can generate more interest and create a bidding war, pricing too low may result in a sale that doesn’t reflect the property’s true value. Sellers may receive quick offers, but if they haven't allowed the market time to respond, they could miss out on higher bids. Or an investor may purchase the property and then put in back on the market with an increased price. I describe an occasion in which my friend Matt Blesso found an underpriced opportunity and acquired it, and then went on to sell it for a much higher price, in my book, “The Insider’s Edge to Real Estate Investing.”

Set the Optimal Price

At Avison Young, our team has found that the best approach to pricing a property is often to aim for a value just above where it’s expected to sell. This strategy often encourages multiple buyers to engage in a bidding process, driving up the final sale price. When priced correctly, a property is more likely to attract serious buyers who see it as a reasonable investment, increasing the likelihood of competitive offers.

As you consider the right price for a property, you’ll want to work with an experienced broker who is familiar with the market. Look for someone who will help you set realistic expectations, compare your property to others that have recently sold, and be able to position your place correctly. By working within a set timeframe, you can increase your chances of getting the highest value for your property.

When selling a property, the price you set for it can play a significant role in the outcome of the transaction. If the starting point is too low or too high, you may have fewer chances of being able to attract the right buyers to the deal. Even after getting a valuation, you’ll want to think through how to place the property in the marketplace and get the maximum exposure for it (which you can learn about in a previous article).

Follow these strategies to avoid common mistakes when pricing a property:

Look at Comparable Sales

As you start the selling process, you may find a broker who provides a valuation that is higher than others. (You can learn more about how to value a property in the Sell High series of my podcast, “The Insider’s Edge to Real Estate Investing”). While this may seem promising, keep in mind that you’ll want to make sure the price fits with the market realities. Consider looking at comparable sales data in the same submarket and asset class. As you do so, remember that the information you find is a historical picture of how the market performed. Sales data is often released months after the initial bidding and closing for a property took place. For this reason, it serves as a rearview mirror that shows what has happened before.

New York can sometimes get a negative reputation for its regulation, but I would make the case that it has certainly been priced in. By way some of the below stats, we’ll explore how New York City is outperforming other markets:

· Office buildings in Manhattan are 76.6% as busy as they were in June 2019 – putting Manhattan significantly above the US’s 61.9% average in terms of return-to-office efforts. Office space in New York City is currently at 17.1% vacant, whereas office space across the country averages out at 19%. 

· Year to date in 2024, Manhattan has led the way with the most dollar volume in investment sales. This was followed by LA, Phoenix, Boston, Atlanta, and Chicago. The NYC boroughs collectively are 7th on the list. 

· Year-over-year investment sales growth was only eclipsed by San Jose, Minneapolis, and Nashville.

· In 1H2024, Manhattan had the second most foreign investment. Boston claimed the top spot due to investment in life sciences. Markets behind Manhattan were Phoenix, Atlanta, and LA.

· Over the last 12 months, New York’s residential rent growth was only outpaced by Boston, Silicon Valley, Northern Jersey, and DC. Multifamily vacancy in New York City currently sits at 1.7%, whereas the national average is 7.3%, despite residential rents in New York City are the most expensive in the country. 

· New York was not a top 10 market for population growth over the last 12 months. Meanwhile, four Texas cities were on the list. DC surprised with a #3 appearance. 

*source: Avison Young Market Intelligence