The investment sales market, most brokers agree, has been heating up over the past 12 months. Approximately $25.8 billion in commercial properties changed hands last year, a turnaround that represented an 88 percent increase over 2010. But while the positive uptick is easily verifiable, what happens next for Manhattan’s investment sales market is still up in the air.
Accordingly, The Commercial Observer set out to speak with the real estate industry’s most accomplished capital markets and sales practitioners to learn what’s in store for 2012. Over the next several days, we’ll post interviews with heavy hitters like Darcy Stacom and William Shanahan of CBRE, J.D. Parker of Marcus & Millichap, Woody Heller of Studley and Peter Hausperg of Eastern Consolidated. But, first, after the jump, none other than Richard Baxter of Jones Lang LaSalle.
The Commercial Observer: How would you describe the investment sales market now?
Mr. Baxter: I would say it’s a product-constrained market. There’s great demand and little available for sale.
Sounds like a description that has been used for months now.
No, it’s been this way for a year. There are lots of individuals, both domestic and international, looking for all asset classes in Manhattan and that demand is driving pricing.
Seventy-five Rockefeller Plaza just came on the market and it looks like it will be fully vacant in 2014. Are investors willing to take on that kind of vacancy?
Seventy-five Rock is looking to sell a leasehold interest in the building. There’s repositioning opportunities with that asset. Right now we’re handling the sale of 350 Madison Avenue. It’s 70 percent occupied and we have 30 percent vacancy there. It’s going through a renovation and the space is now coming on at a great time to capture peak rents.
Peak rents? Isn’t the leasing market right now in kind of a lull?
Seventy percent of Midtown leasing velocity is deals in the 5,000-to-20,000-square-foot range. They’re leases that don’t make the headlines, but those are the kind of deals that 350 Madison caters to. I don’t think that anyone is looking at that building as a leasing liability.
What about 75 Rock? How will investors look at the 600,000 square feet there?
I think that the quality of the location and repositioning opportunities there are so great, it will be like 10 East 53rd Street.
What happened with 10 East 53rd Street?
SL Green bought it at the end of the year. It also has a great deal of vacancy but it also has a huge repositioning potential and that’s what drew them to the deal.
What’s your outlook for 2012?
It will continue to be supply constrained. We’re hoping that volume will match or exceed ’11, which was $26 billion. It’s tough to judge at this point.
Will the prospect of capital gains tax increases next year drive sellers into the market?
It certainly is a motivation for some family-owned properties. I think that in reality only a small portion of the market is driven by capital gains tax decisions. A lot of properties are institutionally owned and they tend not to base sales decisions on that kind of thing. We’ve thought capital gains were going up in the past and they didn’t prompt sales increases.
What about the big end of the market? Deals like 1211 Avenue of the Americas?
That’s a very large equity check. Look, if something is priced right, it’s going to trade. The equity will come, no matter how big. It comes down to a pricing decision at the end of the day.
You’re selling 350 Madison Avenue. What’s going on with it?
It’s a 394,000-square-foot building on the corner of 45th and Madison. We’re expecting it’s going to trade in the $330 million-to-$350 million range, about $850 a foot. You’re buying into a building that is completely renovated. It’s basically a brand-new building in the Grand Central submarket with 70,000 square feet of retail that Paul Stewart has a long-term lease on. Kenseco Properties is selling. At the price we’re projecting, the buyer would be getting a roughly 6 percent stabilized yield after they lease the vacancy.