New York City: A Performance Review
David Greene April 17, 2014, 6 a.m.
Year after year, MHP Real Estate Services performs. From the brokers who continue to provide sophisticated, pragmatic advice while placing their tenants in spaces throughout the city to our acquisition/disposition team that finds and closes transactions of all sizes with significant regularity, we gather good information.
I have been monitoring the continuing discussion about whether 2014 will be a booming year for sales transactions. Ten years ago I sold a 250,000-square-foot corner building in Midtown South for about $215 per square foot. That same building would probably sell near $800 a foot today.
At the time of writing this column, MHP and its partners are preparing to close on 560 Seventh Avenue on the northwest corner of 40th Street, the former Parsons School of Design. The building will be taken down and the partnership will develop a hotel with about 20,000 square feet of new retail on Seventh Avenue just two blocks from Times Square on a prime thoroughfare heading toward Penn Station.
So, what do we see? We see value, higher prices and, because of the higher prices, more buildings coming to the market. We see great value on our corner, on an avenue a skip from Times Square and a few blocks east of the Hudson Yards. The buzz around Hudson Yards is like a snowball rolling downhill: It cannot be stopped, even though a few years from now there will still be just one train line servicing more than 20 million visitors, workers and residents per year and a significant requirement for additional infrastructure. The cranes are up, and big credit tenants are contemplating that location. All the savvy buyers who invested near the proposed Moynihan Station development and now the Hudson Yards find the value of their buildings rising with the tide.
Leasing has shown significant strength in certain markets and for specific-sized space. One of our brokers said to me, “Try to find 5,000 square feet direct from a landlord in the Garment District with a rent in the low $30s; it’s not so easy anymore.” Trying to find direct space in the Flatiron District on an avenue at under $55 per square foot is nearly impossible. This is good information that supports higher sales pricing.
Closer to the Times Square market, the value is so strong that we are seeing record sale and lease transactions. After clothing retailer Express agreed to pay $1,800 per square foot at 1552 Broadway in Times Square last year, we are no longer surprised when we see “asking prices” for Times Square retail north of $2,000 a foot. In my recent interview with Newmark Capital Markets stalwart David Noonan, he said that “demand is deeper and more international than ever.” At MHP, we also think demand is strong, prices are going higher and interest rates will remain low for some time. I have written about the effect that safe streets have on tourism, a major economic driver in New York, and though we had a record-setting 54 million tourists last year, I believe we will see more this year. Many of those tourists want to visit, shop and stay near Times Square.
Outside of the United States, try to name 10 countries that are not in the midst of some sort of economic or political chaos. Investors from around the world are seeking preservation of their capital. Many are moving their wealth to New York because New York is the safest big city in the United States. America is a free society and New York has a sophisticated, multicultural environment. As exciting as New York is, it can also be calm and consistent. And that is a big plus for worldwide investors.