NYC’s Investment Sales Market Through Three Quarters
After a torrid start to the year, sales volumes stepped back a bit in the third quarter of 2014 as market dynamics continued to exert upward pressure on record-setting property values which continue to escalate. The pace of the dollar volume of sales continues slightly off the 2007 peak while the number of properties sold remains at an all-time record pace.
In third-quarter 2014, the dollar volume of sales citywide was $11.4 billion, down 18 percent from the $13.9 billion a quarter prior. This should not be seen as a negative statistic, however, as it is well above the $9.76 billion average quarterly total over the past 15 quarters going back to 2011. The pace so far this year, if annualized, is on track for $52.2 billion, which, if achieved, would be 36 percent ahead of last year’s $38.4 total.
Additionally, there were several very large sales announced in the third quarter, which have not closed yet and will be included in what we project to be a robust fourth quarter. That is likely to push total volume up near the $62 billion record set in 2007.
The dollar volume of sales was so high in 2007 at approximately $230 billion due to the record year that occurred in the commercial mortgage-backed securities market. The CMBS market helped facilitate many of the largest sales in the market. In 2007, just two transactions totaled almost $12 billion. This year, the CMBS market has gained steady traction and is projected to see an annual total in excess of $100 billion, the highest total since 2007. September issuance was $12.4 billion, the best monthly total of the year. This momentum bodes well for the dollar volume for 2014.
The number of properties sold citywide in July, August and September was 1,098, also down from the April, May and June total, which was 1,366. This represents a 20 percent drop. Of note, the 1,098 sales figure was well above the quarterly average of 938 from the last 15 quarters. Based upon the activity we are seeing presently, we anticipate the yearly total to easily exceed 5,200.
The investment sales market is in the midst of what economists refer to as a positive feedback loop. The supply of available properties for sale has always been the dominant metric in the supply/demand relationship in our market in terms of determining sales volumes (with the singular exception of 1992, a year in which the Resolution Trust Corporation was dumping assets from failed banks by the truckload). The supply of properties coming to market is increasing as prices rise and potential sellers find these new values compelling. New buyers are coming into the market in unprecedented numbers and are quickly absorbing this new supply. This creates further upward pressure on values, which brings a new crop of sellers to the market, and so on. Hence, the positive feedback loop.
Probably the most notable trend in the sales market today is the influx of new capital into the market from first-time buyers from around the world. While institutional capital from these sources is concerned about yield and internal rates of return, most of these buyers are high net worth investors who are looking for their piece of the Big Apple. For these investors, capital preservation appears to be more important than yield. The relative economic stability and relative political stability of the U.S., and particularly New York City, makes the perception of real estate investments here relatively safe for these investors. Essentially, to the rich around the globe, New York City properties have become what Swiss bank accounts were for the past several decades.
These dynamics are expected to continue for the balance of the year, which means that 2014 should go down as one of the best ever. Cheers to that.