Bubble, Bubble Toil & Trouble



Every six or seven years there is a market dip, or a brief disaster, or something bad that affects the business of real estate. In the last 30 years, we have seen interest rates spikes, dot-com busts, oil embargos, stock market failures, war and strife. Much of what happens on the world stage often reverberates here at home. Whether it was 1987, 1993, 2001 or 2008, history reveals that New York City comes back swinging, stronger than ever, always reaching new highs than previously recorded.

So why is it that I am starting to hear the word “bubble” creep back into the conversation? Is it too much of a good thing? Standard New York City pessimism? Bogus chatter about cycles only lasting so long? Either way, I disagree with all of it. The New York market is very strong. Vacancy rates remain very low in multiple submarkets. Commercial office building sales pricing is as high and in many cases much higher than in previous run-ups yet the underlying fundamentals are stronger because people are not overleveraging. Rather, investors and banks have learned their history lessons. I remember when I sold a two-building package to a client and the client secured 110 percent financing. Now 50 to 65 percent is more rational.

There’s a lot of cash out on the street looking to be deployed. If you live in a country where the political climate is dangerous or insecure you might consider moving your money to safer environs. Imagine living in Greece right now. The government has closed the banks due to a slow but steady run on the banks, as no one knew for sure whether Greece would remain in the EU or head toward bankruptcy. Imagine living in parts of the Middle East where no one knows who is on what side but war and conflict continue unabated. Strong markets depend on confidence and continuity. If you are living in a world where you don’t know what will happen on a day-to-day basis, for safety’s sake you should be thinking of picking up and leaving to go someplace more secure.

With a large swath of the world in disarray, it’s easy to see why investors have flocked to the U.S. and New York City in particular. And when former Mayor Michael Bloomberg signaled that he believed in the tech world by setting forth to create a tech campus on Roosevelt Island, it was confirmation and continuation of a movement started by the likes of Google when it arrived in New York, the place to be. In my experience—and friends at various real estate companies agree—at least 25 percent of leasing transactions are TAMI tenants. The New York office leasing market is robust. It is sturdy and growing.

Desperately looking for a bubble? If we freeze frame the data today, perhaps it is the infinitesimal but stratospheric high-end residential condo market that requires that less than 500 investors come to New York City and pay $8,000 to $12,000 per square foot for their apartments. In many cases it is not an investment as much as it is an attempt to preserve wealth. Where else might there be a bubble? Retail submarkets not fully realized yet that expect a retail buyer to pay $3,000 to $5,000 per square foot. The underlying rental figures and push back from top-tier retail tenants may not justify those prices but the appetite for New York retail is unabated, again it is but a small part of the overall market but with an oversized amount of media coverage.

Overall, the city is very healthy and with Mayor Bill de Blasio pivoting again toward business and the security of its citizens, the announcement of the deployment of another 1,300 police officers is gratefully welcomed. Just as important is the hiring of 300 more administrative staff that help take the cops out from behind their desks and put them back out on the street where they belong, patrolling neighborhoods and getting to know everyone. This is not an original idea but it works, it also helps maintain the city as the primary center of the business world.

David Greene is principal/president of brokerage services at MHP Real Estate Services




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