Presented By: Eastern Consolidated
State of the Market Report: A Q&A With Eastern Consolidated’s Peter Hauspurg
A full-service commercial real estate firm established in 1981, Eastern Consolidated offers real estate investors an integrated platform of investment sales, retail leasing, and capital advisory services. Among the company’s most recent transactions, Eastern Consolidated arranged the sale of a prime residential development assemblage for close to $100 million, and arranged the sale of four contiguous multifamily buildings on the Upper East Side for $52 million–demonstrating the firm’s knack for making impactful deals in one of the world’s most trend-setting cities. We spoke with Chairman and CEO Peter Hauspurg for a market overview of the current investment sales and retail leasing and financing environment.
Commercial Observer: Give us an overview of what you’re seeing in the investment sales marketplace.
Peter Hauspurg: Although year-over-year multifamily volume has declined citywide, the multifamily sector is still achieving strong pricing, cap rates are still historically low (around 3 percent), and financing is plentiful, with significant demand both from residents who want and need housing, and investors looking to capitalize on this demand. New York City’s economy grew at a 2.3 percent clip in the first quarter, resulting in 33,000 new jobs, an unemployment rate of 4.3 percent, and an influx of people looking for opportunities and housing. As a result, multifamily properties continue to be fantastic investments.
Manhattan office properties are continuing to attract foreign investors. Most recently in May, a Chinese conglomerate HNA Group closed on 245 Park Avenue for $2.21 billion. On the development side, large scale office projects–such as those in Lower Manhattan, the Hudson Yards District, and 1 Vanderbilt–are moving ahead and changing the landscape of the city.
What pricing are you seeing for land sales in Manhattan?
PH: Manhattan land prices have fallen 25 to 30 percent in the last year. As the market has shifted, we have had to be more creative to make deals. We just closed a 170,000-buildable-square-foot assemblage for a condo development on East 29th Street between Park Avenue South and Madison Avenue for close to $100 million, which averages to about $580 per buildable square foot. This deal started out as an assignment to sell one building with 50 feet of frontage and air rights that would allow a developer to build cantilevers over the neighboring buildings. Given the complexities of the parcel, market fluctuations, and location of the property, we saw the need—and an opportunity—to revise our strategy. We significantly expanded the original concept by engaging the two adjacent property owners on behalf of the buyer the Rockefeller Group. It required multiple rounds of negotiations—and renegotiations—but we were ultimately able to not just navigate but drive a complex, multi-party transaction that was contingent on the sale of all three buildings—including simultaneous contract signings and closings. This transaction was particularly complex, but it is indicative of the type of creative thinking, experience, patience, vision, institutional knowledge, and tenacity often required to transact land sales and development deals in the current environment.
Are developers still finding a market for condos?
Most definitely. Although land usually leads the rest of the market down, something unusual happened in the first quarter – the average condo unit price rose, year-over-year, citywide. Average condo prices increased by 19 percent to $1.9 million from $1.6 million, and the volume of sales increased 10 percent to 2,737 up from 2,488 the previous year.
What are you finding regarding deals in Brooklyn?
Land deals in Brooklyn have shown more strength than land deals in Manhattan. We just closed on condo development site with 40,000 buildable square feet in Bed Stuy for $285 per square foot. The borough has a resiliency we’ve never seen before.
What is your view of the new Affordable New York Housing Program?
At the end of 2015, when 421a expired, land sales for new rental developments in the city pretty much ground to a halt, because no one can afford to build when the city takes 30 percent of the taxes off the top – it just doesn’t pencil out. We hope that the Affordable New York Housing Program, which was approved in April to replace 421a, restores the creation of new affordable rental stock to its previous strong pace.
What about retail trends?
PH: Retail has been a tale of two markets. You have the high street retail – meaning Madison Avenue, 5th Avenue, and SoHo on Lower Broadway between Houston and Canal – where rents have ranged from $500 to over $2,000 per square foot, suddenly starting to show a tremendous softness in the last year. The softening rents can be explained for a few reasons. First, major retailers historically didn’t mind having a loss leader store on one of those key corridors because the high traffic visibility enhanced their brand around the world. That feeling is mostly gone. More importantly, you now have a number of retailers who, due to the challenge from e-retailing, might have had a 5,000-square-foot clothing store in SoHo, but have now downsized to 2,000 square feet, while keeping a 10,000- or 15,000-square-foot warehouse in Long Island City for $25 per square foot.
On the other hand, you have the neighborhood retail market, with a high volume of restaurants, coffee bars, and boutique concept offerings. New Yorkers have demonstrated an insatiable appetite for these kinds of dining and shopping experiences. Focusing on this niche, our retail leasing brokers arranged around 150 leases totaling 300,000 square feet of space in the last 12 months alone, at an average of under $200 per square foot, consistent with what you’re seeing in neighborhood stores.
What is the financing environment like today?
PH: Surprisingly, lending rates actually came down in the last quarter in spite of the Fed rate hikes. Spreads have narrowed, which means the banks are willing to take a lower amount over the LIBOR or Treasury rate. We recently arranged one multifamily financing deal with a life insurance company that was a 5-year interest-only loan at 3.3 percent.
What are you looking forward to in the next half of 2017?
PH: We continue to attract strong and talented brokers including Robin Abrams and her team who joined our Retail Leasing Division, bringing with them decades of experience representing international retailers such as The White Company of Britain, which just opened its first U.S. store in a space Robin arranged on 5th Avenue in the Flatiron District. We’re now uniquely positioned to execute retail leases on behalf of the complete range of landlords and tenants. Our Investment Sales brokers have continued to expand their reach beyond New York City and are scheduled to close on a 74,500-square-foot retail and office property in the heart of Boston, a market that has been attracting significant institutional investment in recent years. And our Capital Advisory Division is extremely active, having brokered in the last several months close to $600 million in financing for the acquisition, construction, and refinancing of multifamily properties, condo developments, and hotels.