After a Robust 2018, the NYC Investment Sales Market May Take a Hit

Shimon Shkury, Ariel’s president, attributed the disconnect to a handful of big sales, particularly in the office market. There were 55 transactions over $100 million last year versus 41 in 2017. The two trades that really helped juice the dollar volume numbers were Google (GOOGL)’s $2.4 billion purchase of Chelsea Market and Silverstein Properties scooping up ABC’s Upper West Side campus for $1.2 billion. The multifamily market also accounted for a large uptick, rising 42 percent year over year to $13.6 billion worth of sales in 2018 from $9.5 billion in 2017. Meanwhile, the number of multifamily trades only rose one percent over the same period, to 1,428 from 1,411. Big residential sales included Brooksville Company and Rockpoint Group buying Starrett City for $905 million and Invesco paying $608 million for an 80 percent stake in five of AvalonBay’s Manhattan apartment buildings.

At the borough level, Manhattan had the largest dollar volume with $24 billion in sales. But Queens had the biggest year-over-year increase, with $4.67 billion trading hands, a 39 percent increase compared to 2017’s $3.34 billion total.

The investment sales pro had a less optimistic outlook for the coming year. Rent regulation reform seems likely to put a damper on the multifamily market for the first six months of 2019, as landlords and investors wait to see how the state legislature will change the rent laws in June, Shkury said.

“That’s going to negatively affect transaction volume, and it’s going to keep pricing somewhere flat,” he explained. “You’re not going to see the tremendous amount of transactions because people will be waiting to see what happens.”

He also predicted that reforms to major capital improvements and individual apartment improvements would have a greater effect on the sales market than the elimination of vacancy decontrol. “If [those policies] are not affected dramatically that’s going to be somewhat positive. Tenants win, the city wins, landlord can get a return on their money by doing so over time.”

However, Shkury expects economic opportunity zones to fare well this year, particularly in Coney Island, Brooklyn, the South Bronx, and Rockaway and Sunnyside in Queens.

Uncertainty around rising interest rates may also affect the investment sales market, he explained. The Federal Reserve had planned to raise interest rates twice in 2019, but earlier this month Fed Chairman Jerome Powell said the agency would be “patient” and “waiting and watching” to ensure that they don’t raise rates if the economy is starting to slow.

“Investors expect higher interest rates in the near future so that will have a negative effect on pricing,” Shkury said.