Manhattan’s Long Investment Sales Drought — And Why a Surge May Be Coming

For more than four decades, I have been tracking investment property sales in Manhattan south of 96th Street. Within this market, there are 27,649 investment properties, and, since 1984, we have meticulously tracked every sale. 

Over that time, one statistic has proven remarkably consistent: The average annual turnover rate has been about 2.5 percent. That means that in a typical year, roughly 691 properties sell in this most prime part of Manhattan. It also tells you that when someone purchases a building in Manhattan, they own it on average for 40 years. 

Up until several years ago, the long-term average turnover rate was slightly higher at 2.6 percent, but the past several years have pulled that average down. As turnover has remained below trend, the long-term average has slipped to roughly 2.5 percent — and it has been at or below trend for quite some time.

Until recently, the longest stretch of average or below-average turnover occurred during the savings and loan crisis. From 1989 through 1995, Manhattan experienced six consecutive years of turnover at or below trend as lenders struggled through widespread real estate distress and the market slowly worked through financial problems. At the time, that period felt unusually long. But we have now surpassed it. 

2025 marked the seventh consecutive year of at- or below-trend turnover — the longest stretch since we began tracking this data in 1984. Many people, including myself, expected something very different in 2025. 

Given the enormous destruction of value in Class B and C office buildings and in rent-stabilized housing, many market participants believed we would see a surge in transactions. Distress typically produces activity. When values fall sharply, properties change hands as lenders force resolutions and investors step in looking for opportunity. But that wave has not arrived.

The primary reason is the zombie-like condition of many rent-stabilized buildings. Apartment buildings make up the majority of properties in the market, so their stagnation has had a profound impact on broader turnover. In numerous cases, values in these rent-stabilized properties have fallen as much as 75 percent since the 2019 Housing Stability and Tenant Protection Act (HSTPA) dramatically altered the economics of rent-regulated housing. 

Many of these buildings were financed at what participants believed was a conservative 50 percent loan-to-value ratio. With values now dramatically lower, the equity in many of these properties has been completely wiped out. In some cases, even the debt itself is impaired. Loans that once appeared conservative are now effectively worth 50 cents on the dollar or less.

Under normal market conditions, this type of impairment would produce a wave of sales, restructurings and foreclosures. But rent-regulated buildings carry a unique set of liabilities that make them extremely difficult assets to manage and own. Owners often no longer want the buildings and would be more than willing to hand back the keys to their lenders. 

But lenders frequently do not want them, either. In fact, many are reluctant to foreclose or even to accept a deed in lieu of foreclosure. That’s due to the regulatory environment, including the limited ability to improve economics through investment due to the marginalization of increases in major capital improvement and individual apartment improvement programs. Those programs for decades incentivized reinvestment in aging buildings. Lenders, too, are generally turned off by the significant liabilities that taking possession might bring.

The result is a growing number of buildings stuck in financial no-man’s land. Owners have little incentive to invest additional capital, lenders hesitate to take the keys, and transactions stall because neither side wants to assume responsibility for the asset. This dynamic, created almost entirely by public policy, has frozen a portion of the market that would normally be producing significant transaction volume.

History tells us that periods like this don’t last. In fact, they are often followed by extraordinary market expansions. After the downturn of the early 1990s, the New York City investment sales market experienced one of the most remarkable runs in its history. From 1993 through 2007, property values increased every year for 14 consecutive years — even through the dot-com bust, the shock of 9/11 and the broader recession of the early 2000s. Transaction volume surged as well. Looking at turnover history shows how dramatic these cycles can be. 

In 1988, Manhattan turnover reached 3.5 percent. In 1992, the market hit a cyclical low at 1.6 percent, before climbing to 3.9 percent by 1998. In 2003, another cyclical low produced another 1.6 percent turnover year, followed by a 3.4 percent peak in 2006. During the Global Financial Crisis in 2009, turnover fell to an all-time low of just 1.2 percent (the lowest we have recorded) before surging to the all-time high of 4.3 percent in 2012. During COVID, turnover dropped to 1.4 percent and has not exceeded the long-term average since then. 

In fact, the last year of above-trend turnover was 2018 at 2.9 percent. This pattern strongly suggests that a major shift may be brewing.

The decade-by-decade averages tell an equally interesting story. During the 1980s, average turnover was 2.9 percent. In the 1990s, it declined to 2.42 percent. During the 2000s, turnover averaged 2.21 percent. In the 2010s, turnover surged to an all-time high average of 2.94 percent. Thus far in the 2020s, however, turnover has dropped to an all-time low of just 2.18 percent. Markets rarely remain at extremes indefinitely, and historically low levels of activity suggest that the market is storing up a tremendous amount of pent-up transactional energy.

At some point, lenders will have to confront the reality that large portions of their loan portfolios, particularly loans backed by rent-regulated buildings, are significantly impaired. When that recognition occurs, the logjam will begin to break. We will start to see short sales, note sales, restructurings and foreclosures as lenders attempt to resolve their positions and redeploy capital. Investors with patience, expertise and a long-term perspective will step in to acquire assets at prices that reflect the new regulatory reality. When that process begins in earnest, transaction volume could increase dramatically.

If the past 40 years of data teach us anything, it is that long droughts in Manhattan investment sales activity are often followed by powerful market surges. Given the extraordinary length of the current slowdown, the next surge could be one of the most significant we have seen in decades. The policy decisions that froze much of the market will eventually force a financial reckoning — and, when that reckoning arrives, the Manhattan investment sales market may enter another powerful cycle of price discovery, ownership change and renewed activity.

Robert Knakal is founder, chairman and CEO of BK Real Estate Advisors.