Sunday Summary: Just in the Knicks of Time

On Wednesday night the entire city of New York lost its collective mind at roughly the same moment.

Down 29 points against the San Antonio Spurs, a New York Knicks victory looked so improbable that Larry David, seated in celebrity row, growled to John McEnroe: “Let’s get out of here — I can’t handle this any more.” (As a sidenote: It’s truly remarkable that McEnroe is the levelheaded one in a friendship that makes sublime sense in retrospect.)

And then… something happened. A miracle. With dogged persistence, the Knicks began chipping away at San Antonio’s lead. The Knicks jumped ahead with one second left on the clock, executing a comeback that shattered existing postseason records. It was the kind of dramatic, unifying event that the city didn’t know it needed. (“Best night of my life,” declared a voice on Twitter alongside a face that should look familiar to CO readers.)

“As I watched the comeback unfold, I couldn’t help but think about the Stonecutter’s Creed,” Bob Knakal wrote the next day in CO. “The Stonecutter’s Creed teaches us that the rock does not split because of the 100th blow. It splits because of all 100 blows. The final strike gets the credit, but every strike before it made the final strike possible.”

After the whooping and screaming (but hopefully nothing worse) subsides, this is a lesson that a lot of the most successful names in real estate would take to heart.

Sticking to a plan, drowning out the noise, and not succumbing to setbacks is the only real way to prevail in this business. And, indeed, there have been notable successes of late.

While CRE professionals might complain endlessly about the velocity and volume of housing development in Gotham, we learned something kind of shocking last week: New York City is the leading market for multifamily construction in the country!

There were 38,682 housing units completed last year, per the Department of City Planning — which was the most since 1965.

“The rezonings are having an impact,” said Michael Mazzara of JLL. “It’s a big driver of our business, which is effectively selling these ground-up development sites. So just from a citywide perspective, these rezonings are very accretive to new construction development.”

That explains why big conversions get announced almost every week. Most recently, Kings Capital announced plans to transform 61 Gold Street in the Financial District into apartments. And Jersey City projects, too, are feeling the largesse and feeding the tri-state housing beast.

Retail is another one of those stories that was in shambles for a long time, but the key players kept their heads when all about them was losing theirs, and now Related Companies, Abu Dhabi Investment Authority and Mack Real Estate are marketing the Shops at Columbus Circle for a cool $450 million. (Incidentally, the Shops at Columbus Circle is the home of Masa and Per Se. This newsletter went to bed before the outcome of last night’s Knicks vs. Spurs game, but, if the championship comes back to New York and you don’t care for basketball, this could be your big moment to score a reservation.)

And, while Gotham’s office sector has been on the mend for a while now, many credited its survival to the new flood of artificial intelligence firms. (Just last week, Altana took space just a 3-pointer away from our beloved Knicks at 2 Penn.) But that’s not entirely the case. The biggest leases of the year have been law firms — proving the Knakal thesis that one can’t chase every shiny new opportunity, but rather focus steady attention on sectors that have proven themselves. (Of course, we’ll admit that not all trophy properties have had the exact same good experience.)

Beyond New York, there are plenty of other markets that have weathered boom/bust cycles, taking the Stonecutter’s Creed to heart — maybe none more so than South Florida, which also keeps its head down and continues churning out new development.

Just last week, MG Developer and Vertical Developments got $100 million in construction financing from Benmark Capital for their planned mixed-use, 74-unit Alhambra Parc, in Coral Gables, Fla.

And Prologis completed the largest industrial sale in South Florida so far this year when they plunked down $352.2 million for the fully leased, 1.15 million-square-foot, seven-building Davie Business Center, at 3300 and 3380 Davie Road in Broward County.

Not everybody can be a stonecutter…

While housing construction is faring well in New York City, the same is not true nationally.

The numbers look pretty good for the construction industry in general, but that’s largely due to the bonkers amount of money being lavished on data centers.

“Last year, we did about $9 billion of data center work. We expect that number will be in excess of $20 billion by 2030,” Turner Construction’s Chris McFadden told CO. “We’re working on a couple of multibillion-dollar projects, including in Louisiana where we’re working on a $10 billion-plus project for Meta. That gives you sort of a trajectory of what we’re seeing, going forward.”

One sees the money available even to recapitalize existing projects like the fully leased Project Helios in Northern Virginia, for which owners Corscale Data Centers and Affinius Capital just secured $975 million from Blue Owl Capital.

But the non-data center projects and builders have struggled. For example, West Palm Beach, Fla.-based Kast Construction has seen revenues shrink owing to tariffs and inflation. “It reduced our revenues by 30 percent in 2023, and it has taken us two years to rebuild that back,” said Kast CEO Mike Neal, “and most of that has been luxury condominiums and hospitality work.”

Let’s talk about industrial

Construction might be iffy, but industrial is not.

“Industrial should deliver the strongest rent growth of any major property sector over the next several years,” BGO CEO John Carrafiell told CO this week.

Given the level of competition, some property investors are looking at fixer-uppers as the best way to enter the market.

And, while it used to be sort of a boutique asset, industrial outdoor storage (IOS) has begun capturing the attention of the heavy hitters.

“IOS emerged as a way to accommodate surplus goods, trucks and vans when we had high freight volumes during COVID, so that was definitely part of the emergent story of IOS,” said Tyler Peck of JLL Capital Markets. “When Peakstone, a publicly traded real estate trust, made a big portfolio acquisition of Alterra products, the fact that there was a public company making a big investment in IOS [said to the industry], ‘OK, this is an asset class that’s here to stay.’”

Of course, one of the advantages of being a heavy hitter means being able to take reasonable risks on ideas that seemingly failed or faltered.

Investment in life sciences real estate, for instance, is up 28 percent year-over-year according to a recent report from Cushman & Wakefield and venture capital investment in the sector last year was the strongest since 2022 after many had written off the sector.

And then there are assets like airports and cargo shipping facilities — which have certainly been treating firms like Realterm extremely well.

“We view ourselves as experts in transportation,” Bob Fordi, Realterm’s CEO, said in CO’s cover story last week. “When you think about the growth of our business and our business plan, it’s really to service this voracious need that the transportation companies have. And transportation is 8 percent of global GDP, $9 trillion per year of spending, so it’s a massive use of real assets.”

On that note: Go New York, go New York, go New York — go!