Medium Cool: Investment Sales Volume Spiked in 2011, but Future’s Still Cloudy

Peter Von Der Ahe, who deals primarily with multifamily, agreed that the issue of capital gains could put pressure on sellers, providing an opportunity for foreign buyers in particular. The Marcus & Millichap first vice president of investments said that with “capital gains most likely increasing in 2013, there’s a financial incentive to sell your property this year.” He predicted that, for multifamily at least, as more buildings start to trade it will create a snowball effect of sorts. “It becomes self-perpetuating on the positive side, too—that’s what I see happening this year.”

As for the investment sales buyers, they constituted all the usual suspects in 2011, though institutional investor participation in the market rose to fill a gap left by private capital for the year. According to the Cushman & Wakefield data, institutional investors accounted for 36 percent of 2011’s total sales, REITs and private capital 26 percent each, and foreign investors 9 percent. For 2010, private capital was at 35 percent and institutional investors were at 15 percent.

Mr. Simon, at Colliers International, said that there is serious capital out there looking for a home. “Any of these big institutional, international groups have to look at New York as a safe haven.” He added that investors are looking for value-add opportunities and opportunities to boost returns, in a cap rate environment that has been low “for a very long time now.”

From Mr. Gillen’s perspective, REITs were obviously big in 2011 but there was another foreign influence, apart from, say, the Canadian REIT that bought 2 Gotham Center for $415.5 million in a deal he helped broker, or the Kuwaiti firm that paid $485 million—all cash—for 750 Seventh Avenue in another CBRE-brokered deal. “A lot of times, the name on the transaction wasn’t necessarily all the capital,” he said. “You had a lot of global capital backing the more traditional names in the city.”

Newmark Knight Frank’s Mr. Kuhn agreed. He anticipates foreign investors to continue looking for opportunities in New York. “But if they don’t team up with a local operator they will not be able to move fast enough and they will make a mistake,” he said. “Foreign buyers, if they don’t have a presence in New York and they don’t have an operating partner, I don’t see them as big competition.” He added that Newmark Knight Frank had just been hired by a large Australian group looking to partner with a local operator to build an office building.

Another barometer for investment sales velocity is leasing vacancy rates. Mr. Heller, at Studley, pointed to 200 Fifth Avenue, the old International Toy Center, where in 2010 the firm represented Tiffany & Co. in its 345,000-square-foot headquarters relocation. “The most recent rent paid was $85 a foot for a prewar building in Midtown South,” he said, “which had been a somewhat sleepy market for decades.” Drastically declining vacancy rates had changed all that.

Mr. Simon, fresh from a Grand Central District Office Building committee meeting, related how he had piped up about this lag between vacancy rates and the price a building can garner when sold. “I said to them, ‘I’ve been telling people for a long time that in the leasing market there continues to be a disconnect between what’s going on in leasing and what’s going on in investment sales,’” he said. “Because in the investment market there is very little product out there and what does come to the market sells at a very big price.”

At the end of the day, the ease of getting a loan for new development projects might be the best way to gauge investment sales velocity for the year. One source said he had just had lunch with a lender buddy from the workout department at a major bank, who described lending requirements as loosening and the bank as expecting to get paid off at par for loans still on its books.

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