The way he sees it, there are approximately a million buildings in the city, and the broker that gets to sell any one among the multitude that will hit the auctioning block at a given moment is, sometimes, simply the person who happens to pitch their services to the right seller at the right time.

To that end, Mr. Knakal figures he can either call you, or you can call him.

"During the early 1990s, after the recession and when the market was dismal, we used to have a contest to see who could get to 40 owners a day," Mr. Knakal recalled earlier this month.

"Even if that person hung up in your face."

Although it’s one of the biggest and most lucrative markets in the world, Manhattan’s real estate industry is famously close-knit. But for those who break into the club, assignments from clients and attention from the real estate press usually follows.

Still, few in the city’s commercial real estate industry have risen to Mr. Knakal’s prominence, and fewer still have labored as hard to do get there.

In what was once considered a novelty, Mr. Knakal, now a governor on the board of the Real Estate Board of New York and a columnist for The Commercial Observer, first garnered attention as a young broker by tracking real estate sales figures in the early 1980s—well before such careful analyses became commonplace at real estate firms.

Since then, he and partner Paul Massey, with whom he founded the brokerage firm Massey Knakal in 1984, have escalated the technical practice of data gathering and showcased ever more sophisticated skills.

In recent years, Massey Knakal has held regular quarterly breakfasts that showcase the blitz of detailed statistics and market measures it tracks. Even in an industry now brimming with data, the firm’s numbers stand out by virtue of the fact that it sells a higher volume of transactions than many of its rivals combined, meaning it can aggregate more data. And at the company, save for perhaps Mr. Massey, no one wields that data better than Mr. Knakal, using it as a tool for prognostications about the market.

“I’ve always been sort of a wonk with statistics,” Mr. Knakal said, modestly.

The pursuit has served him well.

When the real estate market crashed in 2008, even prominent brokers were left feeling washed up amid the dearth of deals that followed. Mr. Knakal seemed unfazed during the period. His knowledge of New York real estate’s ebb and flow, as well as his knack for weighing the impact of macroeconomic events on the local market, made him a sought-after consultant, as sellers and buyers alike struggled to uncover the new realities of value and demand. While the consulting work and portfolio evaluations he did during the time were either free or low cost services, it allowed him to both develop and deepen ties to major clients like banks and large private sellers and sow seeds for new business that would sprout when the market revived.

The work paid off. As sales picked up, Mr. Knakal became a leading seller of a popular product type of the time, mortgage notes, which banks were clearing off their balance sheets at a discount.

Last year, he sold a nearly $30 million mortgage for Barclays bank tied to a development parcel across from the West Side rail yards, 350-366 Tenth Avenue. Before that, in 2010, he sold the $60 million mortgage against the downtown office building 5 Hanover Square to the real estate group Savanna, which then took control of the property.

Mr. Knakal’s biggest year in sales volume happened, predictably, in 2007, when he sold approximately $800 million in real estate. For a capable dealmaker, the cards were stacked in his favor: The city was flush with easy capital, prices were at a peak, and both sellers and buyers were ferociously engaged in deals.

Yet in 2010, by all accounts a dismal year, Mr. Knakal claims he did about $500 million of transactions, a respectable tally that actually earned him more commission dollars than 2007 because the dearth of smaller deals he was doing that year actually earned him a higher commission rate.

“I’m pretty confident that 2012 is going to be my biggest year ever,” Mr. Knakal said. “It’s already proving to be true so far.”

While Massey Knakal specializes in smaller transactions, Mr. Knakal has differentiated himself from that formula by brokering larger deals than the firm usually handles.

Last year, he sold two buildings on 29th Street and Broadway to the hotel developer Jon Lam for over $70 million. In recent weeks he handled the sale of three portfolios of apartment building, for roughly $40, $50 and $60 million respectively. He also just completed the sale of a development parcel in Williamsburg for more than $20 million to an investment group led by the prominent New York owner Joe Chetrit.

He sold a $7 million building in Brooklyn for the Jehovah’s Witnesses, an organization that owns more than a billion dollars of real estate in the borough and is in the process now of liquidating its holdings. The group is a cloistered religion, yet Mr. Knakal has become a trusted broker for the valuation services he has performed for the organization through the years. The pace of deals shows no sign of letting up. Mr. Knakal is in the process of marketing an industrial building in the Bronx that he thinks will trade above $40 million. He’s also in the process of negotiating to add parcels onto hotelier Jon Lam’s Broadway development site.

Mr. Knakal chalks up a big portion of his success to Massey Knakal’s territory system. Brokers at the firm are assigned certain submarkets in the city where they are encouraged to become specialists. According to Mr. Knakal, it is the best way to do deals because, in a city where pricing can vary dramatically by neighborhood, it allows a broker to develop the knowledge and focus to better source and execute deals. Criticism has also been lobbed at the approach. Some rivals say that it hems brokers into a narrow geography.

Mr. Knakal’s own business is a counterpoint to that claim. His home turf is in Midtown, but he often handles sales outside of that boundary, partnering with whichever broker at the firm works in the territory a deals takes him. In this way, Mr. Knakal is beyond just a public face to the firm, but also an originator of business for more than just he and his own team.

“I look at the model and credit it for a lot of my success,” said Mr. Knakal, who acknowledged that while he knows much of Manhattan, he’s not as well versed in other boroughs like Queens and the Bronx. As such, he benefits from having the specialists in those markets as his partners.

Nonetheless, a large part of what continues to drive Mr. Knakal, who will turn 50 in May, is his love for the business, regardless of the borough.

“I still get pumped up when a client hires me,” said Mr. Knakal. “It doesn’t matter if it’s for a small property in the Bronx—I get excited about it.”

Dgeiger.com

Given the budget deficits that New York is facing, both at the city and state level, one of the questions I always ask politicians looking for donations is what three specific line items in the city budget do they believe could withstand cutbacks.  I have never received a straightforward answer to this question and most of the time the default position from the politician is, “We must work hard to eliminate waste, fraud and abuse.”

This is simply the nature of politics because candidates cringe at the thought of alienating any voter group, notwithstanding how they may actually feel about a particular issue.

I find it interesting that the “waste, fraud and abuse” cop-out is relied on so heavily (after all, who wouldn’t agree to eliminating these things?) but when politicians finally get the chance to address waste, fraud and abuse, they rarely take advantage of the opportunity.

A case in point is the recent turmoil over the fingerprinting of food stamp recipients. Many elected officials have demonized this practice as being a stigmatism on recipients. Recently, City Council Speaker Christine Quinn said, “Fingerprinting food-stamp applications is an unnecessary, time-consuming, stigmatizing process that I believe criminalizes poverty.” So, should we surmise from this that the only people getting fingerprinted are criminals?

This is far from the fact. Nearly every city government employee is fingerprinted. If you want a job in the school system, you need to be fingerprinted. This includes teachers, clerical staff, janitorial staff, hall monitors, cafeteria employees, sports officials, bus aides, bus drivers and employees of contract service providers who are placed within a school.

Additionally, holders of taxi medallions must go through this process. Many who work on Wall Street are fingerprinted, as are employees of the FBI, the CIA and the military. I assume this elected official believes that all of these people are stigmatized.

Clearly, this process has not stigmatized those folks, and it’s not as if the food stamp recipient, who is fingerprinted, will walk around with an ink-stained thumb for the rest of their life. If elected officials are serious about eliminating waste, fraud, and abuse, the time tested method of fingerprinting recipients of public assistance should be continued.

The mayor and the governor disagree on this issue. Recently, Mayor Bloomberg defended the policy saying, “There’s just no reason I know of why you shouldn’t do fingerprinting on food stamps as a prophylactic measure to ensure the public that the only people who are getting benefits that the public are paying for are those that deserve it.”

It is apparent that this issue is more about getting votes than being fiscally responsible. 1.8 million New York City residents receive the benefit. That’s a lot of votes, and a lot of room for waste, fraud and abuse if not administered properly.

You may be asking why I am concerned about the elimination of waste, fraud and abuse from the city and state budgets. From a state perspective, I am concerned because the less money the state has to give to the city, the less money the city gets from the state.

And from the city’s perspective, the more money that is squandered will lead to ever increasing budget deficits, which will lead to inevitably ever-increasing real estate taxes which have reached all-time highs as the percentage of gross revenue. This is notwithstanding the supposed correlation between real estate tax assessments and market value. We have seen this relationship abandoned when the city needs money. The city needs money, so real estate taxes go up.

We must implore all elected officials to be fiscally responsible. True line item budget cuts are unlikely so we must attempt to implement strategies to truly eliminate waste, fraud and abuse. Pension reform is another huge area impacting our finances, but this is another topic for another day. Presently, we must try to keep the deficits to a minimum, which will reduce the upward pressure that is continually placed on our real estate tax obligations.

Rknakal@masseyknakal.com

Robert Knakal is the chairman and founding partner of Massey Knakal Realty Services and in his career has brokered the sale of more than 1,175 properties, having a market value in excess of $7.8 billion.

Ken Subraj, an executive and principal at Zara, confirmed the deal and said that his company was drawn to the buildings because they are both similar and closely located to the company’s existing holdings.

191-11 Woodhull Avenue. (Courtesy Property Shark)

“Two of the building are side by side and the other is a good golf shot away from another one of our buildings,” Mr. Subraj said, explaining that he often visits the company’s properties, especially new buildings that it plans to upgrade, and that the firm prefers to keep its holdings in close proximity.

Mr. Subraj, who operates Zara with his brothers Jay and George, the founder and president of the firm, said the acquisition, which totals about 350 units, would bring the company’s holding to about 2,400 units, a residential empire the brothers have built over three decades in eastern Queens neighborhoods like Jamaica and Hollis.

The buildings are located at 191-11 Woodhull Avenue and 91-59 191st Street in Hollis and 148-48 88th Avenue, 88-09 148th Street and 88-25 148th Street in Jamaica. A team from the real estate brokerage company Massey Knakal, led by the firm’s chairman Bob Knakal and Brian Sarath, a director of sales who specializes in Queens, handled the deal for Urban American. Mr. Knakal couldn’t be reached for comment.

Mr. Subraj said the purchase price equated to a roughly 6 percent return, a going rate of return for property investments in the city. The company he said would invest about $2 million into the portfolio to make various improvements he said, such as renovate lobby space and vacant apartments as they come available. He said that the firm did the investment was done with a long term strategy in mind because it will take years to do all the renovations, due to the natural turnover rate of the apartments and because basic infrastructure in the buildings such as boilers, elevators, roofing and facades, were all in good condition and did not yet need replacement.

“There’s really very little to do going forward,” Mr. Subraj said. “These capital improvements, they are going to take a minimum of 15 to 25 years to do. You do a boiler every 25 years. We really looked at this an opportunity for the future.”

Mr. Subraj said that his brother George came to the U.S. in the early 1970s from the brothers’ home country of Guyana.

“George started here working in an appliance store and when he was looking for an apartment to rent, he realized how hard it was to get a clean, comfortable,” Mr. Subraj said. “He said I can do this business myself so he started as a residential broker selling homes.”

Mr. Subraj and his brother Jay eventually joined George in the business and they began buying apartment buildings.

“In those days, you could put down half a million dollars for a 50-unit building,” Mr. Subraj said. “In those days, a building sold for three times the rent roll. Today it’s like 10 or 11 times the rent roll. Its not that easy to make a profit.”

Mr. Subraj said that rents ranged in the new portfolio from about $950 for a studio to $1600 for a two bedroom.

Dgeiger@observer.com

Robert Knakal.

We have seen community and small regional banks perform much better in New York City as opposed to their sister banks across the country, given their propensity to lend on rent-regulated buildings as opposed to construction and development projects, which cratered most of the banks that have failed during this cycle.

The strength of this sector continues to grow and we have seen very significant and tangible increases in apartment-building volume since the trough the market experienced in 2009.

Unique to the New York City market, walk-up buildings and elevator buildings are generally considered separate asset classes.

During the downturn in 2009, there were only 66 elevator apartment buildings sold citywide, containing a total of 4,511 units. The total dollar volume of sales in this sector was about $568 million.
In 2011, the numbers climbed significantly as we saw 125 buildings sold, containing a total of 9,106 apartments, a near doubling of the unit count. Interestingly, the total dollar volume of sales was $3.1 billion in 2011 (more than five times the 2009 level), mainly due to the huge increase to almost $2.4 billion in the Manhattan submarket alone.

In the walk-up sector, we saw steady increases across the board as well in terms of volume. In 2009, there were 342 buildings sold citywide, containing 5,051 apartments. Total dollar volume was $642 million.
In 2011, the number of buildings sold climbed to 506, with a total of 8,099 apartments. The dollar volume of sales rose to $1.16 billion.

Combining all of these figures, we see that in 2009 there were just 418 apartment buildings sold in both sectors, which grew to 631 sales last year. The number of units sold has escalated from 9,552 in 2009 to 17,205 last year, and the dollar volume of sales has increased from $1.2 billion in 2009 to nearly $4.3 billion last year.

We expect these dynamics to continue as multi-family investors continue to seek out the safety and upside potential of these properties.

Clearly, volume is on the upswing, but what about value?

With regard to cap rates, we have seen steady compression across all of the city’s submarkets from 2010 to 2011. This is the case for both walk-ups and elevator properties.

The other metrics that we watch closely in the multi-family sector are gross rent multiples, price per square foot and price per unit. We have steady increases in all of these metrics with the exception of walk-up properties in Queens and Brooklyn.

The most telling metric that investors look at, however, remains capitalization rates, which continue to compress following the decline seen in lending rates. Cap rates and lending rates have always been highly correlated and, while many participants believe cap rates are back to where they were at the peak, they remain 100 to 150 basis points higher than at the peak. Noteworthy is that lending rates are about 250 to 300 basis points lower today than they were at the peak. Relatively, this sector should be performing much more profitably than it did at the peak.

However, extremely troubling to many operators has been the fact that top line gross revenue has increased handsomely over the last three years (10 to 15 percent); however, net operating incomes have barely increased given the substantial, and inexplicable, annual increases in real estate taxes. This is making the profitable operation of these buildings more and more challenging.

We expect that demand in 2012 will continue to greatly outpace supply. Today it is difficult to keep well-priced multi-family assets on the market for more than a few weeks before they are scooped up by the ravenous demand that exists in the market.

Rknakal@masseyknakal.com

Robert Knakal is the chairman and founding partner of Massey Knakal Realty Services and in his career has brokered the sale of more than 1,175 properties, having a market value in excess of $7.8 billion.

It’s not clear what Mr. Chetrit has negotiated to pay in the deal, but the property was being marketed by a Massey Knakal team led by the company’s chairman, Robert Knakal, that sources said was aiming to net a purchase price in the high $20 millions.

77 Commercial Street. (Courtesy Property Shark)

The property features about 230 feet of frontage along the water with unobstructed views of Manhattan.

A commercial broker who has done deals in Williamsburg and Greenpoint said that Mr. Chetrit, who owns a number of properties in Manhattan, has been a voracious buyer in northern Brooklyn.

“It’s well known that if you have a parcel for sale that Mr. Chetrit is a go-to,” the person said, who didn’t want to be quoted in case he has future deals to show Mr. Chetrit.

It was reported in recent days that Mr. Chetrit, in partnership with the boutique hotel chain King & Grove, were in contract to buy the Hotel Williamsburg.

Neither Mr. Chetrit nor Mr. Knakal could be reached for comment.

Dgeiger@Observer.com

 640 Broadway has sold for $32.5 million.

According to Bob Knakal, chairman of the brokerage company Massey Knakal who handled the sale with colleague James Nelson, the roughly 63,000 square foot Soho building was purchased by a first time Manhattan buyer in partnership with an institutional investor. Mr. Knakal, a prolific broker of commercial and multifamily buildings in the city, said he could not disclose the identity of the joint venture because they were his clients and asked him to remain anonymous.

The seller in the deal, an entity called 640 Realty LLC that Mr. Knakal said also did not want to be revealed, purchased the building in 2004 according to New York City property records for around $13 million. The company, whose president is listed as Arnold Simon in mortgage documents, sold the property for more than double what it paid.

“They created tremendous value by doing quality renovations to the vacant units when they came available,” Mr. Knakal said.

But part of the appreciation was based on the building’s remaining untapped potential Mr. Knakal explained.

640 Broadway has 12 retail stores and 21 residential rental units, nine of which are rent stabilized. As those units roll over to market rate, Mr. Knakal said the building could be converted into condos. He also said that a large apartment could be created at the top of the building by joining some of the units, a space whose value would be enhanced because it is exclusively serviced by a private elevator in the building's little-used Crosby Street entrance.

“It could be massive apartment with outdoor space,” Mr. Knakal said.

Mr. Knakal also revealed that the building has a large vaulted basement and sub-cellar level that has a footprint larger than the ground level and upper portions of the property.

“The building is 25 feet by 200 feet but the the vaulted basement is probably 35 feet by 300 feet, it goes under the sidewalk,” Mr. Knakal said. “We thought it would make an awesome private club, or something like that. You could take the floor out between the basement and celler and create a space with 15 to 20 foot ceilings. There is real potential there.”

 Dgeiger@Observer.com

Robert Knakal.

For the purposes of this discussion, we will consider the Manhattan submarket to include sites south of 96th Street on the East Side and south of 110th Street on the West Side. In 2009, the average price paid per buildable square foot was $374. In 2010, this average dropped to $326, a 13 percent decline. In 2011, the average dropped again to $311, a 5 percent slide and a number which is 17 percent below the 2009 average, which was the peak during the past cycle.

Most participants in the market would think there must be some mistake with these numbers as it has been clear that a tangible increase in the health of the development market has been present since the disillusioned days of 2009. Actually, if we examine the data closely, this trend becomes easy to understand. And the conclusion is that the development land market has been improving and, today, is one of the better performing market segments.

The main factor impacting the land market has been volume. The year 2009 was probably the most challenging in which to obtain construction financing. For sure, better sites with strong sponsorship could obtain construction loans and several good-sized financings were made at that time. Due to the challenges of obtaining construction loans at the time, and the heavy equity requirements appurtenant to the loans that were available, the perception was that the value of land had fallen dramatically. Sites that may have been worth $400, or more, per buildable square foot during the boom years of 2006 and 2007 were receiving offers of just $100 or $150 per buildable square foot. The result was that sellers simply did not capitulate. (It must be noted that there were still very prime sites that still commanded lofty offers and transactions occurred.)

This dynamic left the land market in a position where we saw only a few trades. For some relative perspective, in 2006, which was the year in which we observed the most activity in the land market, there were 186 development sites traded. Everyone during these years, it seemed, was a “real estate developer” including many first timers who had been architects, plumbers, doctors, brokers and just about anyone else who could spell real estate. Remarkably, construction financing was available to these novices. Not surprisingly, the overwhelming majority of stalled sites and foreclosures seen in subsequent years were on the backs of these inexperienced developers.

In 2009, the number of sites sold evaporated to just 11, a 94 percent drop. Of these 11 sites sold, eight were purchased by users who purchased the land for the construction of facilities for their own occupancy. The result was that just 416,000 buildable square feet were sold for a total of approximately $180 million. The result, notwithstanding the miniscule volume, was a healthy average price paid per buildable square foot of $374 (not a weighted average). Essentially, sellers pulled the trigger only if they got their price.

In 2010, activity picked up significantly with 41 sites sold. These sites contained a total of about two million buildable square feet, which sold for an aggregate price of about $715 million. These sales resulted in an average price paid per buildable square foot of $326.

Last year, the land sales market gained tremendous traction with 95 sites selling. These sites contained a total of about 4.5 million buildable square feet with an aggregate price tag of about $1.4 billion. The average selling price of this land was $311.

It is important to note that the averages presented here are for all land sales, including those for retail, office, hotel, residential and institutional uses. The value of  each of these subsets is different; therefore, applying the average to any particular site may derive a misleading result.

From a macro perspective, we have seen what appears to be a drop in the average price paid for land in Manhattan. However, when we look at volume trends closely and really understand the market dynamics, we see that the land market is healthier than it has been in several years, and we expect this positive trend to continue.

rknakal@masseyknakal.com

Robert Knakal is the chairman and founding partner of Massey Knakal Realty Services and in his career has brokered the sale of more than 1,175 properties, having a market value in excess of $7.8 billion.

In 2011, the dollar volume of sales in the Manhattan submarket (defined as south of 96th Street on the East Side and south on 110th Street on the West Side) showed dramatic improvement over 2010 levels. There was $21.7 billion in investment sale transactions last year, up from the $11.6 billion that occurred in 2010, an 87 percent increase.

Last year’s total was also up a whopping 425 percent from the meager $4.1 billion that occurred in 2009.

Demonstrating the volatility of the market in recent years, the $21.7 billion remains 59 percent below the all-time high of $52.5 billion at the peak of the market, in 2007.

With respect to the number of properties sold, there were 666 buildings sold in the Manhattan submarket in 2011. This figure was up 35 percent from the 492 sales occurring in 2010, and more than double the 305 sales that occurred in 2009. Last year’s total is only 33 percent lower than the 999 properties that were traded at the peak of the market in 2007.

While these figures show outstanding year-over-year growth in activity, we are concerned that we have observed steady reductions in dollar volume over the past three quarters and a relatively weak fourth quarter in terms of properties sold. As was seen in the citywide data presented in last week’s column, Manhattan has also seen dollar volume slip.

In 2Q11, there was $7.8 billion in sales, which dropped to $5.9 billion in 3Q11 and $4.9 billion in 4Q11. Similarly, the number of properties sold in the Manhattan submarket dropped from 209 in 3Q11 to 162 in 4Q11.

While it is difficult to draw conclusions from monthly or quarterly statistics without seeing a relatively long-term trend, these quarterly drops have been of concern to us. Fortunately, for the Manhattan submarket, appreciation has occurred very tangibly and we are seeing increased values across the board for all product types.

We expect activity to pick up as we progress through 2012; however, we would not be surprised to see muted activity in 1Q12.

The main reason for this slowdown in activity is a very acute supply constraint market where there are simply not that many properties for sale. We expect this condition to reverse throughout the year. In his State of the Union speech last week, the president indicated that he would like to see capital gains tax rates doubled to 30 percent. If he is leading in the polls, or even close, by midyear, we expect to see a dramatic increase in the number of properties coming to market, and while that would make for an outstanding 2012, it certainly would create depressed selling levels in 2013, 2014 and beyond.

Fortunately, for the Manhattan submarket, demand appears to be at an all-time high. With buyers becoming more active and new buyers coming into the market on what seems like a daily basis, there appears to be no end to an overreaching demand for properties of all kinds. These buyers originate from a broad spectrum of sources, including domestic high-net-worth individuals and families, as well as foreign buyers coming from dozens of foreign countries. In fact, counterintuitively, the economic volatility in Europe has actually driven more foreign investors from the E.U. to New York to deploy capital, as the city is viewed as a safe haven for capital. Add to this tremendous domestic and international demand from institutional investors and the market is poised for continued growth.

rknakal@masseyknakal.com

Robert Knakal is the chairman and founding partner of Massey Knakal Realty Services and in his career has brokered the sale of more than 1,175 properties, having a market value in excess of $7.8 billion.

Robert Knakal.

In 2011, investment sales totaled $25.6 billion citywide—in other words, 80 percent more than 2010’s $14.25 billion and more than four times the $6.1 billion mark in 2009. These increases, while substantial, remain 58 percent below the 2007 peak of $62.2 billion.

Last year alone, brokers sold 2,122 buildings, up 25 percent over the 1,696 that changed hands in 2010.

This figure was 50 percent higher than the 1,410 properties sold in 2009, but remains 58 percent below the 2007 peak of 5,018.

The average sales price of property in New York City last year stood at $12 million, up 44 percent from the 2010 average of $8.4 million and nearly three times the $4.3 million average in 2009. Notably, the $12 million average is now approaching the $12.4 million average seen at the peak of the market in 2007.
On a citywide basis, overall property values increased by 6.1 percent in 2011, over 2010 levels, on a price-per-square-foot basis.

Larger transactions also returned to the market with gusto. To be sure, 58 sales reached $100 million or more, more than double the 28 sales in 2010 and more than eight times the meager seven buildings that sold in 2009.

Still, while all the statistics are positive, why did I refer to the recovery as uneven?

Comparing the sales metrics on a year-over-year basis, the marketplace looks fantastic. On a quarterly basis, the figures look OK-to-good. And if we dig deeper and look at the statistics on a monthly basis, they only look fair, at best.

This is because in the second half of 2011 the dollar volume dropped. This occurred between the second quarter, in which we saw $8.5 billion in sales, and the third quarter, in which we saw $7.1 billion. We saw the figures drop again in the fourth quarter, in which there was $6 billion in dollar volume, representing a 15 percent drop in activity.

In terms of the number of properties sold in New York City, we saw a peak in the third quarter, when 593 properties changed hands, and a 15 percent drop in the fourth quarter, when only 505 buildings shifted ownership.

This dynamic, in which both dollar volume and number of properties sold are both retreating, would normally have led us to believe that a double dip in the sales market might be starting. However, the observance of healthy appreciation in property values leads us to draw the conclusion that we are, and have been, in a supply-constrained market as opposed to a market that is sliding into a double dip.

We’re not out of the woods yet, however. We’ve seen the rate of appreciation occur at a declining rate throughout the year: At the end of 1H11, the appreciation rate was running at more than 9 percent. By the end of the third quarter, the rate dropped to 7.3 percent. By the end of 2011, the rate lingered at 6.1 percent. It’s worth repeating, however, that fluctuations in these metrics over a one-, two- or three-quarter period can be misleading due to large transactions that skew the numbers. Still, we’ll be watching the numbers.

We do expect sales volume to be up significantly in 2012, both from a dollar-volume and number-of-properties-sold perspective. This is due to a natural regression toward long-term trend lines (which we remain well below) and a looming, perhaps major, increase in 2013 capital gains rates, which should drive hundreds of properties into the market.

rknakal@masseyknaka.com

Robert Knakal is the chairman and founding partner of Massey Knakal Realty Services and in his career has brokered the sale of more than 1,175 properties, having a market value in excess of $7.8 billion

“We’re going to see a natural regression in 2012 back to the norms,” said Robert Knakal, Massey Knakal's chairman, noting that the volume of properties sold in the city has been below the historical average since the recession and is likely to bounce back. “The potential increase in capital gains that could take place in 2013 [is a big driver]. We saw a significant spike in sales volume in 2010 for the very same reason.”

Robert Knakal, back in the day.

Mr. Knakal predicted that development parcels in the city would be among the best appreciating assets during the year, anticipating they could rise by 20-30 percent in value due a dearth of both residential and commercial development in the city in recent years.

“There has been such a low supply of new product put on the market,” Mr. Knakal said. “Developers anticipate the market two to three years in advance and most are feeling optimistic about the end user demand in that time frame.”

Paul Massey, who with Mr. Knakal co-founded the brokerage company also highlighted the popularity of development sites.

“We were creating thousands of luxury residential units per year but that production ceased three and a half years ago,” said Mr. Massey, who together with Mr. Knakal and other company executives, delivered their comments during a meeting yesterday morning with the media to present their outlook and year end market statistics for 2011.

Massey Knakal compiled a host of encouraging data that shows the sales market in the city is bouncing back since falling precipitously during the economic downturn. Citywide, $25.6 billion of property was sold in 2011, an 80 percent increase from 2010, and 2,122 properties changed hands, a 25 percent increase in volume year over year.
Still the numbers pale in comparison to the boom years. In 2006, $44.5 billion of deals were done and 2007, the most prolific year on record for New York City’s sales market, $62.19 billion of deals were completed, according to Massey Knakal figures. Mr. Knakal didn’t think that dollar volume would swell in 2012 to that level but predicted the market could see between $41 to $45 billion of sales activity.

Pricing on average per square foot appreciated by 6.1 percent across property types in 2011 the company said. While that figure was lower than the wild uptick in value that occurred as the market skyrocketed during the boom years of 2005 to 2007, Mr. Knakal said that the appreciation level was compelling compared to other investment classes. “I think our expectations are skewed by the fact that during the boom years there were huge gains and when the market fell there were big losses, the scale of expectations has been kind of exaggerated,” Mr. Knakal said. “But six percent is very solid. Warren Buffett always says that ten percent returns are outstanding. I think that in a market where treasuries are low, six percent returns on real estate make it a desirable asset class.” Mr. Knakal predicted that prices could outpace 2011’s increase, rising by as much as eight percent on average per square foot in 2012.

James Nelson, an executive at Massey Knakal who participated in the company’s presentation supported Mr. Knakal’s point that real estate was attractive to buyers because it offered compelling returns and stability during a period of continued economic uncertainty.

“Real estate benefits from the trend of investors wanting hard assets,” Mr. Nelson said. “People want something they can touch. Besides gold, real estate is one of the few hard assets and it cash flows.”

DGeiger@Observer.com