What’s Next


Demand

We have seen significant shifts in demand drivers in the marketplace over the past several years. The bubble that was created in the 2005-2007 period was exacerbated mainly by massive amounts of institutional capital that were seeking real estate investments. When the credit crisis tangibly started to take hold in the summer of 2007, this institutional capital all but evaporated from the marketplace. Since August of 2007, more than 95 percent of our transactions were sold to high-net-worth individuals and old-line New York families, which have been investing in the city for decades.

Recently, we have seen a reemergence of institutional capital coming back to the marketplace in the form of distressed-asset-buying funds.

We have also witnessed the resurgence of foreign capital in numbers unlike anything we have seen since the mid-1980s. This foreign capital is coming predominantly from high-net-worth individuals who are not typically full-time real estate professionals. These investors have made money in other industries and are using Manhattan properties as safe deposit boxes for their capital. Recently, we have sold three properties to foreign investors who have used little or no debt. The building at 115 West 57th Street was sold to a Japanese investor for $5.8 million; 901 Broadway was sold to a Spanish investor for $24.6 million ($1,700 per square foot); and, just last week, we closed on the sale of 33 West 46th Street, a 37,000-square-foot office building for $11 million, or approximately $300 per square foot.

Given how strong demand has been, we have been able to get 25 to 35 offers each on the majority of the income-producing properties we are selling. Each note that we have sold this year, whether performing, sub-performing or nonperforming, has generated more than 50 offers. These tremendous numbers are due to the fact that there is very little for sale and there are many investors competing over a very thin supply of available properties.

We are advising clients—and it is very difficult to do without sounding completely self-serving—that if a sale is contemplated within the next year or two, now is an excellent time to sell given the lack of supply on the market. It is our belief that, one year from now, the supply of available properties will be significantly greater, as lenders will be more aggressively dealing with troubled loans on properties that will fall victim to the massive de-leveraging that the market must go through before correction can begin.

What’s Next