Third Down: Investment Sales Have Dropped From The Second Quarter, But the Stats Are Rosier Than They Appear

The investment sales market in New York City continues to trend positively, as third quarter 2011 statistics show. This may not seem so apparent when looking at the data in isolation, but drilling further down reveals a far more telling message.

In 3Q11, there was $6.5 billion in investment sales activity citywide, which was down from the $8.7 billion that occurred in 2Q11. On face value, it might appear that this slowdown in activity is a negative signal for the market. But, when we look at the numbers more carefully, we see that the medium-term trend is positive. Notwithstanding the $2.2 billion reduction in dollar volume in the third quarter, with the exception of 2Q11 results, the $6.5 billion in sales in 3Q11 was the highest quarterly total the market has experienced going all the way back to 3Q08.

The slowdown in the dollar volume of sales is representative of two main factors. First, the supply of available larger, institutional-quality properties was reduced in the second quarter of the year, leading to less activity in the third quarter. Second, stresses in the C.M.B.S. market created difficulty in obtaining financing for larger assets. It is important to note that the dollar volume of sales has more to do with these factors (supply and debt availability) than anything else, as demand is almost always excessive in New York City. In fact, going back to 1984, the only year in which this was not the case was in 1992, during the post–S.&L. crisis recession.

Annualizing the $19.2 billion of transaction activity that occurred in the first three quarters of 2011, the market is on pace for approximately $25.6 billion for the year, which would result in an increase of nearly 80 percent over the $14.2 billion of sales in 2010. It would also be approximately four times the 2009 total of $6.9 billion.
Interestingly, while the dollar volume has quadrupled since 2009, we still remain 60 percent below the $62.2 billion in sales that occurred at the market’s peak in 2007.

Based on the reduction in the dollar volume of sales between the second and third quarters of 2011, it wouldn’t be surprising if fourth-quarter dollar volume came in below third-quarter totals. Notwithstanding a second consecutive quarterly drop, we’re still expecting total dollar volume to be no less than $24 billion. Regardless of fourth-quarter totals, 2011 will show a tangible improvement over 2010.

The submarket with the largest increase in dollar volume activity, in 2011 versus 2010, was the Manhattan submarket (south of 96th Street on the East Side and south of 110th Street on the West Side), where an impressive $16.8 billion sales tally is on pace to be up 44 percent over the $11.6 billion through 2010. The submarket that has performed the weakest is in Northern Manhattan, where year-to-date sales volume has slumped to just $263 million. Annualized, Northern Manhattan is on track to finish 51 percent below the $534 total the submarket tallied back in 2010.

While the dollar volume of sales usually grabs the headlines, it is always the case that we look at the number of buildings sold as being more representative of the real pulse of activity in the marketplace. This is due to the fact that a few very large transactions can skew the dollar volume metric significantly. For instance, the transaction for Stuyvesant Town at $5.4 billion can have a significant impact on market statistics, just as Google’s $1.8 billion purchase of 111 Eighth Avenue last year represented approximately 12.5 percent of the total $14.5 billion in 2010.

With regard to the number of buildings sold citywide, there were 548 buildings sold in the third quarter, the highest total since the fourth quarter of 2008. Thus far this year, 1,548 properties have sold in New York City, setting pace for an annual total of 2,064. This figure would be 22 percent higher than the 1,690 that sold last year and 46 percent higher than the 1,410 that sold at the market’s nadir in 2009.

While the number of properties sold was up 46 percent from the trough, if the pace of sales continues, and we achieve the 2,064 sales that we anticipate, this total will still be 60 percent below the 5,018 in sales at the peak of the market in 2007.

It’s interesting to note that even with a 46 percent increase in the number of properties sold, and the nearly quadrupling of the dollar volume of sales, both of these metrics will fall 60 percent below 2007 peak levels.

The average price of a property sold citywide in 2011 has been $12.3 million, remarkably just slightly below the all-time peak of $12.9 million achieved in 2007. This average had fallen to a measly $4.3 million in 2009 at the bottom of the market.

Third Down: Investment Sales Have Dropped From The Second Quarter, But the Stats Are Rosier Than They Appear