Family Offices Are Shopping for Discount NYC Office Buildings

While most categories of investors are withdrawing from the Manhattan office sector in a frozen lending market, family offices are moving in to pick up some discounted buildings.

Shuttered lending windows are not a problem for wealth managers at cash-rich family offices. High-net-worth families and a few well-heeled developers have been bargain-hunting for Manhattan office-buildings and making an increasing share of purchases, according to Savills.

We won’t call them tourist investors, but Savills said many wealthy players outside New York are making snap decisions to buy properties in Manhattan, without the oversight of an institutional board to weigh in on whether acquiring NYC office towers is a good long-term investment right now.

Office values are plunging in Manhattan, with some analysts forecasting a cliff-dive of nearly 70%.

Savills said it is expecting more office transactions involving family offices as buyers this year—with more owners who are facing skyrocketing debt service, can’t refinance and need to liquefy assets deciding to offload buildings at steep discount, Bloomberg reported.

Seven of the 11 Manhattan office acquisitions completed in the second half of last year involved wealthy individuals or family-run companies as buyers, according to Savills data, which covers deals of more than $50M.

By comparison, institutional firms or large real estate companies made nearly all of the acquisitions of Manhattan office buildings in H1 2022.

Buildings that aren’t being listed under file-sale conditions increasingly can be acquired at discounts compared to pre-pandemic prices. According to MSCI Real Assets, in the first quarter Manhattan office prices were down 26% from a peak in 2017.

The Bloomberg report noted that Savills tracked several transactions in recent months involving wealthy family-run entities. An entity co-founded by Carlo Bellini, son of Quebec billionaire Francesco Bellini, late last year bought the former American International Group headquarters in lower Manhattan at a 7% discount from the previous sale price recorded in 2019, the brokerage said.

In November, a consortium of family-run businesses including Empire Capital Holdings purchased 1330 Sixth Ave. for $320 million from Blackstone and RXR, which is $80M less than the $400M a group led by RXR bought the building for in 2010.

Empire Capital Holdings teamed with Namdar Realty Group to buy 830 Third Avenue last August, along with 345 Seventh Ave. in 2021.

Empire Capital believes the downturn presents an opportunity for well-capitalized investors who can bet on the city’s recovery, the report said.