Getting Comfortable With the New Pricing

NEW YORK CITY-A year ago, Mark Jaccom, CEO of the tri-state region for Colliers International, attended a conference in Nashville along with 1,000 other commercial brokers. “It looked like the biggest funeral I’ve ever seen in my life,” Jaccom told the audience at Thursday’s ninth annual RealShare New York conference. Fast-forward to the same conference a year later, and the hang-dog attitude was gone.

Jaccom and other industry leaders on the “Transactions Outlook” panel broadly agreed that across Manhattan’s three major food groups—office, multifamily and retail—leasing and sales have recovered momentum. If the numbers are still well below those seen at the market’s 2006-2007 peak, NAI Global’s Andrew Simon pointed out, any discussion of the current market has to be compared to the 2008-2009 trough that was the toughest he’s seen in 30 years.

That being said, Jones Lang LaSalle’s New York region president, Peter Riguardi, said he takes a “mixed” view of the market, and Simon, executive managing director with NAI, pointed out that there’s still a disconnect on evaluations between the buy and sell sides. “People have to get comfortable with the new pricing,” he said, adding that pent-up demand has resulted in surprisingly high prices.

While generally bullish on New York’s outlook, Newmark Knight Frank vice chairman Neal Golden concurred that there are “just not enough good opportunities” for investors, spiking demand. He added that he was surprised to find that the former New York Times headquarters at 229 W. 43d St., which Newmark is now marketing for sale, generated no fewer than 80 tours. Earlier in the discussion, though, Golden declared, “New York is sitting in the center of recovery, and we called the bottom in January.”

One area in which that recovery has been strongest is retail leasing, said C. Bradley Mendelson, EVP at Cushman & Wakefield. In tourist-dense areas such as Times Square, the downturn never really occurred, and Mendelson predicted that in five years the district would command the same kinds of rents seen along the Fifth Avenue corridor.

Multifamily’s resiliency offers further evidence that New York’s economy will come back “faster than anyone anticipated,” said Hessam Nadji , managing director of research services at Marcus & Millichap. Nadji moderated the discussion, and later provided RealShare attendees with a long-term economic forecast.

In that presentation, Nadji noted a “disturbing” trend of the economy “turning back down again” after a strong showing early in the year, both globally and domestically. In the US, tax and health care uncertainty are helping to discourage long-term hiring among small- to mid-sized companies. Yet he said “we’re far away from having a double-dip”—a consensus also reached among “Transactions Outlook” panelists—and noted that even the most conservative estimates call for enough job growth to get a real estate recovery going in most product types, led by multifamily.

And while investment activity is up, it’s large-scale institutional capital that is “dominating the scene,” Nadji said. The velocity among small private investors is increasing more slowly.

On the subject of thinking big, a “Megaprojects” panel moderated by John Salustri, content director for ALM’s Real Estate Media Group, looked at the challenges entailed by projects such as the World Trade Center redevelopment and Hudson Yards, as well as the positive results these efforts produce. Seth Pinsky, president of the New York City Economic Development Corp., cited the indirect and direct benefits of large-scale projects, starting with the investor interest in the area surrounding the project after the entitlement process assures that it will move forward.

In the medium and long term, Pinsky said, megaprojects produce both obvious benefits, including jobs and amenities, and less direct ones that can cover a wide geographic area. Following 9/11, many questioned the future of Lower Manhattan, and as the rebuilding at Ground Zero languished, Pinsky recalled, the EDC was hard-pressed to attract interest in development Downtown. Once the two key stakeholders at the WTC resolved their differences and progress on the project became apparent, Downtown became a magnet for investment and tenants, with Conde Nast’s pending relocation to 1 World Trade Center a prime example.

Representatives of those two stakeholders shared insights on how they came to agreement on the timetable and financing of Ground Zero redevelopment. Christopher Ward, executive director of the Port Authority of New York and New Jersey, said the key was balancing “private-sector optimism and public-sector conservatism.” He gave credit to Silverstein Properties Inc.’s Larry Silverstein and Janno Lieber, who took the optimistic view, for accurately predicting the kind of response that Pinsky described.

Lieber, president of World Trade Center Properties LLC, said the agreement between SPI and the Port was about aligning the interest of all stakeholders, both public and private. As a result, he said, “our success and their success are truly aligned.”

Building at Hudson Yards is still some time in the future, but the start of construction is drawing nearer. L. Jay Cross, president of Related Hudson Yards and a veteran of other large-scale projects, said that closing on the deal with the Metropolitan Transportation Authority entails three triggers being met. Two of those triggers—an increase in Manhattan condominium prices and an improvement in the Architectural Billing Index—have been reached. The third, a decline in Midtown’s office availability rate to 11%, hasn’t happened yet, but Cross noted that vacancy is falling.

When the build-out does occur, Cross predicted that the market would welcome the new office product at Hudson Yards as well as at Ground Zero. “Manhattan in general needs all of this new space,” he said.

A highlight of the morning was the presentation of the RealShare New York 2010 Lifetime Achievement Award to public relations guru Howard Rubenstein, who founded Rubenstein & Associates in 1954. In accepting the award from Manhattan Borough President Scott Stringer, Rubenstein noted that he’d worked with many of commercial real estate’s “visionaries,” including Silverstein as well as the late Harry Helmsley, Lew Rudin and Robert Tishman.

“I’ve always been passionate about real estate because of the important role it plays in the city,” Rubenstein said. It’s not just the jobs the industry generates, but also its part in creating a standard of living “that is the envy of the world.”