Ivanhoe: NYC Rebounded Stronger Than Predicted

NEW YORK CITY-Robert Ivanhoe, chair of the 200-attorney global real estate practice at Greenberg Traurig, has represented both buyers and sellers in some of the largest sales of the past several years. Among his credits are MetLife's $5.4-billion sale of Peter Cooper Village/Stuyvesant Town in 2006 and the Chetrit Group's $1.1-billion acquisition of the Sony Building at 550 Madison Ave. last year. Ivanhoe recently spoke with GlobeSt.com about the investment sales market of today compared to seven years ago and why New York has recovered from the downturn stronger than beforte.

GlobeSt.com: At Massey Knakal's recent fourth-quarter media briefing, Robert Knakal predicted that this would be a banner year for investment sales, and in particular we're likely to see an increased number of very large deals. Given current market conditions, what would be your forecast, especially for New York City?

Robert Ivanhoe: One of the biggest questions about some of these very large deals is something that a lot of buyers don't think about, which is: what's the pipeline of product coming onto the market? That's very unpredictable. If they're good properties, there's never any problem getting them sold. The demand always seems to be there—there's a tremendous amount of capital that is seeking to invest here in New York. I'm very bullish on the demand side; it's almost unprecedented in my career. There's a tremendous infusion of foreign capital, perhaps more than I've ever seen in over 30 years. A lot of locals are being priced out; it's hard for them to compete at the prices they want. There's such a constraint on supply of good assets for sale. And that's one reason prices keep going up: supply and demand.

GlobeSt.com: Do you see supply beginning to loosen up for these sought-after types of properties?

Ivanhoe: Not particularly. You're going to see some owners testing the market: “If I can get a certain price”—which is almost a crazy price—“then I'll sell it. If not, I'm going to hold it.” The problem owners often have with selling properties is: “What am I going to do with the money? I have to reinvest it in something, and what am I going to buy?” And they may have to pay taxes, unless they can do a tax-free exchange. I've been through this analysis with clients many times, where they get approached for a sale, they get all excited because the price is high, but end up deciding that they're better off not selling it than selling it and looking for something else. The price they pay can be so high that they have lower returns, and then if they pay taxes they have less money to reinvest.

It really depends on who the seller is and the mentality of the seller. Where you see a lot of sales is when the majority partner is a closed-end fund, and there are two factors mitigating in favor of selling the asset. One is that the fund has reached a certain point in its life cycle where they have to liquidate, and the other is that their compensation with their investors works on an IRR clock. In the absence of that kind of seller, whether it's individual owners or public companies, the challenge is finding a place to reinvest the proceeds in something better, and that's hard to do.

If you go back to 2006 or 2007, there was a lot more velocity and volume than there was last year. And the prices today are just as high, maybe more so.

GlobeSt.com: In '06 or '07, many sellers felt as though we were reaching the end of the cycle. Do your clients today have a pretty optimistic outlook?

Ivanhoe: Generally, yes. But we came off such a horrible time in 2009 and 2010. I have clients who are public companies, REITs, and their stocks got absolutely hammered. Other clients lost properties to their lenders; they couldn't refinance them. There was so much distress and so much concern.

Fortunately, New York bounced back a lot faster and stronger than people thought at the time. Now, my department is the busiest we've been since at least '07, and maybe ever.  There's still a lot more caution, though, than there was in '06 or '07. But there's optimism, and when people stop and look back a few years, they think, “Boy, we've come such a long way in five years.”

GlobeSt.com: What helped make the New York recovery as strong as it has been?

Ivanhoe: New York has proven itself time and time again to be a resilient city: financial capital of the US and one of the very few financial capitals of the world. One thing driving this that people didn't anticipate has been a tremendous amount of flight capital from foreign countries that want to be here, for a variety of different reasons. There's almost an insatiable demand from very large foreign investors, and that has had a big impact on the market.

That money wants to be in very few cities. It primarily wants New York, although sometimes it will do Washington, DC, Boston or San Francisco and maybe a tiny bit of Chicago or Los Angeles. That's it. It really doesn't want to be anywhere else. So we're the main beneficiary of that.