Industrial properties haven't always been as attractive as a sleek, new office buildings. However, this has changed dramatically recently. Developers today are clamoring to purchase warehouse spaces in NY and NJ as prices and rents are shooting up. However, there are not many large sites for purchase anymore; New York City's industrial real estate is rapidly disappearing as the city rezones large areas of boroughs to pave way for new residential buildings. On the other hand, developers in New Jersey are building millions of square feet of new industrial space, and e-commerce tenants and businesses are taking huge blocks of industrial land on both sides of the river while paying more than old-school warehouse tenants. Traditional industrial businesses are being priced out of former manufacturing areas like Gowanus, Greenpoint, and Long Island City, and owners are increasingly converting their buildings into creative office spaces. It is interesting to observe that the dollar volume of commercial sales in Brooklyn has dropped since the first quarter of 2016 and slid by a third since last quarter! Meanwhile, the value of Brooklyn commercial property has shot up 20% due to high priced closings of small properties. The average sale price has risen from $325/sq foot to $389/sq foot in just one year! Digit retail giants such as Amazon and Apple have also caused large shifts in industrial real estate as they choose to invest more in industrial properties. Many suppliers who help fulfill orders for these large e-commerce companies rent out (the very few) large industrial spaces left in the cities in hopes of reducing their transportation costs and moving goods from their warehouses to customers' homes as quickly as they can. This is referred to as "last-mile distribution." Despite the conversion of industrial spaces, many traditional manufacturing zones still endure in NYC, although they are farther from Manhattan than before. The South Bronx, East NY, Brooklyn, and Maspeth, Queens have become new prime spots for industrial tenants, like construction suppliers and food distributors. These formerly undesirable neighborhoods have become hot real estate because rents are semi-affordable with wide roads (for distributor trucks) and high-ceiling warehouses. Looking to the future, the e-commerce industrial wave should eventually cool down as companies consolidate their spaces in the industrial sector.
The Bronx has been garnering recent interest lately due its prices in the real estate sector. Recently, the Medallion Corporation, which is based in Toronto, purchased 1511-1521 Sheridan Avenue from Brooklyn landlord Benzion Kohn. As reported by the Real Deal, Medallion paid $38 million for the 222 unit rental property. Kohn purchased the building for $34.7 million back in February of 2016 from Black Spruce management.
The building is rent stabilized and is in the Claremont neighborhood of the the Bronx. The financing of the building has not yet been reported. Medallion purchased a 142-unit rental building on Bruckner Boulevard for $25 million back in September. Medallion also was among the investors who purchased a 13-building Bronx portfolio for $90 million in 2015.
Medallion has been building up their portfolio in the Bronx. Daniel Parker of Hodges Ward Elliot explained that many real estate firms have been looking to do the same as the prices in the Bronx are much lower compared to the other boroughs. The prices of other boroughs have skyrocketed due to income increases and changes among the subway system. According to Trulia, the average ppsf for Brooklyn is $667 while the Bronx is at $278. From here we can see why the Bronx has been such an attractive market.
Izaki Group Investments is planning on developing a 20 story condo building on the Upper East Side. The building will sit on 310-314 East 86th Street. They bought the site- where three small three story walk up buildings sit- from Extell Development for $42 million. As we heard in this Monday’s presentation at SREG by Daniel Parker of Hodges Ward Elliot, seemingly IGI is making a play betting on the Q train to hike up property value on the UES. His argument is based on the proposition that commuters on the Upper East Side, who previously had limited public transportation access to the west side, can now access it very easily. This property, sitting between 1st and 2nd avenues, is down the block from the Q train and the increased value of the units due to its proximity to the Q should be priced in once IGI develops the property.
Big things are happening in Brooklyn- Flatbush, specifically. As reported by The Real Deal, The Moinian Group has lent developer Solomon Feder 160 million on 123 Linden Boulevard. The loan is floating rate, priced at 8.25%, and has a 42 month term. In light of the industry as a whole taking it slow during a sluggish period in the deal cycle, this kind of financing is significant. The loan will be used to convert the property, currently a nursing home, into a residential building. The building will be large, with a forecasted 487 units at the most recent report. In addition to providing debt, the Moinian Group is investing 20 million to take a 49.9% equity stake. A previous loan made to refinance the property of 23 million is encompassed within the scope of the 160 million dollar deal.
The Moinian Group is a privately held real estate firm that develops, owns, and operates a portfolio that spans New York, Chicago, Dallas, and Los Angeles. The group is currently hard at work on the west side of Manhattan, developing a condominium building in Chelsea at 220 11th Avenue and a luxury residential building in Hell’s Kitchen at 572 11th Ave.
As New York City continues to add sleek, thin, and skyscraping towers to its skyline, another project, a 52-story condominium project, begins its ascent on 281 5th Avenue in Manhattan. The specifications of the project include averaging about 1500 sqft/unit with 2 floors of retail on the ground floor and 2nd floor. This project is gaining most of its attention due to the designer behind the project, Rafael Viñoly. Viñoly is most well known for his most recent addition to the skyline: 432 Park Avenue, a 1396 ft residential building and the tallest residential building in the world. Viñoly has another project of similar design in the works at 125 Greenwich St. Viñoly is rapidly disrupting the status quo of the Manhattan skyline with his simple, but prominent and eye-catching designs, something many critics find unappealing in his work. The current status of the project includes clearing and preparing the site and completion of the building is expected by 2018.
One of the biggest real estate stories of 2017 will be how landlords and their lenders handle the impending wave of maturing commercial mortgages. During the 2007 lending boom, banks sold a staggering $250 billion in commercial mortgage backed securities (CMBS) to institutional investors. These loans were due approximately ten years later, mostly in 2017. Now, this wall of maturities has been whittled down to $90 billion, as many borrowers paid back their loans early to take advantage of low interest rates. Morningstar Credit Ratings estimates that half of the loans will have trouble refinancing, and S&P analysts predict that around 13% of borrowers will default, up from 8% the past two years. Retail properties, especially malls, will most likely be hit hardest. The rise of e-commerce has made lenders increasingly pessimistic about the future of brick and mortar retail. On the other hand, top quality office properties are considered less risky. For example, RXR is securing a loan for $1.5 billion to pay off its $1 billion debt for 5 Times Square, the headquarters of Ernst and Young. The combination of a new administration, rising interest rates, and risk retention will ultimately play an important role in determining whether these loans will be able to refinance or not.
For a few years now, city officials have felt the need to rezone a section of east midtown spanning from 38th street to 58th street bounded by 5th ave on the west and 2nd ave. on the east. This central business district includes Grand Central Terminal as well as some iconic office towers such as the Lever house and Seagram building. Currently each plot in this area has a certain allowable building density (the maximum space that can be built) which depends on various factors such as the width of the road adjoining the plot and the plot size itself. Most plots in the area are fully built up or overbuilt. The plan is to give the owners of these plots greater development rights in exchange for investment into public infrastructure projects. The current building stock is considered sub optimal and old especially when compared to the shiny new office towers going up a few avenues west at Hudson Yards. Therefore, for the area to stay competitive as a business district, redevelopment of existing buildings must occur. To incentivize said redevelopment and for it to be feasible considering the rising costs of construction, a significant amount of air rights must be distributed. The city too has a vested interest in having the area remain a business district and not turn into another residential neighborhood. The city has invested significantly in transport projects to service the area, most prominently the second avenue subway which is currently under construction. In order to fully maximize the economic benefit of these expensive public works projects, big companies and employers must have offices in the area. To attract such company’s, developers must create state of the art office space which can only be incentivized through significant building density allowances.
While Donald Trump is settling into office, he has left control of his sprawling property empire to his two sons, Don Jr. and Eric Trump. When Eric first started working at the Trump Organization a dozen years ago, the company primarily focused on the residential and mixed-use Trump Tower and 40 Wall St. Today, the company owns 18 golf courses and 14 hotels, and Eric focuses on the golf courses, the winery, and construction. 39-year-old brother Don Jr. has been at the company since 2001 and focuses on managing hotels as well as the commercial properties. Various properties and projects are scattered across the globe but the focus now will be on completing jobs they are able to finish and expand mainly throughout the United States. The Trumps canceled all 30 pending international deals after the election, giving up millions of dollars in potential business deals.
As one of the largest cities in the world, New York has its fair share of housing options. New York City draws in thousdands of visitors each week, and many of these visitors spend their nights in hotel rooms. Unfortunately, those who live in or have visited New York City understand that like everything else in the city, hotel rooms are extremely over priced for what they are. Leave it to the millennial generation to come up with a solution. Enter AirBnb, which allows residents to rent out their homes, rooms or apartment. In hopes of integrating themselves into the ever changing 21st century economy, and avoid the legislation Uber and others had to deal with from New York City, AirBnb said it would ban New York hosts from renting more than one property, require online registration for hosts, ban users that break policies, and COLLECT STATE TAXES to expand the revenue of the government. But alas, it wasn't enough. Leave it to Governer Cuomo to enact legislation that would fine someone who provides a short term rental more than someone who has drunk driven. The $7,500 fine is supposed to be a response to complaints from hotel companies who have seen their wallets shrink after the websites establishment. AirBnb, not surprisingly has already started a legal battle to block this legislation, which if last year is any indication of the future, would cost the service 44,000 rentals. Airbnb has a tough battle ahead, but with consumer support, like Uber, the millennials will eventually get their way.
Manhattan retail space is some of the most coveted in the world, attracting crowds of pedestrian traffic daily who generate hundreds of millions of dollars in sales revenue. Flagships in SoHo and along Fifth Avenue can pay as high as $5,500 per square foot a year. With pricing that astronomical, brand name retailers are certainly banking on revenues from these locations to be equally high or, in the case of the Meatpacking District, absolutely nonexistent. A new phenomenon call “experiential stores” has emerged in the dynamic, chic Meatpacking District, where large tech companies are opening stores that sell nothing, but allow people to play around with new tech-gadgets. The most prominent leader of this new movement is Samsung, which recently leased the entire six-story building at 837 Washington St. Lexus Next year, Lexus will open a similar concept, Intersect by Lexus, at 412 West 14th Street. And just last week, Tesla Motors inked a lease for its latest showroom at 860 Washington Street. This new wave of concept stores comes at a time when retail vacancy in Meatpacking is on the rise, currently at an all time high of 22.2%. A shadow of its namesake, Meatpacking has become a prime tourist destination with the arrival of the Highline in 2009 and the relocation of the Whitney Museum. The trendy area is studded with high-end fashion boutiques, chic nightclubs, and trendy eateries. Perhaps the high retail vacancy rate is a result of construction going on in the area, which has become a massive nuisance to pedestrian traffic. But with pricing for retail space continuing to escalate in the area it will be interesting to see if Meatpacking can become the professed tech alley and home to “experiential” showrooms for all the latest tech innovations.