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Deals & Dealmakers

2016 could be another great year, then again it could tank, says industry sage

Though he labeled the short-term future as a “coin toss,” Bob Knakal, chairman of New York investment sales at Cushman & Wakefield, is high on the long-term outlook of the city’s investment sales market.

“I think the overall strength of the investment sales market in New York has been tremendous. We went into this year knowing that 2015 was going to be a fantastic year,” Knakal told Real Estate Weekly during a recent sit down discussion.

BOB KNAKAL
BOB KNAKAL

“It was clear 2014 was a cyclical peak in the number of properties sold,” he continued. “There were more properties sold in New York City in 2014 than any time before in the history of New York. There were over 5,500 properties that traded hands in 2014.

“That cyclical peak usually is a barometer of where the market is headed and we’ve had some cyclical peaks in the past that have been followed with very different results.”

Knakal said that historically, a strong 2015 does not guarantee a solid 2016, as the first year after a spike-like the one that occurred in 2014 is typically a bullish one, with potentially negative aftershocks not surfacing until 13 months or later have passed.

“In 1988, we had a peak and after that the market made a very significant downturn. In 1998 we had a cyclical peak and the market ran for another nine years after that. So the question is ‘What is going to follow 2014?’

“The years following ’88 and ’98 were both very good years,” Knakal added.  “It’s not the year after the peak that is indicative of where the market’s headed, it’s the year two years after the peak.

“This year is playing out just as we expected. We’ll have a record dollar volume of sales in New York City this year. The number of properties sold will be down a little bit but where we’re headed next year is really the key.”

Knakal conceded that a lull could perhaps be on the horizon, but is encouraged by the current activity to feel the next downturn could very well be much farther down the road.

“I think that there are great arguments to be made that the market may turn around next year and get into a little bit of a soft market, but there are great arguments to be made that this market is going to continue to run for many years to come.”

One of those arguments is the current revival of Long Island City, a neighborhood that Knakal is heavily involved in.

Currently handling the sale of Citigroup’s Citicorp building, the tallest property in Queens, Knakal says that the interest surrounding it has remained strong since it hit the market this past spring.

“That transaction is moving along, we’re talking to a lot of folks,” Knakal said.  “There’s been interest from all over the globe in that building. But Long Island City from a broader perspective has just been absolutely on fire.”

He cited the recent zoning changes with helping to make the location even more attractive to both commercial entities and residential developers.

“The zoning changes have really helped precipitate a transformation of Long Island City that has been long expected but is actually happening now. We’ve seen over the last several years, thousands of residential apartments that have been built and are presently occupied and there’s another 17 or 18 thousand that are either planned or under construction now.

“So that whole area is really changing rather dramatically and I think City Planning did a wonderful job of rezoning Long Island City and particularly given the proximity to Midtown East, it’s a very logical place for growth within the city.

“We’re anticipating additional zoning changes there to promote even more development,” added Knakal.

Heading forward, Knakal also sees Hudson Yards as not only driving the market in the coming years, but completely changing New York’s landscape.

“Hudson Yards is absolutely on fire as well. That whole area I think is going to be a new center of New York City 20 years from now and probably even on a more accelerated basis than that but it really will be transformative.”

“I really think it will be a destination location,” continued Knakal, whose team has handled the sale of more than five million buildable s/f in the Hudson Yards over the past few years. Those transactions are worth more than $1.5 billion in total.

“People are going to want to live there, work there, play there, shop there. It’s really exciting to see the scale of development that is happening there and also the number of transactions that are going on to leave to more buildings than are already under construction or planned for the Yards.”

As for Cushman & Wakefield, a firm that close out 2014 by acquiring Knakal’s Massey Knakal, before being purchased by DTZ months later, the coming years could prove to be quite bullish.

While Knakal declined to comment, recent reports indicate that the commercial powerhouse is looking to go public in the next two years, a move that would help it cement its position among rivals CBRE and JLL.

While that could have a significant impact on the entirety of New York’s commercial real estate landscape, the city will first have to see if 2016 will mimic the downturn of the late 80’s or the extended run of the late 90’s after 2014’s jolt of activity.

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