By Al Barbarino
It is slim pickings for potential buyers looking to invest in the city’s commercial real estate.
Inventory levels are low and prices have hit an all-time high, as potential buyers scour the market and owners cling to property.
Post-recession, investors who weathered the storm are looking to expand portfolios. Foreign buyers are flooding the market. And first time buyers who missed out during the boom want in. But existing property owners see little incentive to sell.
“There are only so many buildings in Manhattan,” said James Kinsey, CEO of city brokerage ERG Properties. He added, “A lot of the distress has made its way through the pipeline, so there’s only so many voluntary sellers.”
The supply and demand crunch has kicked prices up to all-time highs. The average sale price for property citywide hit $12.6 million in the first quarter, an all-time record — higher than the $12.3 million average in 2011, according to data from Massey Knakal.
Meanwhile, desperately low inventory levels led to lower-than-expected property sales. The 547 properties sold citywide in the first quarter marked a 10 percent decline from the fourth quarter of 2011, and a 56 percent decline from 2007.
Massey Knakal is carrying about 500 exclusive listings – even less than the 550 on hand in 2009. In 2008, there were 740 exclusive listings.
“We were surprised by that,” Massey Knakal partner James P. Nelson said. “We had expected more product to come online.”
Massey Knakal chairman Bob Knakal said alternative investment rates are simply too low to encourage owners to sell: the days of five percent returns are a distant memory; there is speculation that the stock market is “over-purchased.”
“An overwhelming number of clients are saying to us, ‘If I sell my building what do I do with my money?’” Knakal said.
In addition, general uncertainty about the economy looms among New Yorkers, despite the recovery. Owners of one or two properties, who are usually less in tune with the market, are scared to sell, Kinsey, from ERG Properties, said.
“Everyone’s got a story about a friend who can’t find a job,” he said. “A lot of the people who maybe aren’t active owners but who do own property think that things are bad, so why would they sell?”
Even conditioned real estate owners looking to exchange properties for similar assets are unlikely to sell unless a buyer is willing to go extraordinarily high, which only fuels the cycle.
“The only stuff on the market has been widely and broadly marketed and has not sold because the pricing is just out of line with what the property is,” he said.
But in many cases, no price seems too high. For example, one of Kinsey’s clients recently decided to sell an asset in Manhattan and buy a similar property in a different borough. Two years ago, if the client had relayed his asking price, “You would just say, ‘wow that’s crazy,’ and you just move on,” Kinsey said.
The buyer came in even higher than the asking price, as investors have a “pretty much insatiable appetite” right now, Kinsey said.
Peter Von Der Ahe, the top-producing multifamily agent in Marcus & Millichap’s Manhattan office, said his clients with institutional or pension fund money are feeling the crunch.
“If you talk to any fund, they’re all going to say, ‘yeah, I need more product,’” Von Der Ahe said. “Their whole business plan really relies on their ability to put capital to work and the hardest part of their job is placing that in the appropriate vehicle that will provide them the returns that they’re looking for.
“If you put the entire Upper West Side on the market, it would all sell.”