By Sarah Trefethen
The New York City real estate market is hot.
“I think next year is going to be the best in New York City history for building sales,” Robert A. Knakal, chairman of Massey Knakal Realty Services, told attendees at an annual real estate conference hosted by the New York State Society of CPAs yesterday (Tuesday).
But is it too hot? As sales prices approach 2007 levels and investors from around the world and with little regard for return on investment vie to secure their piece of the New York skyline, market watchers have to wonder if this — like 2007 — is a boom before a crash.
“It’s a basic principle of economics that when large amounts of capital are making investments for non-economic reasons, it distorts the market and it does not end well,” said Gino Martocci, regional president of M&T Bank, who appeared on a panel with Knakal and other banking and brokerage professionals.
The panelists were optimistic for 2014, but less sure about the longer-term future.
“I’m telling my brokers, get a lot of rest in the next couple of weeks, cancel your vacation plans next year and work your tail off, because there’s going to be tons of money to be made. And then in 2015, 2016, you’ll probably have some time to take some long vacations,” Knakal said.
But the market today lacks the exuberance of 2007, according to Janice Stanton, senior managing director in the Capital Markets group of Cushman and Wakefield. “Vacancy in a building was considered an opportunity in 2007,” she said.
Increased federal regulation is already having a noticeable effect on the way banks operate, according to Scott A. Shay, chairman of the board at Signature Bank.
“I think over time, you’re going to see some tightening in underwriting standards,” he said.
He also warned that mortgage rates may go up more sharply than the real estate industry expects when the Federal Reserve ends its economic stimulus program.
The industry has “underestimated how much quantitative easing has influenced cap rates and financing rates,” he said.