By Al Barbarino
“There’s tons of money around,” Jon Estreich told a group of colleagues at a National Realty Club dinner at Vic and Anthony’s Steakhouse last week.
The principal of Estreich & Company and founding partner of RCG Longview Equity Fund explored the city’s real estate scene in mostly optimistic tones.
“There’s an amazing amount of debt equity around” and “there’s tons of capital,” he told an intimate group, noting that the impacts of the so-called Great Recession paled in comparison to past recessionary periods.
Referencing major residential projects in the city, Estreich said that buildings coming onto the market “seemingly have no problem selling units,” because inventory is very low, and because “everyone wants to be in New York City.”
“It seems like, if you get these great sites, you can sell them and there’s a lot of rich people around… ready, willing and able” to pay $10, $20 million and more for an apartment, he said.
Take Gary Barnett’s One57, where a buyer recently signed a contract estimated between $90 million and $100 million for a 10,923 s/f penthouse on the 89th and 90th floors.
It’s an extreme case, and a record setter, but condo projects throughout the city are seeing similar success, and rents have climbed steadily, well over what was imagined just a couple of years ago,Estreich said.
At $3,195 (face rent), Manhattan median prices increased 10.2 percent from last year and 3.2 percent from last month; and vacancy rates fell to 1.85 percent from 2.62 percent last year, according to most recent report from Prudential Douglas Elliman.
Parts of Brooklyn are heating up too. “Williamsburg is on fire right now,” with rentals netting $50 or even $60 psf annually; in Fort Greene, where “they told us we were lucky if we got $35 a foot… we ended up averaging $51 per foot,” he said.
Are you renting and scared about rising costs? Then go to Jersey, where “you can get into the best building in Jersey City for $40 a foot,” he added.
Estreich compared the latest recession — marking it roughly between August 2007 and mid-2010 — to the recessionary period between 1989 and early 1996, when it was “much worse for us in the real estate business.”
“I don’t care who you were, accessing debt or equity was nearly impossible,” he recalled.
Back then, some 2,500 financial institutions went down; this time around only a few hundred have failed, at best, he said.
So, where’s the money? There are the commercial banks; the life companies (typically the best rates but the most picky); and CMBS, which is in “full business mode right now,” and estimated to become a $35 to $40 billion business by the end of the year, Estreich said.
“The great thing about CMBS is they’ll go into markets that a lot of others won’t,” like Syracuse, Utica, and the Midwest, he said.
But if it all seems too good to be true, there is something of a conundrum. The Great Recession may not have been the biggest or baddest of them all, but the big government bailouts and collapse of major players certainly had lasting impacts.
“The past was a different era – an era of non-regulation,” Estreich said. Today, every step of the process, from underwriting to the role of the credit officer, remains much stricter than ever before. In other words, there’s “tons of money,” but it’s not easy to get it.
“The banks are very disciplined,” and there hasn’t been an influx of banks from outside the city inundating the market, ready to fork out loans with little oversight, as was the case following past recessions, Estreich said.
What may seem like a safe bet for banks — and developers — isn’t always the case, no matter how many rich people are willing to unload millions on fancy condos.
“It’s a tough business… there are so many risks,” he said, adding that the residential construction business is limited to a select — and brave — few. “I have a lot of admiration for the people who are doing these buildings.”
Estreich has successfully placed over $15 billion in debt and equity secured by office, retail, residential, industrial and hotel properties.
RCG Longview, a $500 million opportunity fund that was started in 2007 invests in opportunistic real estate investments throughout the United States.