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NYC real estate market in holiday mode amid foreign cash crises

As the real estate industry braces for the impact of the financial turmoil in Greece and China, experts point out that not only is New York City’s real estate market impervious to crises, it may actually benefit from the movement of panicked investors.

“It might make some Chinese investors say, ‘Now’s the time to get my money. I’ll go park some of this in New York because there’s too much turmoil here,’” said Joe Harbert, president of the eastern region for commercial real estate firm Colliers International.

Harbert’s firm, which released its second quarter report on Tuesday, revealed that foreign buyers poured more than $5 billion dollars in New York City real estate during the period.

Photo by Celynek/ Flickr
Photo by Celynek/ Flickr

This represents almost half of the volume for the whole year so far, suggesting an increasing reliance on foreign investment. According to David Eyzenberg, a principal at Avison Young’s capital markets group, the New York City market is “very dependent” on foreign buyers, particularly when it comes to large institutional assets and condos. With the possible Greek bailout and the Chinese stock market plunge, there are worries that this source of capital may soon evaporate.

While the crises in Greece and China continue to alarm financial markets, Harbert downplayed any possible harm to the city’s real estate market.

In spite of noting the different levels of influence the two countries have, he dismissed their ability to drag down the New York City market, saying that their exit would just mean “one fewer buyer.” “There’s not a lot of Greek investment in New York to begin with,” he said. “The worry there would be if Greece goes out of the euro and something happens to the Eurozone.”

A Chinese exit, meanwhile, would mean the loss of billions of dollars in investment over the coming years.

According to a study from research firm Rhodium Group, Chinese companies have invested $46 billion in the US since 2000.

Chinese investors have been involved in some of the biggest real estate deals in the city over the past few years. These include Anbang Insurance’s $2 billion purchase of the Waldorf Astoria and Fosun International’s $725 million purchase of Chase Manhattan Plaza. Still, Harbert sees no cause for panic. “The current crisis, we don’t think it’s going to have a big impact,” he said.

Eyzenberg echoed Harbert’s statements, saying: “There may be an intermittent blip but NYC benefits from a global influx of capital and so other investors will be able to step in. NYC, when not in the midst of a crisis, has never been short for buyers.”

While Harbert described recent developments in China as “a bit more concerning,” he is confident that the New York market would be shielded from the turmoil, at least in the short term. “The impact over time could be if there are other economic factors that come into play in China, not just the stock market, you could see Chinese investors pull back from their desire to invest in New York. We don’t think we’re anywhere near that yet,” he said.

Eyzenberg shared Harbert’s optimism that the New York City market would benefit from the Chinese crisis, however, he pointed out that the effects may be different for public and private companies.  “The market crisis in China may have a binary effect on private and public companies,” he said.  “The capital base of publicly traded real estate firms buying in NYC may be impacted as the IPO or follow on offerings are shut down for the time being. Private companies with a long term investment horizon may actually step up buying as the US offers a safe long term horizon for parking capital.”

Chris Macke, the managing director of research and strategy at American Realty Advisors, echoed Harbert’s comments, saying that real estate is an increasingly attractive option for beleaguered investors. “Volatility outside of real estate, assuming it doesn’t lead to investors flooding into cash en masse, is likely to be a positive for the asset class as it increases the demand for real estate’s relatively stable income and the appreciation potential of well-located institutional real estate in a growing economy,” he wrote in an op-ed published in National Real Estate Investor.

Last week, China openly manipulated its stock market to stop a plunge that wiped out more than $3 trillion in wealth. The government introduced drastic measures such as banning initial public offerings, barring major shareholders from unloading stocks for six months and threatening to throw short sellers in prison. Stocks have since gone up. However, worries persist over Chinese stocks being overvalued.

Greece, which has been the source of perhaps the biggest crisis the eurozone has ever faced, is also facing uncertainty. On Monday, European leaders offered a third bailout for the cash-strapped country. However, it is still uncertain whether the country’s lawmakers can pass the legislation necessary for the bailout to kick in, which includes reform on pensions and the value added tax. If the deal fails, it may mean a Greek exit from the euro.

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