By Daniel Geiger
Darcy Stacom and Bill Shanahan, two top investment investment sales executives at CB Richard Ellis, said that development in the city will pick up by year’s end.
Pointing to London as a bellwether, Shanahan said that both commercial and residential projects in Manhattan could break ground within six months.
“It’s been a pretty good barometer of what’s going on,” Shanahan said of London. “There is a lot of construction going on [in London]. There is actually inventory demand. We haven’t hit that yet here in New York but we’re starting to hear now from investors ‘do you have any good sites, do you know someone I can talk about with to do a development?’ We’re starting to see and feel what London felt about six months ago when their construction started.”
Pointing out that Manhattan has few office or residential towers under construction even though its economy has recovered more quickly than other areas of the country and major cities the globe, Stacom and Shanahan said that investors see opportunity in the conspicuous dearth of new supply.
“Chicago has five new towers going up all with construction financing, New York has none,” Stacom said. “And they look at that and say that there is nothing going on here and that they can get in early.”
With cap rates for office buildings so tight due to low interest rates and anemic returns on competing investments, the search for yields is also driving many investors to break ground on new projects, which typically promise higher payoffs because they are often riskier than buying an existing building.
“Think about someone who still has a fund to invest and is running out of time,” Stacom said. “[For] yields in excess of 20 percent, there’s only one place to look and that’s development. And development where you historically might have seen someone looking for 25-30 percent, they’re now talking high teens to low 20s, which is a massive reduction considering the fact that with construction comes risk. But at the end of day they’re having to choose deals or rescind the money and no one wants to send back the money.”