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Together with
Good morning. Manhattan’s commercial real estate (CRE) market is seeing a strong rebound, with Q3 sales hitting $3.2B, more than doubling from the previous year.
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Today’s issue is brought to you by PACE Loan Group—a national lender offering owners non-recourse, long-term, fixed-rate C-PACE financing.
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🎙️ Listen Now: In this episode of No Cap by CRE Daily, hosts Jack Stone and Alex Gornik sit down with Aleksandr Gampel, Co-Founder of Cuby, to explore how Cuby is revolutionizing the construction industry.
Market Snapshot
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*Data as of 10/08/2024 market close.
INVESTMENT SALES
NYC CRE Sales Rebound with Improved Sentiment
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New York City’s commercial real estate market is seeing a notable recovery, with Q3 2024 reflecting a sharp rise in investment activity.
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Shaking hands: According to Avison Young data, investment sales in Manhattan totaled $3.2B in the third quarter, more than doubling the same period last year. This marked the most active quarter since 2022, with overall CRE sales across the five boroughs reaching $4.9B—an impressive 21% increase from Q2. This upward trend pushed 2024’s sales volume to 63% higher than last year, signaling growing investor confidence.
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Improving: Much of this resurgence is attributed to a combination of favorable financial conditions and shifting sentiment. Avison Young’s Erik Edeen highlighted how recent rate moves have made once-expensive deals more viable, triggering a wave of transactions as investors fear missing the trough in pricing. The perception that property values have bottomed out has significantly pushed buyers off the sidelines.
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Conversion projects: A major factor driving sales this quarter has been the increasing focus on development and office-to-residential conversion projects, which comprised 42% of total transactions. Developers are capitalizing on lower property values and potential future tax incentives like 485-x and 467-m to push forward large-scale projects, particularly in prime Manhattan locations.
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Lending market: Another key contributor to the market’s rebound has been the loosening of lending restrictions. James Nelson of Avison Young highlighted the return of CMBS (commercial mortgage-backed securities) lending, which has played a crucial role in enabling previously stalled deals. Lenders are becoming less risk-averse, allowing for a more fluid market and facilitating further deal-making.
➥ THE TAKEAWAY
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Zoom out: NYC’s CRE market is gaining momentum as investors rush to capitalize on low property values and a thawing lending environment, with development and conversion opportunities driving growth into 2025. Despite prices still hovering at five-year lows, buyers and sellers now seem to agree that property values have bottomed out. Investors are now moving fast to capitalize on today’s deals before the market fully rebounds.
TOGETHER WITH PACE LOAN GROUP
Developer demand for C-PACE rises as rates fall
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With the recent rate cut, developers are looking to get off the sidelines and ahead of competition, making the next 12-18 months critical for obtaining financing.
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Since interest rates first started climbing in March of 2022, over a dozen states have improved or created C-PACE programs, expanding the creative financing tool’s applicability and reach.
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C-PACE’s fixed-rate, 30-year amortization period makes it an attractive addition to the capital stack since it applies to new and renovation projects. C-PACE covers HVAC, plumbing, electrical, and other upgrades to make the property more efficient and resilient.
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Even with rate cuts, C-PACE is an effective solution to reduce the cost of capital and infuse liquidity into projects.
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*Please see the advertising disclosure at the bottom of this newsletter.
✍️ Editor’s Picks
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Premium spikes: CRE insurance costs have surged, with premiums rising as much as 50% in storm-prone areas, now making up 8% of apartment building operating expenses, double what they were five years ago.
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Tax breaks unveiled: NYC has revealed its proposed property tax rules for multifamily (485x) and office-to-residential conversions (467m) to address its growing housing crisis.
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Bank loans growing: Despite rising delinquencies and falling occupancy, bank-originated CRE loans rose to $3.9B in Q2 from $3.5B in Q1, but are still 58% below pre-pandemic levels.
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Capitalizing on opportunity: Harrison Street raised $2.5B from investors, expanding the firm’s buying power to over $7B for underperforming real estate assets.
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From underdog to acquired: JLL is acquiring Raise Commercial Real Estate, a San Francisco startup that outpaced larger firms by securing major AI clients like OpenAI.
🏘️ MULTIFAMILY
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Urban oases: A recent RentCafe report ranked the most livable US cities today, and Portland, ME, topped the list, with Lincoln, NE, and Des Moines, IA, rounding out the top three.
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Major acquisition: Sani Group purchased three Manhattan multifamily properties totaling 100 units for $50.5 million, marking a strong investment in a rising market.
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Housing crunch ahead: By 2040, 1M LIHTC-built affordable housing units may be converted to market-rate rents, jeopardizing 350K units in just 5 years.
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Multifamily moves: The Sani Group acquired 100 units across 3 Manhattan properties from Page Management for $50.5M, per Avison Young.
🏭 Industrial
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Landlord expansion: Ares Management Corp. (ARES) will acquire GLP Capital Partners’ international arm for $3.7B, doubling its AUM to $96B while targeting industrial and data center assets worldwide.
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Midwest mega deals: Amstar Group acquired several warehouses in Naperville and Romeoville for $106M, among the largest deals in Chicago this year.
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Warehouse wonders: DH Property Holdings sold a 283 KSF warehouse in Philadelphia—leased by TJ Maxx’s parent company (TJX)—to KKR (KKR) for $83.5M.
🏬 RETAIL
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Retail royalty: Frasers Group (SPIDF) just acquired £100M+ in UK real estate, including Princesshay Shopping Centre and Fremlin Walk Shopping Centre.
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Kosher grocery delivers: DRA Advisors purchased The Village Square at Golf in South Florida, featuring a kosher grocery store, for $31.1M or around $230 PSF.
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Big buys: Benderson Development purchased the Cypress Trace shopping center in Fort Myers at $144 PSF, adding to its growing portfolio of retail properties.
🏢 OFFICE
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Keys to the city: OpenAI continues to lease office space aggressively, signing 1 MSF in San Francisco and 90 KSF in NYC’s SoHo, fueled by $6.6B in funding.
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Striking the right note: Drawbridge Realty acquired a 225.8 KSF office in Santa Monica, fully leased to Universal Music Group (UMGNF), for $185M.
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Doubling down: Harvey, a leading legal AI firm, doubled its office space in Manhattan to 34.1 KSF at 315 Park Ave. S., supported by a $100M Series C investment.
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Prescribing profits: Bain Capital and Evergreen Medical Properties bought a 60 KSF medical office in Lake Oswego, OR, for $14M.
🏨 HOSPITALITY
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Fairway fortunes: Golf’s popularity is once again on the rise in the US, with CBRE finding that revenues are up at resorts nationwide as 26.6M rounds of golf were played in 2023.
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Debt dilemma: Blueprint Hospitality’s San Antonio office-to-hotel conversion is facing foreclosure due to loan defaults and water damage, and a $16.7M lawsuit is at stake.
📈 CHART OF THE DAY
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Apartment rents are steady or declining across much of the country, but demand isn’t the issue. According to rental housing economist Jay Parsons, 2024 is set to have the second-highest net absorption in over 25 years, trailing only 2021.
FACT OF THE DAY
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Amazon alone occupies over 400 million square feet of industrial space globally, more than the entire office space in downtown Los Angeles.
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