Author: James Nelson
Q4 2022 New York City sales were down 31% by value and 26% by volume compared to the previous quarter, making sure the slowdown in transactions was due to higher interest rates. is not. Moreover, with the Fed suggesting rates may continue to rise in his 2023, many buyers are likely to remain on the sidelines perpetuating the trend. With this in mind, a less competitive environment creates opportunities for buyers.
Here are some investment themes that look promising in the new year.
- Relief Capital/Summary – As lenders become more conservative and DSCR pushes LTV down, relief capital will be needed. Many borrowers, especially syndicators who do not want to return to investors, do not refinance their cash-in. Investors with sufficient capital can approach these borrowers with preferred stock. Borrowers with little or no equity left in the deal may be content to just get a ‘desired note’ rather than being wiped out completely.
- Seller Financing – As Scott Singer and I wrote in a recent article (see: https://rew-
online.com/the-return-of-seller-financing/), where you have the opportunity to close the bid-ask spread with seller financing. It’s a creative way to close a deal that creates a real win-win.
- Tenant-in-hand – We love this approach, especially for retail. Vacant stores are still trading at heavily discounted prices. Getting a tenant can not only help you raise capital, but can boost your property’s day one valuation. See my article on general retail opportunities: https:/ /rew-online.com/the-pendulum-will-swing-back-for-nyc-retail/.
- Live Office to Office Transformation – This topic is about discomfort, but very
There is very little media coverage of the live work. The challenge is that many outdated office spaces have deep floorboards. My solution is to convert the office space indoors into a live workspace with housing around it (assuming proper zoning and light and air). We like this as a condo conversion as opposed to a rental where property taxes can make the numbers harder to calculate. Class B/C buildings in Manhattan trading at $300-400/SF If so, I think the space could sell for $700-$800/SF with little work depending on location. See an article I wrote about office conversions with different considerations: https://rew-online.com/could-office-conversions-solve-nycs-housing-crisis/.
- Free Market Multi-Family Homes – Having dodged the bullet of good evictions, market-priced housing is likely to survive in New York City, motivating landlords to continue to renew their housing inventory. The value of existing free market units will only increase without the frozen units and 421a. Manhattan cap rates currently average 5% and offer good yields.
- Transportation Oriented Developments – Look for developments and investments in proximity to new transportation infrastructure. Examples of this include his four new rail stations at Huntspoint, Park Chester/Van Nest, Morris Park and Cope City, due for completion in 2027. These stations are part of the MTA’s Penn Station Access Project, which will connect the East. Direct from the Bronx to Manhattan Penn Station. See: https://www.nyc.gov/site/planning/plans/bronx-metro-north/bronx-metro-north.page#:~:text=The%20regional%20rail%20service%20is,directly%20to %20 Manhattan %20 Penn %20 Station. I also think the Grand Central area and Long Island will get a big boost from https://new.mta.info/grandcentralmadison.
- Buying Upzone – Our mayor has been very vocal about “Getting Stuff Built” with the 500,000 unit moonshot plan. See: https://www.nyc.gov/office-of-the-mayor/news/893-22/mayor-adams-get-stuff-built-bold-three-pronged-strategy-tackle-affordable-housing# /0. Details to be worked out, but if rezoning and development processes are expedited and accompanied by new 421a programs, we anticipate significant demand for new homes. REBNY thinks so.
- Covered Land Play – Find “tax payers” with reliable income and good cash flow while waiting for upzone or eligibility. If you can buy it with existing cash flow and broadcasting rights are virtually free, it’s a great long-term investment strategy.
You’ll notice that I didn’t include industrial investments above. There’s no doubt there’s still demand, but we’ll have to see where some cap rates go before we encourage speculation. Likewise, I love the idea of developing condos, but we’ll have to see what end-user prices will be after interest rates rise. I still believe that there will eventually be a large imbalance between supply and demand.
We would love to hear your feedback on your favorite investment ideas for the New Year. Feel free to email us at James.firstname.lastname@example.org.