A Soft Market Isn’t A Reason To Sit Out NYC Real Estate Investment February 4, 2019

Bisnow | January 15, 2019

By Benjamin Paltiel

The investment real estate market in New York City has been in an overall decline since its last peak in 2015. That year, the dollar volume of sales citywide hit an all-time high of $80B. However, in 2017, investment across all five boroughs barely reached $36B. While 2018 saw some expected growth, it was hardly a banner year for the investment market.

But some researchers believe that the investment market has turned a corner, and that a good time to look for deals is now. With more supply than demand for new assets, the power is in the buyer’s hands to be selective with opportunities, to negotiate better deals and to put pressure on sellers.

For investors willing to stay informed and diligent, a soft market in 2019 could be full of opportunity.

“A soft market is a natural, necessary part of the investment cycle,” GFI Realty Services research analyst Justin Fitzsimmons said. “Investors shouldn’t sit on the sidelines — they should adapt to the market. Investors that are willing to step outside of their comfort zones and target new investments are the ones who will be ahead of the pack this year.”

In 2018, total sales volume in NYC will have ticked up about 3% from 3,700 deals in 2017 to approximately 3,800, according to GFI Realty. Dollar volume of sales is on track to jump 30%, from $36B to approximately $47B.

“This growth suggests that an overdue market correction is underway,” Fitzsimmons said. “Market softness, in any asset class, is the result of oversaturation of inventory, and any time supply exceeds demand, prices have to come down. If deal volume continues trending upwards, we should begin to see more flexibility and, as a result, more market stability. In 2019, savvy investors will continue to find new deals that pencil out.”

One of the issues causing concern for investors is the pressure on the multifamily sector due to potential changes to rent regulation legislation. NYC’s rent regulation laws are up for renewal or amendment in June, and, given the possibility of sweeping policy changes, some investors will be justifiably cautious before jumping into deals.

Fitzsimmons’ advice to investors, developers and owners is to study the market extensively and to pay close attention to future market value. He also suggests that investors build up their reserves and maintain a level of liquidity that allows them to quickly close on deals as prices drop.

“It’s not as simple as saying ‘X is surely going to happen because of Y,’” Fitzsimmons said. “As certain sectors see price corrections, a number of cautious players will begin to regain confidence and shift more capital into emerging markets. Investors should assess their equity and make smart plays. Let the market work for you, not the other way around.”

Fitzsimmons does not anticipate a continuous downturn for New York City real estate. And because the market will rise again, the first mover has the advantage.

“The more aggressive buyers — who have already started taking advantage of soft market pricing — will help bring sales volume back up further, in both traditional and nontraditional market sectors,” Fitzsimmons said. “The markets will not bounce back overnight, but the pieces are in position to play, and once again, the resilient NYC investment real estate market will make its way back.”

In terms of where to buy, Fitzsimmons suggests investors look outside of their comfort zones. There are many emerging markets in the city where pricing shows signs of correction and where rezoning efforts are sparking new development.

Fitzsimmons listed East Harlem and Upper Manhattan, the South Bronx, Prospect Lefferts Gardens and Flatbush in Brooklyn, and Astoria and Sunnyside in Queens as examples of areas that should spark investors’ attention, even in a less-desirable market.

“A market slowdown is an opportunity and should be treated as such,” Fitzsimmons said. “While the market softens and other investors are hitting the sidelines, an aggressive investor — a smart investor — is digging in, picking up the opportunities that didn’t make sense a year ago.”

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