First Quarter NYC Sales Activity Flat but Horizon is Sunny

Normally, the content in StreetWise is very macro in nature as I try to make the topics of interest and germane to a national audience. This week, I will divert from this practice to share with you what we are seeing in the New York City building sales market and, perhaps, those of you operating in other markets across the country can chime in with what you are seeing in your markets.

In the first quarter of 2010 (1Q10), we did not see the increase in sales activity that we had anticipated based upon the positive psychology many participants in the market are exhibiting. In terms of dollar volume of sales citywide, there were $2.03 billion of closed transactions, a 0.7% reduction from the $2.05 billion transacted in 1Q09. Interestingly, we saw better results in Manhattan than in the outer boroughs where activity levels continue to drop from the remarkably low 2009 levels.

On the island of Manhattan, we segment the market into two distinct regions: “Manhattan” which is the market south of 96th Street on the Eastside and south of 110th Street on the Westside and “Northern Manhattan”, which is north of those boundaries. In 1Q10, Manhattan sales activity remained relatively unchanged from 1Q09 as we had $1.539 billion in closed transactions versus $1.536 a year earlier. While this total represented an increase of just 0.2% from 1Q09, the 1Q10 activity was up 51% from the $1.01 billion in 4Q09. Northern Manhattan performed much better as sales activity hit $116.9 billion, up 197 percent from the $39.3 billion in 1Q10. It is not surprising to see Northern Manhattan performing as well as it was the submarket most adversely affected during this downturn.

Surprisingly, sales activity in the boroughs continued to drop. In the Bronx, sales volume was down 13% from the $79.7 million in 1Q09. In Queens, volume dropped to $143.4 million in 1Q10, a 20.9% drop from a year earlier. Brooklyn was the weakest performer with $161.9 million in sales, a 23% drop from 1Q09.

1Q10 performance versus 1Q09 performance was relative unchanged on the whole; however, 1Q09 was not the low point in activity last year. In fact, activity levels dropped from 1Q09 showing that the low point in activity was in 2Q09 or 3Q09 depending on market segment. Therefore, if we annualize 1Q10 activity, the yearly total for 2010 would exceed 2009 by about 30%, something that bodes well for this year.

Manhattan is always the last submarket to fall and the first to rebound so the 1Q10 activity is a clear indication that the market is bottoming out and recovery is on the way.

While the dollar volume of sales tells us something about market activity, at Massey Knakal we focus much more on the number of buildings sold as a few large transactions can skew the dollar volume total significantly. In fact, in 1Q10 to top 6 sales represented nearly half (48%) of the total dollar volume of sales.

In New York City, we track a statistical sample of approximately 165,000 properties. In 1Q10, there were 373 properties sold. This represents a 2.8% increase over the 363 sales in 1Q09. If we annualize the 373 sales, we are on pace to see 1,492 buildings sold in New York City in 2010. This represents a turnover rate of 0.9 percent of the total stock of properties and is up slightly from the 0.87 percent turnover in 2009. To provide some perspective on this projection, in 2006 and 2007, we saw turnover ratios of 2.96 and 3.04 respectively.

With regard to the number of properties sold, once again, Manhattan and Northern Manhattan showed positive gains in 1Q10 while the boroughs continued to drop.

1Q10 sales activity was nothing to write home about, however, there are clearly reasons to be optimistic. We have seen a significant increase in the supply of distressed assets coming to market as banks and special servicers are either close to completing foreclosures or are growing tired of the protracted foreclosure process here and are deciding to sell paper as opposed to waiting to obtain title. The discounts necessary to sell notes is not large enough to dissuade sellers from moving this paper. We are also seeing a substantial increase in supply from discretionary sellers as they see more opportunities coming to market and want to either reposition their portfolios or have some extra dry powder to take advantage of new opportunities as they present themselves.

Even more positive is the fact that these new offerings are being met with tremendous demand. The activity on almost all of our exclusive listings (502 as of today) is very strong as we are seeing buyers move off the sidelines and onto the playing field. Based upon the number of contracts we have signed in 1Q10 (an increase of 87% over 1Q09), we expect activity to pick up significantly in the balance of 2010.

We are projecting a citywide volume of sales turnover to exceed 1.2% this year, about a 40% increase over last year. In Manhattan, we expect turnover to climb to 1.6% to 1.7%, a 40% to 45% increase over last year. While these projections would still result in historical lows (not counting 2009 levels), this level of activity would be a welcomed increase for those of us who rely on transaction volume for our livelihood.

Just as Manhattan is leading New York City out of this cycle, we expect New York and Washington (which has already seen positive shifts in fundamentals) to lead the U.S. out of this downturn. We remain firm in our conviction that the worst of this cycle is over and, while there are still some landmines out there, better times lie ahead of us.

Mr. Knakal is the Chairman and Founding Partner of Massey Knakal Realty Services in New York City and has brokered the sale of over 1,050 properties in his career having an aggregate market value in excess of $6.2 billion.

Advertisements

13 Responses to “First Quarter NYC Sales Activity Flat but Horizon is Sunny”


  1. 1 Larry H. April 25, 2010 at 9:51 am

    Bob, the quality of your information always blows me away. What type of research department do you have and where do you source your data?

  2. 2 rknakal April 25, 2010 at 10:05 am

    Hi Larry, thanks for your post. We realized very early on that we were not in the real estate business but rather the information business. Massey Knakal’s operating platform consists of a territory system which promotes agents to focus on a specific neighborhood to understand market dynamics better than other participants in the market. It is the aggregation of each of our agent’s knowledge and data that creates our collective research.

  3. 3 Jack April 26, 2010 at 9:11 am

    “better times lie ahead of us”

    For who? buyers or sellers?

    Sellers have had a good time for the past 15 years.
    I think it is time for the buyers to have a good time.

    Jack

  4. 4 Mr Korman April 26, 2010 at 1:42 pm

    Folks better get it together in this country b/c the rose colored glasses will begin to devastate lives.
    This is 1932 all over again.

  5. 5 Faye April 26, 2010 at 7:14 pm

    Bob, Although I do alot of research and cover many real estate articles daily, I gain tremendouse pleasure and information by reading your weekly blog posts. The clarity and in – depth knowledge you offer is truly a cut above the rest.

  6. 6 rknakal April 28, 2010 at 8:48 pm

    Hi Jack, thanks for your post. Better times are ahead for brokers, lawyers, title closers and anyone else who relies on transaction volume for a living. With regard to the buyer / seller dynamic, I believe sellers may end up on the better side of this equation. There is so much capital hungry for assets that there are really no bargains out there like we saw in the early 1990’s. I heard Sam Zell speak this morning at the Wharton School Real Estate Center’s spring conference and he said that he didn’t see opportunites for “grave dancing” due to all of the competition for deals. Distressed properties will be part of our landscape for two or three years to come but I don’t see us returning to being able to buy assets for cents on the dollar. Currently, notes are selling for as much as the assets are. This should never be the case.

  7. 7 rknakal April 28, 2010 at 8:51 pm

    Hi Mr. Korman, thanks for your post. All I can say is that I hope you are wrong. From the economy’s point of view, there are MANY troubling signs, some caused by the administration and some not. Clearly, real estate is not out of the woods but things are looking a lot brighter. We are certainly past the bottom in terms of transaction volume. Price, however, is another matter. With some sectors rising and some still declining, it would appear we are near or at bottom.

  8. 8 rknakal April 28, 2010 at 8:52 pm

    Hi Faye, thanks for your post and your kind words.

  9. 9 MB April 30, 2010 at 7:32 am

    Bob,

    As usual great post. I’ve heard you and many others argue that there is more capital out there now than there was in the early 90’s, and based upon the frustrations I’ve had as a buyer of investment property in NYC, I agree with this argument. My question is why and how is there more capital out there? Where is this capital coming from now that it didn’t come from in the 90’s? Would be buyers have taken heavy hits in their equities portfolios as well their real estate portfolios just as they have in every other recession, so what is different between now and then.

    Is it that real estate has now become a more mainstream, accepted asset class? Is it that more institutional money and pools of money are directed towards real estate then ever before. That would be my guess, but I wanted to get your perspective.

    – MB

  10. 10 Mr Korman May 3, 2010 at 12:01 pm

    It’s the government attempt to prevent deflation. Deflation is suffocation, death, depression. Increased liquidity means a “softer landing” but it also means lets kick the can down the road. In the meantime, Americans think this is recovery and spending habits should go back to their old ways. However, the wall of debt is getting higher and higher. Eventually the world will own the USA and all we can do is sell our souls to it.

  11. 11 rknakal May 9, 2010 at 9:31 am

    Hi MB, Thanks for your post. You hit the nail on the head. Real Estate is much more of a mainstream asset class today than it was 20 years ago. Almost all hedge funds and private equity investors are active in commercial real estate to one extent or another. While many of these investors were sidelined for a couple of years, they are now returning to the market.

  12. 12 rknakal May 9, 2010 at 9:36 am

    Hi Mr. Korman, Thanks for your post. Debt is a huge problem today. Our debt to GDP ratio is increasing and increasing to dangerous levels. If Fannie and Feddie liabilities were included (which are conveniently off-balance sheet), we are well over 100%. This issue needs to be addressed in order to feel good about long-term fundamentals.


  1. 1 Tweets that mention First Quarter NYC Sales Activity Flat but Horizon is Sunny « StreetWise -- Topsy.com Trackback on April 29, 2010 at 5:20 pm

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s





%d bloggers like this: