I feel very fortunate that I broker investment sales transactions in New York City. The main reason is that there are so many people who want to purchase investment properties here that if you have almost any type of property for sale, regardless of condition or location, dozens of investors would love to own that property. Demand is so excessive that controlling supply leads to success as a broker. Also, the supply of available properties generally controls the total sales volume levels both in terms of number of properties sold and the total dollar volume.
It is interesting to see how demand has shifted over the past 10 years or so. In the mid-2000's, the amount of institutional capital that was raised to purchase New York City real estate was massive. Unfortunately for these investors, they all wanted to purchase assets in midtown Manhattan and there just weren’t enough properties to go around. Consequently, institutional investors increasingly expanded the geographic area within which they would consider buying assets. Back in the bubble inflating years of 2004 through 2007, this institutional capital was the main reason the bubble inflated as fast as it did. In 2005, when we saw a multi-billion fund purchase a 25 unit walk-up apartment building in the South Bronx, we knew the market was approaching a creshendo.
By mid 2007, when we could tangibly feel the impact of the credit crisis, this institutional capital dried up. High net worth investors and the old-line New York families swooped in to fill the void and were the most prominent buyers for the following two to three years. By 2010, the institutional capital re-emerged. At this time, we also witnessed a tremendous influx of foreign capital coming into the market. The main goal of foreign buyers was asset preservation as opposed to yield, exerting further upward pressure on values.
As values rise, so does supply. Sellers are more influenced by value than anything else, especially when looking at after-tax considerations. If we look back at the past 30 years of sales activity in NYC, we see that 3 of the top 4 years of sales volume were in years in which tax policy changed. These were 1986, 1998 and 2012. As sellers were compelled to sell by how much more they would be left with after taxes, supply rose and was met by the always overwhelming demand. This led to great sales volume totals.
Because demand always exceeds supply, supply is the key factor in determining how active the sales market will be.
By: Bob Knakal
Chairman | Massey Knakal Realty Services
Mr. Knakal is the chairman of Massey Knakal Realty Services and has personally brokered the sale of approximately 1,500 properties in New York City having a market value in excess of $10 billion.
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