From The Desk Of Neil A. Dolgin
Over the last 50 years New York has gone through many roller coaster rides. New York has always been able to bounce back from a recession, when the rest of the nation was still tied up. I believe we are seeing a market that we have never seen before. Over the last 3 years NYC has seen an exodus to various parts of the country. There are still a handful of states that do not have State tax. These states have become a very popular destination for the 1% bracket. NYC still has a tremendous base, but the ethnic makeup has taken on a new look. With all the FUNDS and REITS fighting for the same “last mile” warehouse, they have taken over the property that went to the private sector. They have increased the value of real estate to a point where tenants find it difficult to be able to afford the rent. The city is increasing taxes, implementing new local laws, and the cost of operations has gone up drastically. Our profit margins have decreased to the point that it is easier to keep your money in the banks, or the brokerage house, and receive a much better return on the dollar.
You are reading that investors/owners are giving back buildings to the banks, so they are no longer putting good money after bad. They presently do not see a turnaround in commercial real estate. The City would love to see commercial real estate converted into residential property. This would solve the need for affordable housing within the city limits. I’m not sure how that solves the problem of unemployment. People need a place to work and not everyone will be working remotely. There will still be a commercial requirement. The cost of construction and TI work is so high that when an owner completes the work the cost of the rental might be too high for one to occupy. Employers will be looking to lower their overheads. At the present time, without the 421a and other tax abatements, the new construction will be too costly.
With Capitalization rates increasing to 7% the price of buildings has come down substantially. Last year the cap rates were 3.5% to 4%. Consequently, buildings have almost come down half the value in a year’s time. The Funds have gone from purchasing buildings to mortgage lending. They are receiving a return on their money. Buildings are selling to users, because they are the ones that can afford the price and are willing to wait for the increase in value. It’s a user’s market vs. an investor’s market.
There are more properties for lease rather than sale. At KDA we can advise our clients on the best solution once we understand their needs. We would analyze our clients financials, location, employment requirements, transportation and building size. We don’t want our clients to become financially strapped. With high interest rates approximately 7% the city will see a lot more companies willing to rent rather than being in an unsure market. Over time, real estate investments will surpass the present day numbers. If one can hold onto their investments they will eventually see a good return.
At KDA we can offer the real estate professional the proper direction. We can create rental or sale value for all your needs. Call KDA for an appointment today.
Neil A. Dolgin is co-president of Kalmon Dolgin Affiliates. Founded in 1904, Kalmon Dolgin Affiliates (KDA) has grown into one of the New York metropolitan region’s leading commercial and industrial real estate firms. Kalmon Dolgin Affiliates specialize in all aspects of real estate services for developing, managing, selling, leasing and marketing commercial and industrial property. KDA’s highly-trained professional brokers offer clients a practical, street-wise approach to commercial and industrial real estate brokerage, leasing and sales, supported by the latest in real estate marketing, management and research technology.