New York City real estate is never short of buzz words, but few have been built into the fabric of the real estate industry like “safe haven.” The notion that New York City’s real estate market is a safe haven for local, domestic and foreign investors has become the guiding ideology for many developers, investors, landlords and brokers.
New York City real estate is based on an undeniable fact: The significant size of capital is only second to Tokyo, globally, and is the country’s largest market, domestically. Many investors, both institutional and local, are drawn to the city’s comparatively stable prices, land appreciation and liquidity.
Whether due to its market security or land appreciation trend, the safety of real estate in cities like New York has flooded the market with both domestic and foreign capital. However, over the past 12 months, the desire to acquire property in the city has declined considerably. The overall sentiment from landlords, investors and investment sales brokers is that this decline has less to do with the market and more to do with a lack of real supply, open listings labeled as "off market" and overpriced properties.
Another cause for the decline can also be attributed to the lower-yield interest rate market. At a time when the gap between what sellers think their property is worth and what buyers are willing to pay, the market for debt is booming. Investors from hedge funds and private equity firms to local and mid-market landlords are leveraging real estate loans as an alternative to capitalize on gains.
For landlords, investors and sales agents who play in the high-stakes world of NYC real estate, it's all about creating opportunities during periods of less-than-desirable market performance. How can today's real estate professionals create value? Will the new federal tax plan impact the decision-making process for buyers and investors?
While the market cool-off has meant less business for sales agents and attorneys, some believe the "correction" was overdue and needed to settle the market. While value can still be captured in neighborhoods throughout Brooklyn, when it comes to operating buildings in the boroughs, market specialty seems to be the special sauce to capturing value.
NYC multifamily began to enter a recovery period in Q3 2017, with research indicating a 14% dollar volume increase over the previous quarter. While location and desirability of neighborhoods will continue to impact value, multifamily as an asset class may be impacted on the heels of the recent Tax Cut and Jobs Act. Major cuts to corporate taxes along with an increase in millennials looking to rent rather than buy could lead to a significant uptick in the multifamily market.
As market activity continues to gain momentum since the start of the new year, the tax bill has acted as the catalyst for the market, increasing buyer and seller confidence. The big winners could be low-levered multifamily and mixed-use owners. Speaking with several landlords, there seems to be a growing appetite for multifamily and mixed-use properties looking for quality assets, especially since the tax bill benefits landlord over homeowner deductions.
Despite the markets' overall seesaw attitude, the tide seems to be changing. Even before the passage of the Tax Cuts and Jobs Act in December, the market began showing signs of growth. Could 2018 be the year that NYC real estate returns back to normalcy? Many believe so — however, we may be entering a new normal in the real estate industry. Though inventory is currently not as high as it was before the recession, it is safe to expect that there will be an increase in sales activity. Landlords and investors are looking more and more for safe assets in established cities, and it will be back to business for New York real estate.
