The Reel

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A blog for breaking sales and neighborhood real estate news.

We recently sat down for our quarterly conversation with Massey Knakal Chairman, Robert Knakal to discuss his views on the economy and the implications for our local NYC building sales market. We hope you find this interview informative and timely:

Q: What has happened to the building sales volume in the first quarter of the year?

A: Sales volume was extraordinarily low. In 2008, volume in the under $100 million market was down 40% from 2007 levels. The over $100 million market was affected much more adversely. We do not have the final figures for the first quarter yet but are anticipating that if extrapolated in annual terms, the volume of sales was probably running at about 1.2%. If you recall, our projection for turnover this year was “1.6% or lower,” representing the percentage of the 125,000 multi-family apartment buildings, mixed-use, commercial and retail properties that exist in the five boroughs in our niche. Since 1988, the average turnover has been 2.5% and we have only dropped to 1.6% in two other years, 1992 and 2003, both at the end of recessions. The very low turnover in the first quarter is the result of the uncertainty in the marketplace in the fourth quarter of 2008 after Lehman Brothers failed. People were shell shocked and there were not a lot of contract signings in the fourth quarter. Those that were signed resulted in closings in the first quarter. We anticipate the level of activity to pick up in the second quarter as first quarter contract signings showed a reasonable increase.  


Q: How were prices affected in the first quarter?

A: Well, that depends on the segment of the market that you are referring to. Clearly, the over $100 million market saw very significant reductions in value but there have been so few transactions it is very difficult to quantify what that reduction was. 1540 Broadway is the transaction everyone points to which occurred at about 70% less than it had at the height of the market. I don’t think you can draw a conclusion about the entire market based upon one transaction. With regard to the under $100 million market, we have seen pricing differ based upon product type. The multi-family sector has been holding up the best, where capitalization rates have increased only 50-75 basis points from their peak. Retail properties and office buildings have been much more greatly impacted by the economy as the increase in unemployment has affected demand for office space and rents have been tumbling. Capitalization rates on office buildings are up in the neighborhood of 150-200 basis points from their peak. With regard to the retail property market, consumer spending, although up slightly in March, is still at extraordinarily low levels which is putting tremendous stress on retailers. For these reasons cap rates in this sector are also up by about 150 -200 basis points.


Q: You indicated the multi-family sector was doing best, have you seen any tangible effects of the bills passed by the assembly in January?

A: Everyone in the marketplace is concerned about the status of these bills. If the bills are passed by the Senate in June there are two things that are more.

Download the entire 2nd Quarter 2009 - Conversation with the Chairman.