The dollar volume of New York City commercial-property sales fell 25 percent in the third quarter from a three-year high, Massey Knakal Realty Services said.
Deals totaled about $6.5 billion in the three months through September, down from $8.7 billion in the second quarter, according to a report by the brokerage. The report included transactions for offices, apartment buildings, hotels, retail properties and development sites across the five boroughs.
The decline in dollar volume “might be interpreted as a slowing down in the market,” Chairman Robert Knakal said today at a press briefing. “But if you eliminate the second quarter, the $6.5 billion in the third quarter was the best quarterly total going back to the third quarter of 2008.”
Constrained supply and a pullback in the market for commercial-mortgage backed securities limited deals for the largest properties, Knakal said. The city is on a pace for about $25 billion of commercial real estate transactions this year, about an 80 percent increase over 2010 and close to the $25.3 billion sold in 2008, according to the report.
Manhattan south of 96th Street on the east side and south of 110th Street on the west side accounted for the majority of third-quarter dollar volume. Sales in those areas totaled about $5.7 billion, a 28 percent drop from the previous three months. Deals for office buildings made up 40 percent of the dollar volume, according to the brokerage, which specializes in small to midsize transactions.
Events that roiled investment markets in the quarter, such as the budget debate in Congress, the Standard & Poor’s downgrade of the U.S. credit rating and Europe’s debt crisis, failed to slow sales of certain property types and in some neighborhoods, Massey Knakal executives said.
Brooklyn, for example, is poised to have its first year with more than $1 billion in transactions since 2008, when just over $2 billion of deals were struck, said Michael Ambrosio, a broker with Massey Knakal. Apartments led deals, comprising 150 of the 529 properties sold in the borough this year.
Small private-equity firms new to the market are helping to drive sales in Brooklyn, according to Ambrosio. Areas near the Atlantic Yards development in the borough’s downtown are attracting interest, along with Bedford-Stuyvesant and Crown Heights, he said.
Demand from buyers new to the city is helping to prop up the property market as “unrest in Europe and the potential impact on global markets has investors feeling a bit more cautious,” Knakal said.
Among the newer buyers is UDR Inc., a Highlands Ranch, Colorado-based apartment landlord that has purchased $1.2 billion of New York properties this year, accounting for 7 percent of Manhattan deals, according to James Nelson, a Massey Knakal partner.
It’s too early to tell whether the decline in volume in the third quarter will carry over into the next three months, Knakal said. The city’s job growth has been “lackluster,” he said, and there’s still “very significant shadow distress” in the market, with hundreds of buildings that are worth less than their mortgage balance yet still have positive cash flow because of low interest rates.
“We think there’s going to be a lot of upward pressure exerted on rates,” Knakal said.
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