Market Insight | United States

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NEW YORK: ThE SAFEst Bet IN tHe U.S. ReaL Estate MarKet
Kamil Homsi, President of Global Realty Capital, provides a detailed insight into the New York property market and explains why he believes the city is an excellent destination for investment. Headquartered in New York, Global Realty Capital is a commercial real estate company oering comprehensive services to global investors, family oces, and nancial institutions.
Earlier this year, New York City was ranked as the top global city for real estate investment in the Annual Foreign Investment Survey released by the Association of Foreign Investors in Real Estate. This was the third year in a row the city received this accolade and the eighth consecutive year its been ranked among the worlds top three cities. With this track record in its corner, it comes to no surprise that the citys considerable and improving job market, inux of excess capital, and demand that outpaces supply within its borders provide the opportunity for investors to purchase their target asset classes with future upside potential. To outsiders, New York City is anchored by Wall Street, nancial services companies, and the numerous jobs the industry provides. The citys prominence in the global marketplace, however, is driven by several industries, including, but not limited to: professional and business services, insurance, health care, construction, and information technology. Despite this diversied job market, the city was not immune to the economic downturn of the Great Recession when unemployment at its peak reached 10 percent. The citys unemployment rate, however, was down to 8.7 percent as of August 2013 according to the US Bureau of Labor Statistics - down 1.3 percent from recent highs and down 0.7 percent from a year earlier. While the citys unemployment rate is still above the national average of 7.3 percent, investors should expect New December 2013 I CITYSCAPE I39

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United States | Market Insight

Kamil Homsi

It comes to no surprise that the citys considerable and improving job market, inux of excess capital, and demand that outpaces supply within its borders provide the opportunity for investors to purchase their target asset classes with future upside potential.

Yorks employment recovery to be gradual considering that it is the nations largest city by population with 8.3 million people. And, the citys current trend of improving labor statistics should be bolstered by the U.S. governments commitment to improving the labor market nationwide, resulting in improved job growth in the near-term. As payrolls continue to climb, occupancy rates should move in tandem so as to improve returns for property owners able to capitalize on the current markets favorable prices. With the New York economy on solid ground, oce and multifamily housing are solidifying themselves as the citys premier assets. The demand for these assets classes has not only increased the prices of existing assets, but has pushed new developments to the ends of Manhattan and into other boroughs. This trend will continue in the intermediateterm due to demand currently exceeding supply, as market indicators signal that those investors who headed for the sidelines or adopted defensive strategies during the economic downtown are reentering the New York real estate market.

For example, large mixed-use projects such as the Hudson Yards and Atlantic Yards developments located in Manhattan and Brooklyn, respectively, are expected to meet some of this demand; however, they are still several years from their completion dates and demand will only continue to increase while these developments are under construction. These demand and supply forces are causing a decrease in vacancy rates and corresponding increases in rents and purchase prices. For tenants, a shortening supply of space and an improving job market has caused them to begrudgingly lease space, whether for personal or professional use, at higher prices. Those who cannot aord to lease within their preferred neighborhood are expanding their searches to surrounding areas which is driving up prices in those neighborhoods as well. For investors, the pricing of core assets is near pre-crisis levels, which indicates to many investors that the New York market is on a transition from recovery to growth. Due to the citys stability and pent-up demand, foreign and domestic capital continues to pour into commercial real estate; however, placing that capital amid

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Market Insight | United States

AMERICAS

This is a developing market. It is not fully where it was in 2007; however, banks are lending and more funds are available now than there have been in the last couple of years, Weissenberg adds. With the debt markets willing to facilitate transactions and investors willing to pay a premium for assets in New York, investors are beginning to see their nearterm cap rates compress against rising U.S. Treasury Notes. The intermediate- or long-term investor, however, will see their returns normalize as these cap rates readjust over the course of their investment. The New York commercial real estate market is arguably the most stable and secure of any U.S. city. Like any global city, its markets ebb and ow with the economic tide. The citys strong fundamentals and innovative resiliency, keep it aoat not only as a domestic leader but also as an international one. While investing in New York City has its challenges, those looking to maximize yields in the current market should implement more value-added and opportunistic strategies. However, any real estate investor looking for future growth and stability should look to New York there is no better city in the world, at least for real estate investing.
To contact the author about this article,Kamil Homsi can be reached at kamil@globalrealtycapital.com

Sources: RERC, U.S. Department of Treasury, and the National Bureau of Economic Research

UNEMPLOYMENT RATES FOr NEW YOrK CITY, SELEcTED ArEA Rates COuNTIES, AND NATION Unemployment for New York City,THE Selected Area Counties, and the Nation

New York County

Queens County

1Q 20 2Q 08 20 3Q 08 2 4Q 008 20 1Q 08 20 2Q 09 2 3Q 009 20 4Q 09 20 1Q 09 2 2Q 010 20 3Q 10 20 4Q 10 20 1Q 10 20 2Q 11 20 3Q 11 2 4Q 011 20 1Q 11 2 2Q 012 20 3Q 12 20 4Q 12 20 1Q 12 2 2Q 013 20 3Q 13 20 13

Going-In Capitalization Rate Terminal Capitalizaton Rate Highlighted area indicates US recession 10-Year Treasury Yield United States New York City Bronx County Kings County 0% 2% 4% August 2012 6% 8% August 2013 10% 12% 14%

todays competitive market is no easy task. There is a limited number of quality oerings, which is helping to drive asset prices higher. Due to this competitive landscape, some investors are altering their investment strategies, whether by seeking higher leverage ratios or by getting creative and pooling money. [A] lot of partnerships [are] occurring, regardless of whether between major private developers and funds or amongst funds. As a result, when a prime location or property goes on the market, you have to act very fast or the opportunity will be lost, said Kenneth Weissenberg, a partner at EisnerAmper, one of the nations largest accounting rms.

NEW YORK CITy CBD CAPITALIZATIOn RATES And 10-YEAR TREASURy YIELdSRates and 10-Year Treasury Yields New York City CBD Capitalization
9% 8% 7% 6% 5% 4% 3% 2% 1% 0%

Source: U.S. BLS, Local Area Unemployment

Source: U.S. BLS, Local Area Unemployment Statistics

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