While Wall Street debates if it is time to move on from the Big Short 2.0 (malls) to the Big Short 3.0 (hotels), the broader commercial real estate market continues to implode and nowhere more so than in ground zero of the covid/riot crisis, New York City, where CRE deals have hit a brick wall as the pandemic continues to roil the local economy.
According to the Real Estate Board of New York, investment sales totaled $10.5 billion across 1,229 recorded deals in the first half of 2020, a 32% drop in transaction volume and a 54% plunge in total consideration compared to the first half of 2019, and a record low since the Real Estate Board of New York began reporting the data in 2015.
Apartment buildings suffered the biggest drops in prices, at 50% on average. Offices and hotels saw decreases of 28% and 37%, respectively, while prices for retail properties were flat.
Some more details:
- Citywide investment sales transactions declined 32%, consideration declined 54% and the average price declined 32% year-over-year.
- Multifamily rental, elevator transactions declined 7%, consideration declined 56% and the average price declined 53% year-over-year.
- Multifamily rental, non-elevator transactions declined 32%, consideration declined 42% and the average price declined 13% year-over-year.
- Office transactions declined 27%, consideration declined 47% and the average price declined 27% year-over-year.
- Garages/gas stations/auto transactions declined 31%, consideration increased 18% and the average price increased 71% year-over-year
- Vacant land transactions declined 30%, consideration declined 19% and the average price increased 15% year-over-year.
- Industrial transactions declined 37%, consideration declined 60% and the average price declined 37% year-over-year.
- Hotel transactions declined 70%, consideration declined 81% and the average price declined 37% year-over-year.
- Retail transactions declined 27%, consideration declined 27% and the average price remained flat year-over-year.
- Commercial condo transactions declined 68%, consideration declined 98% and the average price declined 93% year-over-year
"We continue to see the devastating and long-lasting impacts the pandemic has had on the health and stability of the New York economy,” James Whelan, the trade group’s president, said in a statement Friday.
"Real estate is a fundamental driver of the city’s economy", he added summarizing perfectly just why NYC is in so much trouble.
The total tax revenue for the City and State generated from investment sales was $314 million, with $62 million in NYS transfer tax and $252 million in NYC transfer tax. Total tax revenue in the first half of 2020 was down 49% from the previous 6 months and 58% from the previous 12 months, suggesting that NYC will likely hike taxes on investment sales to make up for the shortfall, resulting in even greater declines in investment sales.
According to the REB NY, the largest transaction in the first half of 2020 was the $978 million sale of the Lord & Taylor Building, 424 5th Avenue, from WeWork to Amazon in March. As Bloomberg notes, many deals have been frozen as the gap between what buyers are willing to pay and what sellers will accept has widened to a record.