Author: Yariv C. Ben-Ari
It comes as no surprise that the COVID-19 pandemic has disrupted much within the business landscape globally. These challenges, in some ways, have been magnified within New York City. The City has been squarely impacted by stay-at-home orders and social distancing, with far fewer people frequenting office, restaurant, and retail spaces each day – and the challenges are only set to continue with the onset of winter and potential future COVID spikes. However, despite these roadblocks, we are seeing encouraging signs from the city’s commercial office, multifamily, and industrial sectors. As we continue toward the road to recovery from the pandemic, I remain cautiously optimistic about the near-term outlook for the commercial real estate market, both in New York and across the U.S.
I recently co-hosted a webinar to discuss the state of the market with several top experts in the New York City real estate industry. While all the experts noted that there have been a number of issues in closing deals amid the pandemic, they have found that deal flow and transaction volume has continued across the U.S. and within the New York market itself. A major point in investors' favor is historically low interest rates, which can make it an opportune time to make strategic investments and pursue refinancing opportunities. According to Stephen Rosenberg, Founder and CEO of Greystone: "The bottom line is interest rates are extremely low: mid 2’s for 35-year fixed-rate financing … Anyone who has the ability to refinance their debt these days, has to be looking at refinancing."
Investor interest has also been particularly vibrant in the multifamily space, which has remained "the hottest sector by far" during the pandemic, according to Simon Ziff, President of Ackman Ziff Real Estate. Deals have moved ahead consistently over the past six months, and rent collections among multifamily buildings have reportedly been down by just a percentage of low single digits. Of course, there have been challenges in closing deals during the pandemic, particularly amid lockdown orders. Additionally, in some cases, finding a lender to finance deals has required a more extensive search during COVID. As Marty Burger, CEO of Silverstein Properties said, "There’s money out there. It’s not readily available; you have to go out and find it, and you have to be a good borrower and have a good asset." Overall, however, it is encouraging to see continued demand for housing in cities, even as suburban home demand and prices surge.
Of course, there are sectors – such as restaurants, retail, and hospitality – that have taken a more substantial hit, and will take longer than others to recover. Restaurants are a prime example of this: Unable to make money at 25%, or even 75% capacity, many New York restaurants will unfortunately close in the coming year. The hotel market is also experiencing its own set of challenges with the global decline in travel. Nevertheless, at this point, there is a strong amount of rescue capital available in the hospitality space, though there seems to be less for first mortgages.
Perhaps the most apparent indicator of the resiliency of the commercial market is the sustained interest seen from investors in office spaces, particularly for high-quality locations. Despite predictions that the traditional routine of five days a week in the office has become a relic of the past, investors have nonetheless continued to show interest in commercial office market throughout the U.S. during the pandemic. This trend has been particularly heightened in cities like San Francisco, Seattle, and Los Angeles, which mirror New York in key ways, such as having a high population of millennials and good public transit.
Though pandemic-related challenges undoubtedly remain for the foreseeable future, I am encouraged to see that investor interest in the U.S. commercial real estate market, and in New York in particular, has continued as a steady clip. With signs of hope in sectors such as multifamily, industrial, and office space, combined with low interest rates, now may be the time for strategic investment in New York – presenting an opportunity for investors to play a pivotal role in the recovery of one of the world’s great commercial centers.
