The facts of Long Island commercial real estate reveal only one undeniable conclusion
November 19, 2007 - Spotlights
While the residential real estate market is currently flat, New York's commercial market has been flourishing since 2004. Rents are on the rise and vacancies are down. Recent research shows that although the national average of office vacancies are up, New York ranks amongst the few regions that are declining. Office vacancies in the area are half or even a third of what they were five years ago. On average, N.Y.C. and Long Island rents rose 18% in the past year alone. Class A space has seen a 34% increase in monthly rents in the past year and are up 74% from the 2003 low point. Long Island has ranked as the number one market in the country for office rent growth, according to Coldwell Banker Commercial. Experts show few signs, if any at all, for a slowdown in the near future.
The Long Island commercial real estate market was once completely dominated by local players. More recently however, new faces are coming into the mix from outside the area. These investors see great opportunity on Long Island, specifically with office buildings and retail centers.
But when and why did these new investors from outside the area begin to come? Long Island may have first caught attention when the large local company Reckson Group went public and became Reckson Associates Realty Association in the mid 1990s. Reckson Associates changed the face of Long Island commercial real estate. The company owns more than 100 properties and over six million s/f of commercial space. When Reckson went public it put a magnifying glass on Long Island real estate. This brought many new investors with large capital to get involved in commercial real estate on Long Island, and in turn, raised the value of properties dramatically.
More and more investors are paying unprecedented prices for properties on Long Island. In one of the largest commercial real estate transactions ever, CRIC Capital and Prudential Real Estate Investors purchased the 778,000 s/f office building in Islandia for a whopping $204 million. Last year Kimco Realty Corp. purchased Airport Plaza in Farmingdale for $211 per s/f.
A school building property on four acres of land in the village of Lawrence recently sold for $30 million, which very well may be the highest price per acre ever paid for on Long Island. This school building, located on Central Ave., is planned to become a four-story luxury condominium this coming fall.
Another recent deal that must be taken into notice is the Islandia Shopping Center. Long Island developer Vince Polimeni, president of Polimeni International LLC, sold the 400,000 s/f shopping center for $92 million. At an incredible $230 per s/f, many local real estate experts believe this to be one of the largest single-asset transactions in Long Island history.
Less than a year ago, CB Richard Ellis Group, the big commercial real estate services company, bought Trammell Crow for approximately $1.8 billion. The company ranked number 33 on Fortune's list of fastest growing companies in 2007. Ellis, based out of California conducts tremendous activity in the Long Island commercial real estate industry.
Many local companies are taking advantage of the opportunities available now that outside investors are in the market. Two years ago a joint venture between CLK Management Corp. and Houlihan-Parnes Realtors, both based on Long Island, purchased the Tilles portfolio for $335 million. This accumulated 2.1 million s/f of office space for CLK/Houlihani-Parnes.
Development on Long Island may be matured, but it is certainly has not reached a plateau. The new development of Heart Town Sq. is located where the Sagtikos Parkway meets the LIE. This will be Long Island's first smart growth community. This development will include 9,000 housing units, a 1 million s/f lifestyle center, a hotel and convention center, and 3 million s/f of class A office space.
Another large development in the works is the Glen Cove mixed-use waterfront. Glen Isle Partners is constructing a smart growth development including 860 residential units, 41,000 s/f of entertainment use, 200 suite hotel, 32,000 s/f retail space, and 50,000 s/f office space.
These in-process developments add to the newly developed Rte. 110 in Farmingdale. Breslin Realty Development recently demolished vacant buildings of Polytechnic University to build the giant retail complex in its place. The 25-acre development borders Republic Airport with massive frontage on Rte. 110. This $60 million development totals 275,000 s/f of commercial space which will be anchored by the largest Wal-Mart store on Long Island. Among other tenants, the Wal-Mart joins a Bank of America, Chili's Restaurant, Boulder Creek Steakhouse, and Panera Bread.
The fact that Long Island real estate is flourishing and will continue to do so is evidenced by every piece of data available. After taking into account the low vacancy rate, the high rents, the new investors, the increasing value of properties, and the rising market activity due to new developments, there is only one undeniable conclusion that can be reached: This is absolutely the best time to invest in Long Island commercial real estate.
Ron Koenigsberg is the president at American Investment Properties, Inc., Garden City, N.Y.