Intensity for mid-market investment property continues through 1H 2013

The competition for investment property in the mid-market price range ($50 million and under) remains intense, especially for assets in prime locations with future growth potential. Following the economic issues that plagued the real estate markets towards the end of last decade, many owners subsequently stabilized their portfolios by taking advantage of historically low interest rates through refinancing. A significant amount of new capital has entered the New York market, resulting in a tremendous amount of equity chasing very few assets available in this market class. As an example, I was recently marketing a 20-unit apartment building in the West 80's just off of Columbus Avenue. The investor demand for this property was intense, even though it was being offered at a sub 3.5% capitalization rate (which is where it ultimately traded). The purchaser realized that despite the relatively low initial yield, the inherent upside through the rent stabilized tenants combined with its superior location and the scarcity of similar product in the market made it a worthwhile long-term investment. The seller, a 40-plus year owner, came to recognize the favorable market conditions and ultimately profited several million dollars more than they would have when they were initially considering a sale several years ago. It's evident that the position of discretionary sellers has strengthened considerably at this time. However, the competition to place equity along with the resiliency of the New York City market has continued to support this compressed cap rate environment. With interest rates expected to hold relatively steady in the near future, we expect activity to continue to be robust through at least the end of 2013. Matthew Garcia is an associate at Besen & Associates Inc., New York, NY.