Investment Sales: Persistent demand amid price fatigue by Matthew Garcia

Matthew Garcia, Besen & Associates, Inc.

Stop me if you’ve heard this before: “They want how much? Are they serious?!?”

The answer is “Yes, they are serious,” and while it may be difficult for keen investors to ‘make sense’ of current market metrics, trades are still happening at head-scratching price levels.

To be fair, it’s often difficult to judge a transaction on just the recorded price. Frequently, there are numerous variables that reflect additional value in a deal. Whether it’s seller concessions in the form of delivering units vacant or purchaser’s tax implications such as completing an exchange, deals continue to be transacted in this elevated pricing environment.

But have we reached the point of price fatigue already? To an extent yes, but don’t be surprised if you find yourself in a last minute bidding war as well. I’m presently involved in several transactions in which this is still happening.

I recently went to contract on a multifamily sale in prime North Williamsburg, for which the price equated to a sub 3% cap and over 25 multiple (GRM). Expensive, but for the investor who had recently refinanced several assets it made sense to put the money back to work in a location they are comfortable with over the long term.

In midtown Manhattan, we are aggressively working on a sizable assemblage transaction. The seller agreed to our price and terms after months of not being able to achieve their price, which seemed aggressive. However, while preparing to go to contract we have now encountered two other credible bidders at the seller’s asking price. We’re all learning to expect the unexpected.

Sanity still seems to prevail however, especially when deals feature a development angle necessitating financing. While managing an exclusive development transaction in Brooklyn, the investment community has balked at the seller’s pricing expectations. The risk has simply outweighed the pricing expectation, despite our cautious optimism given the tremendous location.

So while transaction volume is still relatively healthy, certain lofty value expectations are still held in check. Pricing will remain strong due to simple supply and demand economics of New York real estate, though a sense of pricing fatigue is growing. The recent question we are hearing from the marketplace is how many more sub 3% and $1,000 per s/f deals will we continue to look at?

Matthew Garcia is a director at Besen & Associates, New York, N.Y.