December 2013 I CITYSCAPE I 19

Kamil Homsi, President of Global Realty Capital, provides

a detailed insight into the New York property market

and explains why he believes the city is an excellent

destination for investment.Headquartered in New

York, Global Realty Capital is a commercial real

estate company offering comprehensive services to

global investors, family offices, and financial institutions.

Earlier this year, New York City was ranked as the top global city for real estate investment in the Annual Foreign Investment Survey released by the Association of Foreign Investors in Real Estate. This was the third year in a row the city received this accolade and the eighth consecutive year it’s been ranked among the world’s top three cities. With this track record in its corner, it comes to no surprise that the city’s considerable and improving job market, influx of excess capital, and demand that outpaces supply within its borders provide the opportunity for investors to purchase their target asset classes with future upside potential.

To outsiders, New York City is anchored by Wall Street, financial services compa-nies, and the numerous jobs the industry

provides. The city’s prominence in the global marketplace, however, is driven by several industries, including, but not limited to: professional and business services, insurance, health care, con-struction, and information technology. Despite this diversified job market, the city was not immune to the economic downturn of the “Great Recession” when unemployment at its peak reached 10 percent. The city’s unemployment rate, however, was down to 8.7 percent as of August 2013 according to the US Bureau of Labor Statistics - down 1.3 percent from recent highs and down 0.7 percent from a year earlier.

While the city’s unemployment rate is still above the national average of 7.3 percent, investors should expect New

NEw York: ThE SAfEST

Bet in the U.S. Real eState

MaRket

AMERICASMARkET INSIGhT | UNITED STATES

16 I CITYSCAPE I December 2013

york’s employment recovery to be gradual considering that it is the nation’s largest city by population with 8.3 million people. and, the city’s current trend of improving labor statistics should be bolstered by the U.S. government’s commitment to improving the labor market nationwide, resulting in improved job growth in the near-term. as payrolls continue to climb, occupancy rates should move in tandem so as to improve returns for property owners able to capitalize on the current market’s favorable prices.

With the new york economy on solid ground, office and multifamily housing are solidifying themselves as the city’s premier assets. The demand for these assets classes has not only increased the prices of existing assets, but has pushed new developments to the ends of manhattan and into other boroughs. This trend will continue in the intermediate-term due to demand currently exceeding supply, as market indicators signal that those investors who headed for the sidelines or adopted defensive strategies during the economic downtown are re-entering the new york real estate market.

For example, large mixed-use projects such as the Hudson yards and atlantic yards developments located in manhattan and brooklyn, respectively, are expected to meet some of this demand; however, they are still several years from their completion dates and demand will only continue to increase while these develop-ments are under construction.

These demand and supply forces are causing a decrease in vacancy rates and corresponding increases in rents and purchase prices. For tenants, a shortening supply of space and an improving job market has caused them to begrudg-ingly lease space, whether for personal or professional use, at higher prices. Those who cannot afford to lease within their preferred neighborhood are expanding their searches to surrounding areas which is driving up prices in those neighbor-hoods as well. For investors, the pricing of core assets is near pre-crisis levels, which indicates to many investors that the new york market is on a transition from recovery to growth.

due to the city’s stability and pent-up demand, foreign and domestic capital continues to pour into commercial real estate; however, placing that capital amid

today’s competitive market is no easy task. There is a limited number of quality offerings, which is helping to drive asset prices higher. due to this competitive landscape, some investors are altering their investment strategies, whether by seeking higher leverage ratios or by getting creative and pooling money.

“[a] lot of partnerships [are] occurring, regardless of whether between major private developers and funds or amongst funds. as a result, when a prime location or property goes on the market, you have to act very fast or the opportunity will be lost,” said kenneth Weissenberg, a partner at eisneramper, one of the nation’s largest accounting firms.

“This is a developing market. it is not fully where it was in 2007; however, banks are lending and more funds are available now than there have been in the last couple of years,” Weissenberg adds.

With the debt markets willing to facili-tate transactions and investors willing to pay a premium for assets in new york, investors are beginning to see their near-term cap rates compress against rising U.S. treasury notes. The intermediate- or long-term investor, however, will see their returns normalize as these cap rates readjust over the course of their investment.

The new york commercial real estate market is arguably the most stable and secure of any U.S. city. like any global city, its markets ebb and flow with the economic tide. The city’s strong funda-mentals and innovative resiliency, keep it afloat not only as a domestic leader but also as an international one. While invest-ing in new york city has its challenges, those looking to maximize yields in the current market should implement more value-added and opportunistic strategies. However, any real estate investor looking for future growth and stability should look to new york – there is no better city in the world, at least for real estate investing.

To contact the author about this article,Kamil Homsi can be reached at kamil@globalrealtycapital.com

December 2013 I CITYSCAPE I 17

New York CitY CBD CapitalizatioN rates aND 10-Year treasurY YielDs

Highlighted area indicates US recession

Sources: RERC, U.S. Department of Treasury, and the National Bureau of Economic Research

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

1Q 2008

2Q 2008

3Q 2008

4Q 2008

1Q 2009

2Q 2009

3Q 2009

4Q 2009

1Q 2010

2Q 2010

3Q 2010

4Q 2010

1Q 2011

2Q 2011

3Q 2011

4Q 2011

1Q 2012

2Q 2012

3Q 2012

4Q 2012

1Q 2013

2Q 2013

3Q 2013

New York City CBD Capitalization Rates and 10-Year Treasury Yields

Going-In Capitalization Rate Terminal Capitalizaton Rate 10-Year Treasury Yield

Unemployment Rates foR new yoRk City, seleCted aRea CoUnties, and the nation

Source: U.S. BLS, Local Area Unemployment Statistics

0% 2% 4% 6% 8% 10% 12% 14%

Queens County

New York County

Kings County

Bronx County

New York City

United States

Unemployment Rates for New York City, Selected Area Counties, and the Nation

August 2012 August 2013

Source:  U.S.  BLS,  Local  Area  Unemployment  

It comes to no surprise that the city’s considerable and improving job market, influx of excess capital, and demand that outpaces supply within its borders provide the opportunity for investors to purchase their target asset classes with future upside potential.  

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Kamil Homsi