(Updates with comment from Anthony Malkin in last paragraphs. For more on the Bloomberg Commercial Real Estate Summit, see EXT2 <GO>.)
Nov. 9 (Bloomberg) -- Manhattan real estate remains strong even as development costs rise and financial markets sputtered in the past few months, according to top New York City real estate executives.
“When you look at New York, it’s like an anomaly in the United States,” Stephen Ross, chief executive officer and founder of Related Cos., the developer of the Time Warner Center, said today on a panel at the Bloomberg Commercial Real Estate Summit in New York. “The real estate market is very strong. We’re very close to the highs of 2008.”
Manhattan office prices were unchanged for a fifth month in October after coming within 18 percent of their mid-2007 peak, as Europe’s debt crisis, bank job cuts and the economic slowdown limited demand, Green Street Advisors Inc. said Nov. 4. The dollar volume of New York City commercial property deals fell to about $6.5 billion in the third quarter from a three-year high of $8.7 billion in the previous quarter, according to Massey Knakal Realty Services.
The financial turmoil in Europe has made investors more cautious, slowing the pace of deals, Ronald Dickerman, president of Madison International Realty, a Manhattan-based real estate private-equity firm, said on a separate panel.
“It has created a little bit of a pause in the market,” he said. “People are taking a little bit of a step back.”
Nicholas Bienstock, a managing partner of Savanna, a New York-based real estate private-equity firm, said the break is positive for the property market, which “had started to get a little frothy.”
Commercial real estate values in the borough will eventually rise above the previous highs, said Scott Rechler, chairman and chief executive officer of RXR Realty LLC, a real estate investment company based in Uniondale, New York.
“I’m optimistic that this peak’s going to be higher than the past peak because of the lack of new supply and because of the diversity of demand,” Rechler said.
Transactions for partial stakes in properties is a trend that will continue as investors who bought buildings in 2009 and 2010 sell their interests to lock in profit, according to Darcy Stacom, vice chairman and head of the investment properties group for CBRE Group Inc’s New York office.
The city is on a pace for about $25 billion of commercial- property sales this year, about an 80 percent increase over 2010, according to New York-based Massey Knakal
Ross, who aims to transform a 26-acre (11-hectare) train yard on Manhattan’s Hudson riverfront into a high-rise office and apartment district, said the costs of building rental housing in Manhattan make it difficult to succeed without government subsidies.
“There are a lot of storm clouds out there for New York City right now,” he said. “In order for any city to grow and for business to come here, you have to be competitive. And the cost of doing business in New York is much greater than anywhere else in the country.”
Richard LeFrak, chairman and chief executive officer of the LeFrak Organization Inc., said it’s often better to avoid accepting subsidies because it requires having the government “in your hair.”
The LeFrak family has built hundreds of residential properties in the New York area. The company began work on the Newport complex on Jersey City’s waterfront in 1986 and has completed about 5,000 apartments, eight office buildings, two hotels and a 1.2 million-square-foot (111,000-square-meter) shopping mall, according to LeFrak’s website.
“We need it, but we shouldn’t need it,” LeFrak said of government incentives. “We should have our costs here in good enough control that if we’re building a market-rate product, we don’t have to ask government to help.”
Anthony Malkin, president of Malkin Properties LLC, who controls Midtown’s Empire State Building with his father, Peter, expects an “upward trend for decades to come” for New York. He called it the “Cinderella city,” where people from all over the world want to work and live.
“I was in Sao Paulo for meetings on Monday and Tuesday, and four people around the table, all native Paulistas, and every single one of them either has or is buying an apartment in New York City,” Malkin said on a later panel. “Remember, you’re talking about a reasonably higher echelon of society, but it’s taken as a given that people have places in Miami.”
--With assistance from David M. Levitt and Erik Schatzker in New York. Editors: Christine Maurus, Larry Edelman
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