By: Clay Earhart
The headline of a recent piece in Crain’s New York Business – “Foreign investors battered by losses amid city’s real estate shake-up” – gave a pretty accurate illustration of how nervous some investors are.
“Lately, a growing list of foreign real estate investors, after pouring billions of dollars into major New York City real estate purchases in recent years, have found themselves in a similar financial predicament. Several made ill-timed bets on the city’s condo market—a sector that has swamped investors at home and abroad. Foreign firms, however, have appeared to take some of the steepest losses,” Crain’s noted.
The financial publication points to a pair of foreclosures. One was for the property at 125 Greenwich St., an apartment tower in Lower Manhattan being erected by Italian firm Bizzi & Partners Development, Chinese investment company Cindat Capital Management “and domestic concerns including real estate executive Howard Lorber of New York.”
Also cited in Crain’s story is Beijing-based Anbang Insurance, seized in 2018 Chinese officials in the wake of fraud allegations. The concern is working to convert the historic Waldorf Astoria hotel into condominiums. The project is not expected by some to be profitable.
Still, many insiders remain optimistic. Michael Weiser, in a piece he authored for nyrej.com headlined “Investment Sales: New York City real estate is still alive,” pointed out that “NYC commercial real estate investment is still alive! The new NYS rent regulation laws affect approximately one-million stabilized units. However, there are still approximately two million free market apartments many in wholly free-market or largely free-market buildings. In addition, let’s not forget mixed use, office, industrial, retail and general commercial properties. Historically, rent stabilized buildings provided slow steady returns. It is only over the past decade that gentrification and tenant buyouts provided outsized return opportunities which resulted in rent-stabilized apartment building prices skyrocketing, thereby becoming a much larger piece (by volume and number of deals) of the overall NYC investment sales market and of course grabbing headlines.”
Real estate investors who are searching for stable long term returns “don’t need to leave NYC,” Weiser maintained, “they just need to re-focus. The 421A tax benefit, providing a tax break for developers who set aside 25-30% of their units as affordable, was revisited as the legislature removed the unintended consequence of the new laws that market-rate units would remain regulated. The result is that development, with an affordable component, is still a viable vehicle for investment. New buildings not subject to the new rent regulations will be outsized beneficiaries of the recently passed restrictive regulations as the demand for the new units will increase overtime due to their quality exceeding that of rent-stabilized units.”
