Renting in New York has long been a struggle, but recently costs have skyrocketed, jumping an average 20.4 percent in the second quarter of 2022 alone, according to the housing search website StreetEasy. — © AFP
For the commercial real estate industry, hard work is always a part of the equation. That has probably never truer than when a country is in a “down economy.” Despite economic fluctuations, some business leaders are able to not only survive, but thrive in such environments.
To discuss the current trends in commercial real estate in New York and globally, Digital Journal connected with Henry Stimler, Executive Managing Director of Newmark, a global commercial real estate firm whose team financed $4.4 billion in deals in 2022 alone.
Digital Journal: How did you close so many deals in 2022 in light of rising interest rates that were cooling the market?
Henry Stimler: Our team covers some of the most active buyers and sellers in Multi-Family, we don’t just wait for deals to come to us, we are very active on the match-making side. In 2022, even with rising interest rates, we facilitated and financed 4 monster portfolios totalling over $2 billion. Being entrepreneurial and having this desire to find ways to drive revenue to our clients enabled us to do so many deals despite the difficult environment.
A multi-family home is a single building that is divided to accommodate more than one family living separately.
DJ: There is debate about whether we are entering a down market. Some analysts say recession isn’t coming. What are you seeing?
Stimler: We are in a down market, you can’t raise interest rates 7 times and expect transaction volume to stay the same. With that said, are we really in a recession when we have the strongest job market and the lowest unemployment? It’s very hard to say. I don’t think we are in a recession, but we are in uncertain times and deals have slowed down.
DJ: Your firm recently closed a half-billion-dollar loan on a massive office-to-residential conversion in Manhattan’s financial district. Are these conversions becoming more frequent following the Pandemic?
Stimler: I think you will see more of this because COVID-19 jump-started the work-from-home trend that doesn’t seem to be going away any time soon. So office owners with high vacancies are going to need to be creative with their spaces. Many of these offices are in prime markets that could lend themselves to conversions. As the need for housing is at an all-time high this could be a good way to reutilize a dead space. However, since most offices have large floor plates, which doesn’t lend itself to apartment conversions because you need light and air, offices with inner atriums are going to be the most likely to get converted.
DJ: How will dropping home prices affect the multi-family real estate market in 2023?
Stimler: I don’t think dropping home prices will affect the market because the cost is not being offset since home borrowing is so high. If anything, that barrier to entry (high interest rates) should be a boom for apartments because more buyers will stay on as renters for longer.
DJ: Freddie Mac is forecasting that multifamily vacancy rates will rise to 5.1 percent by year-end 2023. How are you planning to address that?
Stimler: That’s pretty modest, actually. Freddie already underwrites a 5 percent vacancy so 5.1 percent isn’t a massive change. I do think the cost of construction and the cost of borrowing to build will be so high that less will get built, resulting in a benefit to owners of existing multifamily buildings. That, along with fewer people buying homes, will mean more demand for multi. However, rents have been growing insanely high, so I do think we will see a levelling off on rental growth.
DJ: Can you tell us what are some exciting deals that are ahead of you?
Stimler: We have a $490 million refi of a development deal coming soon. We financed the original construction loan and now that the deal is done, we are converting it to a permanent loan. It’s always amazing to round-trip a deal, and this deal was in Boca, Florida, which is on fire since covid. We also have a construction loan closing for $176 million for a development in Queens, along with working on a $700 million portfolio, so lots of irons in the fire.
DJ: Since you do deals throughout the country, where else in the U.S. – outside of NYC and Miami – has had an interesting deal?
Stimler: I am a huge fan of the Midwest. It’s slow and steady, which always wins the race. People shouldn’t sleep on Columbus. It’s a fantastic market with great job growth and our guys dominate in the market. Newmark’s George Skaff has 96 percent market share there and we cover him on debt side, so we love that market.
DJ: What advice would you give to someone entering the commercial real estate industry today?
Stimler: I think now is a good time to find that good deal. A lot of owners will be forced to sell because of interest rates and cap cost. So, one must do the work but there are good deals to buy if you can find them.