Conference Panel Gives Overview of Real Estate Market

Conference Panel Gives Overview of Real Estate Market
Last Year’s Performance Bodes Well for 2005

A likely improvement in economic conditions and an increased demand for limited supply will continue to push up commercial and residential real estate prices in New York City, experts said at a recent conference.

Panelists at the Foundation for Accounting Education’s Real Estate Conference on Jan. 11 gave specific reasons for expecting strong commercial prices and rents and residential sales in the coming year. Recent history has seen commercial vacancy rates declining and rents on the rise, and real estate over the last year has proven to be a desirable investment.

“The story of the year for 2004 is that real estate remains a desirable asset class,” said Scott Latham, a senior director at Cushman and Wakefield.

While Latham was referring to commercial property, the overall trend for New York City and some of its suburbs has been positive in all real estate segments. Northern New Jersey, Westchester—especially White Plains—and some Connecticut cities have seen a rise in commercial real estate value. Job growth and other economic trends have been key factors in the success of every market segment.

For instance, according to Jacky Teplitzky, executive vice president with Prudential Douglas Elliman, Wall Street bonuses in December reached $15.9 billion, which she contends will be put into the real estate market in the coming year.

Teplitzky predicted that residential property prices will increase and stabilize through 2005 as interest rates begin to rise gradually. The recent trend of a strong residential market in Manhattan has defied continued anticipation that the real estate bubble will finally pop, a fear that has loomed over some of Teplitzky’s clients.

Commercial and office space in and around New York City are more closely tied to job growth, other experts said.

The recession, aggravated by Sept. 11, proved bad for the city’s economy but good for outlying commercial areas where some companies relocated, according to Craig Evans, head of institutional investment sales for Colliers ABR’s New York City Office. Evans mentioned that several companies moved from Manhattan to the former Westchester County campuses formerly belonging to PepsiCo and Texaco, to name two.

But that trend seems to have been brief. With the recession in turnaround, and the long-term impact of Sept. 11 showing its limitations—for instance, 100,000 people moved to Manhattan between 2002 and 2003, a large number, according to Teplitzky—New York City’s commercial market shows signs of strengthening.

Other factors affecting the commercial market have been a large pool of capitalization, both debt and equity, which heats the competition for limited commercial purchases.

Outsourcing and the In Crowd

For those attendees or their clients who are considering playing a hand in the real estate game, Fredric H. Gould later in the day ran through the most common house rules. Gould, general partner of Gould Investors L.P. and chairman of the board for BRT Realty Trust, served as the conference luncheon speaker, discussing the major considerations to investing in real estate.

In keeping with the popular industry adage, Gould said location should always be a top issue to bear in mind, but equally important to note is whether there are any planned zoning or usage changes. For example, changes to a property’s floor area ratio (FAR; calculated as gross square footage of all structures on a site over gross square footage of the lot), which could alter the number of floors allowed, or converting office space to residential space can have a significant effect on real property values.

Office space, in general, could see its usage steadily decline in coming years if outsourcing continues to be embraced by the business community, Gould said. Whereas the exportation of jobs in America originally targeted the manufacturing sector, more back-office jobs, such as customer service representatives for credit cards and technical assistance for computer companies, are moving overseas, perhaps calling into question the need for high-occupancy office property.

There’s also been a national shift in demographics that should be examined by anyone considering investing in long-term real property, Gould noted. According to the speaker, people are moving from the North to the South, abandoning once thriving manufacturing hubs like Detroit and Flint, Mich., for plant jobs in states like Mississippi and Alabama. Detroit probably hasn’t seen a major new manufacturing facility built in 30 to 40 years. Where these people go, Gould said, so too does their money, savings, investments and consumer spending.

But for those looking into real estate opportunities in New York City, they should be aware that the city is a breed all its own, capable of defying any across-the-board trends. Over the last year or so, Gould said, the rental market hasn’t been especially eventful, but shows signs of picking up. The sales market, though, has been “unbelievable.”

Perhaps unlike any other city, New York is particularly well known for its melting pot of cultures and nationalities. Two groups that Gould recommends anyone considering real estate investing follow are the gay community and the art world.

“They revitalize those communities in New York each time they move,” Gould said.

Invariably, when these groups settle into a particular New York City neighborhood, the retail stores improve and the bars and restaurants get better, gradually drawing more people to the area, Gould said. The downside, though, is that the art world, in particular, eventually gets priced out of the community and is forced to relocate elsewhere. To help assure that New York continues to have an important and sizable artistic presence, there is discussion of bringing many art galleries together under multiple-story structures, Gould noted.

The NYSSCPA’s Real Estate Committee, chaired by Barry G. Moss, sponsored the conference. Committee members Daniel G. Rosenberg and Howard S. Landsberg served as conference cochairs.