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Manhattan Real Estate At 50 Percent Off?

Originally Posted: August 16, 2010

Edward Mermelstein, Esq.

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The recent rebound in the past two quarters is reflecting a price discrepancy between Manhattan, Central London, Central Moscow and Hong Kong. (bugbog.com)

New York City - Having gone through one of the worst real estate recessions in the past 100 years, foreign buyers are taking advantage of what may be the sale of a lifetime. With investors crossing the globe looking for bargains in 24-hour cities such as London, New York and Moscow, the question remains: where are the bargains? Although I do not hide my preference for New York, let's look at the evidence.

Manhattan appears to be trailing Hong Kong, as well as Moscow. (moscowdoctor.ru)

Global numbers appear to have rebounded significantly in the past two quarters, with both commercial and residential rental rates showing steady growth. China's major cities have overtaken the rest of the world in both commercial and residential real estate growth. Meanwhile, the real estate bubble in China has been an on-going concern for economists, with experts predicting a dramatic U.S.-like fall in these markets. With global economic growth and confidence rebounding, the major real estate markets are beginning to make an argument for investment potential.

When you sift through the data and concentrate on prime locations, a pattern of incongruity develops. While global real estate pricing has significantly been affected in most major metropolitan locations, it appears that the recent rebound in the past two quarters is reflecting a price discrepancy between Manhattan, Central London, Central Moscow and Hong Kong. Though Manhattan appears to be trailing Hong Kong, as well as Moscow, by an average of 20 percent in price per foot, the difference with London's price-point is significantly more pronounced. With respect to residential and commercial properties, the average price per foot in Manhattan is over 50 percent below that of London. The difference is even more pronounced as you head to the top-tier of the real estate markets.

Other foreign investors are also looking to take advantage of low values in United States real estate, such as investors from Canada, South Korea, and others. (haft2.com)


As recently as July of 2010, two high-end residential properties in Manhattan and London - almost identical in both size and status of address - were sold, yet the London property was over $140 million USD and the Manhattan sale paled in comparison at $44 million USD.

Taking into account the currency differential alongside London's proximity to the rest of Europe and the Middle East, we must still ask ourselves whether the 100 percent+ premium for London is warranted.

Taking into account the currency differential alongside London's proximity to the rest of Europe is100 percent+ premium for London warranted?

With the largest metropolitan markets attracting significant institutional capital and forcing prices upward over the first two quarters of 2010, the broader real estate markets of cities such as London and New York have continued to soften, according to the first monthly CoStar Commercial Repeat-Sale Indices (CCRSI). The slumping values are enticing more foreign investors, and major players are already showing a great deal of interest in the major metropolitan real estate markets.

China's $300 billion sovereign wealth fund is reported to be in advanced talks with Harvard University endowment to buy its stakes in half-a-dozen real estate funds located in the United States for about $500 million. With more capital available than any other investor in the world, CIC has increased the proportion of assets allocated to higher risk assets. Other foreign investors are also looking to take advantage of low values in United States real estate. In the second quarter, investors from Canada, South Korea, the Netherlands, Kuwait and other countries acquired about $2.2 billion of skyscrapers and other properties in the U.S., more than five times the amount seen just a year earlier, according to Real Capital Analytics.

The Korean Federation of Community Credit Cooperatives paid $333 million for a 655,398 square foot, fully leased office building in San Francisco. (unionstreetinn.com)


Demonstrating this trend, a group of investors, including the Korean Federation of Community Credit Cooperatives, paid $333 million for a 655,398 square foot, fully leased office building in San Francisco. In another large deal, CPP Investment Board, which invests on behalf of the Canadian Pension Plan, paid $576 million for a 45 percent interest in the 1.6 million square foot McGraw-Hill Building in Manhattan.

Vacancy rates are slowly declining in Manhattan as the financial sector begins to hire yet again. (Eileen Casey)


Overall, the U.S. real estate market is the envy of most nations in the world. Housing activity posted record numbers in the first half of this decade. Commercial real estate is slowly returning to health as CMBS begin to show signs of life. Vacancy rates are slowly declining in Manhattan as the financial sector begins to hire yet again, helping to push up asking rents in most parts of the Manhattan. This has attracted more investment in commercial properties in the past three quarters. Underlying the robust health of both residential and commercial real estate is strengthening economic fundamentals.

Foreign governments, international financial institutions, foreign companies, foreign individuals, and foreign pension and equity funds have all observed the performance of U.S. real estate, and have all seen opportunities to take advantage of healthy returns on their investments. Looking at historical charts of Manhattan real estate over the past several decades, it is an easy argument to make that New York City is a safe, long-term bet for many foreign investors.

Additional benefits of ownership in Manhattan real estate includes the lack of barriers to foreign individuals or entities investing in our markets. Political, as well as economic, risks are fairly low as compared with the rest of the world. While similar environments may exist in cities like London, the argument for the 100 percent premium continues to astound me and makes a clear argument for the resurgence of the New York real estate by 2012. Bargain hunters, start your engines.




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Peter Hayt...

Peter Hayt says::
Nice observation. I have seen the same pattern. Its amazing that more cash is not snapping up the bargains in places like Manhattan or Hamptons.
Aug 18, 2010 9:09 am

 

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