Real Estate

Three Trends Impacting New York City Commercial Real Estate

Tenant behavior in the office market, regulation in multifamily and a much higher cost of capital contributed to a 43% drop in New York City investment sales to $12.8 billion in 1H 2023 from 1H 2022, according to research compiled by Ariel Property Advisors.

However, that drop was expected as we began to see a slow down at the end of 2022 due to rapidly rising interest rates. As a result, while the first quarter was lackluster, the market improved during the second quarter as savvy investors seized the opportunity to invest in repriced assets.

Office: Letting Go, Holding On, Recapitalizing and Repositioning

With New York City’s office occupancy rates hovering around 50% of pre-Covid levels, the dollar volume of office transactions fell 48% year-over-year to $2.4 billion in 1H 2023, one of the lowest levels in the past 10 years.

Mortgage Maturities Force Decisions

While mortgage maturities are presenting a major challenge in the office market, they are providing insight as to how office landlords and investors view the office world. Owners are essentially choosing which assets to save and which ones to let go. Therefore, when the underlying fundamentals are weak and there’s no immediate hope for the asset, keys are handed back to lenders.

However, investors with a long-term outlook and the ability to withstand the storm are well-positioned, especially once they’ve shed their lowest performing assets. These owners have managed to successfully refinance, attract new capital, leverage the repriced values of their buildings and should be able to greatly benefit from this strategy in the long run.

Letting Go

Examples of major landlords letting go of their assets in the first six months of 2023 include RXR’s 61 Broadway; L&L Holding Company’s Metropolitan Tower at 142 West 57th; Related’s 2100 49th Avenue and 2109 Borden Avenue in Long Island City, Queens; and Blackstone’s 1740 Broadway.

Holding On

Some of these same owners, however, are holding onto office properties with strong underlying fundamentals by extending their loans and bringing in new capital. These include newer, well-located, occupied buildings with high rents such as SL Green’s 245 Park Avenue; Tishman Speyer’s 300 Park Avenue; RFR’s 375 Park Avenue; RXR’s 601 West 26th Street; Blackstone’s Willis Tower in Chicago.


The office tower at 245 Park Avenue is a great example of not only holding on, but also bringing in a new investment at a slight discount to the original 2017 purchase price, which is a great testament to the interest in investing in quality assets.


Office assets with weak underlying fundamentals but a strong future, traded nicely at a discount over the past six months either to investors or to user groups who believe in New York City’s office market long-term. These include the acquisitions of 40 Fulton Street, 126 East 56th Street and 529 5th Avenue by David Werner Real Estate Investments, Sovereign Properties and Namdar, respectively. Owner-users stepped up with Hyundai acquiring 15 Laight Street; NYU acquiring 400 Lafayette Street; and Enchanté acquiring 149 Madison Avenue.

Multifamily: One Asset Class, Three Different Outcomes

Multifamily dollar volume dipped to $1.1 billion in 1Q 2023 but soared 242% quarter-over-quarter to $3.9 billion in 2Q 2023, according to Ariel Property Advisors’ Q2 2023 Multifamily Quarter in Review New York City. However, each asset behaved differently depending on whether it was free market, rent stabilized or affordable housing.

Free Market

Free market multifamily accounted for 51% of the multifamily dollar volume in the first half of the year. Significant transactions included GO Partners purchase of 265 East 66th Street for $402 million; Slate’s acquisition of 600 Columbus Avenue for $120 million; Namdar’s $100 million acquisition of 552 West 54th Street; and Stonehenge and Carlyle’s $114 million investment in 408 East 92nd Street.

There continues to be a deep bench of institutional, private and international capital available to invest in free market properties. These apartment buildings benefit from New York City’s favorable fundamentals such as job growth and government policies that discourage new development and, therefore, have created a housing shortage that is driving up rents by 10% year-over-year. The City has an estimated deficit of 376,000 units of housing today, a figure that will rise to 560,000 by 2030.


Prices for rent stabilized buildings in 1H 2023 dropped to their lowest level since 1H 2015 because of higher interest rates combined with the significant structural changes created by the Housing Stability and Tenant Protection Act of 2019 (HSTPA), a regulation that eliminated incentives to renovate buildings and vacant units. As a result, we saw buildings originally purchased in 2014, 2015 and 2016 sell in the first six months of 2023 for a discount of close to 30%.

Lower prices for rent stabilized assets, however, are attracting smart, private money and high net worth individuals and families who understand the product, believe the regulations will be changed because they are unsustainable and are willing to stick it out for the long-term.

Affordable Housing

Affordable housing enjoyed 34% of the total multifamily pie in the first six months of the year. Investors in this asset class are mission-driven with a double bottom line; seeking to integrate financial success with social accountability. The opportunity drivers include lower property taxes, value-add opportunities that allow for rent increases over time, specifically for vouchered tenants, and agency financing.

Several prominent affordable transactions took place in the first half of the year including Nuveen’s purchase of the Omni portfolio for close to $1 billion, and the $150 million sale of Sea Park, an 818-unit former Mitchell Lama building with a land opportunity, which was arranged by Ariel Property Advisors. Additionally, Ariel is currently marketing nearly 5,000 affordable units that will be sold this year or the first quarter of 2024.

Land of Opportunity

New York City land sales dropped 30% year-over-year to $2.5 billion in the first half of 2023 compared to the first half of 2022, which can be attributed to a number of factors including the failure of state lawmakers to approve a successor to the 421a tax abatement program, which expired over a year ago; the dramatic rise in construction costs, both hard costs and labor; and slower condominium sales due to higher interest rates.

However, lower prices presented opportunities for developers such as Rockrose, which acquired the St. Francis College campus in Downtown Brooklyn for $160 million, and other investors that bought sites with the intention of land banking.

Land that is 421a vested and qualified for the tax abatement before it expired last year also traded at a premium as did affordable housing developments supported by the city and state. Additionally, rezoned locations in the Jamaica, Astoria and Willets Point areas of Queens contributed to that borough enjoying an 80% increase in land transactions year-over-year.

What to Watch For

Looking forward, we expect to see:

  • Private lenders step up to fill the void left by the regional banks that are facing greater scrutiny from regulators following the bank failures in the first half of the year.
  • Mortgage maturities contribute to additional repricing for office and rent stabilized multifamily assets, opening the door for investors to acquire properties with strong fundamentals at a discount. The FDIC’s sale of the Signature Bank portfolio later this year also will present an interesting investment opportunity.
  • Although state lawmakers failed to approve a comprehensive housing policy in the last legislative session, the governor announced a new program that will provide some tax relief to developers in the Gowanus section of Brooklyn, which is encouraging because it could be expanded to other parts of the City.

While there are challenges, economic indicators in New York City are strong. Therefore, we believe smart capital, which is abundant, will return in a big way in the next six to 18 months.

Content for this article was taken from Ariel Property Advisors’ 2023 Mid-Year Research Reports, which I presented at our firm’s Coffee & Cap Rates event on July 20, 2023. To access Ariel’s research reports and videos from the event, please click here.

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