Not even a rate hike from the Federal Reserve is expected to cool off the hot New York commercial real estate market, where demand remains high, industry executives say.
While there aren’t rumblings of an asset bubble in Manhattan property, prices are high, and some valuation metrics are at or near record peaks with sales activity at a record pace.
“I’ve never seen more capital come into this market in 35 years of doing this,” said Peter Hauspurg, chairman and chief executive of Eastern Consolidated, a New York real estate investment service firm.
“There’s been a feeling around the last three or four years that this has become almost monopoly money. We’re awash in cash, the banks can’t lend out enough,” Hauspurg said.
The Fed is due to announce a decision on Thursday afternoon to either end or extend seven years of near-zero interest rates, potentially relieving financial markets of months of uncertainty as investors have been trying to predict the timing of a hike.
Some may see a cautionary flag in the amount of money available to borrow, abetted in part by the Fed’s historically low interest rates. But higher rates won’t necessarily dent commercial real estate and experts say lenders are more disciplined now than the last cycle, when a housing bubble built on easy money burst in 2008 and spawned the Great Recession.
The cash flow has been boosted by more sources of funds – private equity investors, increased securitization, and foreign investment, which rose to more than 40 percent of deals in the first six months of the year, more than double the historical rate.
At the same time, a limited number of properties for sale, particularly larger sites, has acted as a brake on transactions and helped to push up valuations, said Jon Caplan, vice chairman of JLL Capital Markets based in New York.
“We might be at higher numbers if there were more product available,” said Caplan, referring to sales volume.