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Forbes
12-08-2025
- Business
- Forbes
New York City's ‘Fab Four' Assets Attract Billions In CRE Investment
New York City commercial real estate sales totaled $13 billion in the first half of 2025, with over 50% of the dollar volume concentrated in the "Fabulous Four" asset classes of Class A and trophy office, free market multifamily, affordable housing and retail, according to research published by Ariel Property Advisors. Class A/Trophy Office: Tenant Demand, Equity Surge and Credit Preference Drive Investment Sales in the office sector soared by 116% year-over-year, reaching $3.1 billion, with Class A and trophy office buildings representing 74% of this dollar volume. Investors, ranging from private equity to institutional players are eager to acquire these assets in prime locations due to the premium rents that high-credit tenants are willing to pay for well-amenitized spaces that foster a strong corporate culture. Companies like Deloitte, Jane Street and Apollo Management leased nearly 3 million square feet of office space in Class A and trophy buildings in the first half of 2025, contributing to a significant drop in their vacancy rate—from 17.2% to 10.7%. Nearly 60% of the 1H 2025 office transactions were partial sales, joint ventures, or recapitalizations, and, in addition, over $8.3 billion in refinancing deals were executed. This highlights that owners of Class A office buildings are holding onto their premier assets, with equity investors eager for a piece of the action. Lenders are also flocking to compete for financing opportunities, drawn by the strong collateral these properties offer. An example of this trend is Fisher Brothers' 1345 Avenue of the Americas. In the largest deal of 1H 2025, Blackstone acquired a $644 million stake in the building, purchasing a JPMorgan–affiliated investor's interest. Fisher Brothers increased its majority ownership and refinanced the building with an $850 million CMBS loan from Morgan Stanley, JP Morgan Chase and Citibank. Following a $120 million renovation in 2021, the building now boasts a 92% occupancy rate, with tenants like Paul, Weiss, Rifkind, Wharton & Garrison LLP and Fortress Investment Group. Free-Market Multifamily: Rent Growth, Low Basis, Promising Future Multifamily sales in 1H 2025 rose 5% year-over-year to $4.4 billion with free market properties accounting for 57% of the dollar volume. Manhattan (below 96th Street) and Brooklyn generated 95% of the free market dollar volume. The drivers for the free market sales include consistent rent growth caused in part by the persistent undersupply of housing that has pushed the vacancy rate to 2.25%, and pricing that is still below the peak. However, beginning last year prices started to rise, signaling that the market has hit bottom and it's time to invest. Free market units make up close to half of New York City's 2.3 million apartments and there are three distinct types of free market multifamily sought after by investors. These include new or 421-a properties; deregulated, larger and older buildings mostly in Manhattan and Brooklyn; and smaller, tax-class protected walk-ups—typically under 10 units in the outer boroughs. As with the Class A and Trophy office buildings, owners of prime newly constructed free market residential properties welcomed fresh capital from institutional investors in partial interest sales. The following transactions illustrate this trend: Additionally, institutional and private capital such as A&E Real Estate, Carlyle and Peak Capital invested in deregulated buildings in Manhattan and prime Brooklyn where rent-stabilized units have mostly turned over, while mostly private owners, some international buyers and small partnerships acquired smaller tax class protected buildings. Affordable Housing: Driven By Mission and Public Incentives Affordable housing accounted for 20% of multifamily dollar volume in New York City in 1H 2025, driven by high demand, limited supply and incentives. Without public incentives and partnerships, affordable housing can't be built and existing stock can't be preserved, hampering the city's ability to serve low-income residents. Demand for these assets remains strong from private mission-driven capital, nonprofits and institutional investors that are seeking long-term, impact-aligned opportunities in this space. However, the supply of affordable housing is limited. These assets aren't typically financially distressed but require capital reinvestment and renewed incentives every 10 years or so. Operators face a decision each cycle: recommit or exit. As a result, sales are strategic and infrequent. In the largest affordable housing sale in the first six months of the year, Tredway acquired a 602-unit property at 125 Beach 17th Street in Far Rockaway, Queens, for $88 million, a deal arranged by Ariel Property Advisors. Concurrently with the acquisition, Tredway entered into a new regulatory agreement with the Department of Housing Preservation & Development (HPD), entering all units into rent stabilization and extending their affordability, preventing substantial imminent rent increases. A substantial rehabilitation also is planned for the beachfront complex, primarily aimed at correcting decades of deterioration caused by exposure to the elements and salt spray. Retail: High End Locations Magnet to Quality Brands Retail sales in New York City totaled $1.3 billion in 1H 2025, driven by location, tenant quality and long-term value. These assets attracted two investor categories—large owner-user brands and savvy retail investors. Larger owner-user deals in the first six months of the year included Uniqlo, which acquired its flagship store at 666 Fifth Avenue for $355 million ($20,526/SF), and Ralph Lauren, which purchased its flagship store at 109 Prince Street in SoHo for $132 million ($13,321/SF) as the lease was ending. They join other retailers like Gucci and Prada that have purchased their stores to secure long-term control and avoid future rent increases. Institutional investors also remained a key force in the retail market. A notable example included City Urban Realty's sale of 95-97 & 107 N 6th Street in Brooklyn to Acadia Realty Trust for $60 million. Tenants include Abercrombie & Fitch, Lululemon, Mejuri and Wally, showcasing strong demand for prime retail locations with well established brands. Looking Ahead Investment activity in the first half of 2025 paints a clear picture of a market defined by a "flight to quality." Across office, multifamily and retail, sophisticated investors, lenders and users are making strategic, long-term bets on premier assets, confident in their enduring value. The prevalence of complex partnerships, recapitalizations and owner-user acquisitions over simple sales demonstrates a deep-seated belief in the future of New York City's top-tier properties. Content for this article was taken from Ariel Property Advisors' 2025 Mid-Year Research Reports, which I presented at our firm's Coffee & Cap Rates event on July 30, 2025. To view the full presentation Investing Through Change, please click here. To access Ariel's research reports, please click here.
Forbes
30-06-2025
- Business
- Forbes
NYC Development Rebounds; Is It Enough To Solve The Housing Crisis?
Construction cranes atop new residential building under construction, New York, NY. (Photo by: Plexi ... More Images/GHI/UCG/Universal Images Group via Getty Images) Momentum Returns to NYC's Development Market After years of uncertainty, 2024 delivered a surge in development activity that surprised many in the industry. Development site sales reached $5.5 billion—a 45% increase over the prior year—with $2.4 billion (or 44%) of that volume tied to office-to-residential conversions. The momentum continued into first quarter when New York City recorded 78 transactions totaling $1.05 million, a 50% increase in dollar volume from Q1 2024, Ariel Property Advisors' research shows. A new narrative is taking shape: one of creativity, urgency, and, most of all, resilience. Policy Paves the Way This shift isn't solely organic but fueled by new public policies designed to specifically address the housing availability and affordability crisis, which was prominently discussed in the recent New York City mayoral primary. Spearheaded by Mayor Eric Adams and approved by the City Council in late 2024, the City of Yes initiative is the largest and most comprehensive rezoning initiative in over half a century. It aligns the city's zoning laws with a modern-day imperative to build more housing. Ariel has produced a series of reports explaining the City of Yes that are available here. Governor Kathy Hochul and the New York State Legislature also approved two tax incentives last year to propel development—the 467-m tax exemption to encourage office-to-residential conversions, and 485x, which replaced the expired 421-a tax incentive, to encourage ground-up construction. Perhaps as significant, the housing policy extended the completion deadline for 421-a vested development sites from 2026 to 2031, which has generated increased sales and development activity, especially in the Gowanus neighborhood of Brooklyn. 'Once the 421-a tax abatement was extended, a lot of projects that were stagnant moved forward, allowing sites that had the pile in to transact,' Justin Pelsinger, COO of Charney Companies, said on my recent podcast. He will be a featured panelist at Ariel Property Advisors' Coffee & Cap Rates event on July 30. Charney Companies was among the developers taking advantage of the extension and recently acquired a grandfathered 421-a site at 175 3rd Street where the firm is planning 1,000 residences across approximately 1 million square feet, the fifth building in their Gowanus Wharf campus. Upon completion, Charney will have developed and will own over 2 million square feet and 2,200 residences in Gowanus, making them the largest owner in the neighborhood. Charney Companies is developing approximately 1.1 million square feet at 175 3rd Street, across from ... More Whole Foods. The Class-A "stacked blocks" building will feature over 1,000 rental apartments, with ground-floor retail. The project's retail component benefits from outstanding visibility with frontage along 3rd Avenue, as well as frontage along the Gowanus Canal. Pelsinger expects that properties vested under the 421a tax abatement will continue to trade until mid-2027 to 2028. At that point, lenders are likely to become concerned about projects meeting the 2031 completion deadline. He also noted that the newer 485x tax abatement is less appealing to developers due to wage requirements for projects with 100 or more units, which is why interest remains focused on smaller sites with 99 units or less. The Real Estate Board of New York's (REBNY) New Building Construction Pipeline Report for Q1 2025 confirmed that developers are gravitating toward smaller multifamily projects. Of the 123 new building job application filings submitted to the Department of Buildings in the first quarter, 77 were under 55 units, 35 were between 50-99 units, only one building was between 100-149 units and 10 were 150 units or more. These buildings will collectively deliver 6,871 units, which is a 65% increase in units from the previous quarter and 58% higher than the overall average in units since 2008. Clearly, policy is catalyzing development, but primarily on a smaller scale. In Q1 2025, of the 123 proposed new buildings with multiple dwelling units, 77 were under 50 units, ... More 35 were between 50-99 units, one was between 100-149 units, and ten were 150 or more. Notably, the 421a program in Gowanus, which always included an MIH (Mandatory Inclusionary Housing) overlay (requiring 25% of units at 60% AMI or 30% at 80% AMI), functioned similarly to the 485x program for smaller projects because it never had a wage requirement. Charney Companies: Early Visionaries in Gowanus Charney Companies was a pioneer developer in Gowanus, recognizing the significant mismatch between land values and potential rents and began acquiring sites before the neighborhood was rezoned from manufacturing to residential use in 2021, Pelsinger said. The firm already owned buildings in the mature, high-rent markets of Carroll Gardens and Cobble Hill, which are situated on Gowanus's western edge. Furthermore, the eastern side of the Gowanus Canal was designated an Opportunity Zone, offering powerful tax incentives that further fueled their early investment. Pelsinger describes Gowanus as 'the hole in the donut,' surrounded by amazing brownstone neighborhoods—Park Slope and Boerum Hill in addition to Carroll Gardens and Cobble Hill. Now that hole is being filled with full service, amenitized buildings and a public park along the two mile canal. The Gowanus rezoning is expected to create approximately 8,500 units housing, of which about 3,000 will be permanently affordable Early signs of the potential transformation in Gowanus appeared over a decade ago. Whole Foods' decision to open at 3rd Street and 3rd Avenue in 2013—now one of the chain's highest-performing stores nationwide—demonstrated that the area's demographics and buying power were strong, even before the zoning caught up. Whole Foods Market in Gowanus, Brooklyn, NY. Entrance to the supermarket chain in Gowanus, which ... More features a rooftop greenhouse, a coffee shop, and local vendors. Ariel Property Advisors: A Major Player in NYC Development Transactions Ariel is playing a central role in the development sector and so far this year has arranged 10% of New York City's development transactions totaling 1.65 million BSF. The firm is currently marketing or has in contract an additional 28 development sites across 1.7 million BSF. Ariel Partner Sean R. Kelly, Esq. is active in Gowanus and earlier this year arranged the sale of two 421a vested development sites: Other Gowanus sales negotiated by Kelly include a vacant lot at 544-550 Union Street that sold recently for $9 million; a mixed-use development site offering 101,852 BSF at 125 3rd Street that sold for $29.5 million ($290 /BSF); and a development site with a 142,500 SF zoning floor area at 450 Union Street that sold for $40.65 million or $285 per BSF. He also has two additional Gowanus development sites in contract. 'Given the state of the rent stabilization market and the regulatory obstacles investors face, we've seen increased demand for ground up development from investors who traditionally purchased value-add multifamily assets,' Kelly said. Conversions Take Center Stage While new construction is a vital piece of the puzzle, office-to-residential conversions may hold the key to unlocking more supply quickly and efficiently—especially in areas where office vacancy remains high. Density caps have been lifted, and the 467-m tax exemption will allow a tax savings of 90% for conversion projects in Manhattan below 96th Street and tax savings of 65% in the rest of the city. In exchange, 25% of the units must be rented at a weighted average of 80% of AMI. The policy also expanded conversion eligibility to office buildings built before 1991. Previously, buildings built after 1961 could not be converted, unless they complied with specific regulations. I highlighted the conversion trend in a previous Forbes article. The response has been swift. Analysts are now projecting approximately 40 million square feet of New York City office space will be converted into residential and other uses over the next five to 10 years, according to a recent Wall Street Journal article. This updated forecast is twice the amount predicted two years prior, a direct result of newly enacted tax benefits and government incentives. A pipeline of office-to-residential conversions under construction, planned or proposed is expected to create 8,300 apartments in Manhattan, according to a report from RentCafe cited by the Real Deal. Some of the most prominent conversions include: Conversions will get a significant boost from the Adams Administration's proposed Midtown South Mixed-Use Plan, which aims to rezone 42 blocks in Midtown South into a vibrant mixed-use residential district. The plan is expected to create approximately 9,700 new apartments, of which 2,900 will be affordable. The Midtown South proposal focuses on four distinct areas around Herald and Greeley Squares, generally spanning between West 23rd and West 40th Streets and 5th and 8th Avenues. The New York City Planning Commission recently approved this plan, and it will now move to the City Council and the Mayor for final approval. Mayor Adams' Midtown South Mixed-Use (MSMX) Plan will create nearly 10,000 new homes across four ... More distinct areas in Midtown South, including 2,900 affordable units. The Bigger Picture: Are We Building Enough? Yet for all this activity, the question remains—is it enough? Mayor Adams and Governor Hochul have set an ambitious target of 500,000 new housing units over the next 10 years, which means the city needs to build 12,500 units every quarter. However, units proposed in the first quarter were close to half of that, according to the REBNY study. Even with strong growth in development activity, we're not building fast enough to close the gap. There's reason for optimism, however. The tools are in place: intelligent zoning, robust tax incentives and a cadre of developers willing to build. What's needed now is execution—clear, consistent policies and faster approvals. The private sector has demonstrated it is ready to meet the moment. With continued governmental support, New York City could indeed be on the cusp of a generational shift in how it addresses housing. The city's development story is being rewritten. And for now, that story is one of momentum, innovation and cautious optimism. Shimon Shkury and Sean Kelly, Esq. explored New York City's development landscape in a podcast with ... More Justin Pelsinger, COO of Charney Companies.
Forbes
04-06-2025
- Business
- Forbes
Six Years After HSTPA, NYC Owners Face Escalating Costs, Falling Values
View of Upper Manhattan. Six years after New York State passed the Housing Stability and Tenant Protection Act (HSTPA), owners of rent stabilized buildings are struggling with rising expenses, declining income, falling values and increasing distress. HSTPA was designed to protect tenants, but its consequences have been severe for rent stabilized buildings resulting in: HSTPA blocked multiple avenues to increasing income, forcing owners to rely solely on the Rent Guidelines Board (RGB) for relief. The RGB sets rents annually for New York City's nearly 1 million rent stabilized units, which outside of core Manhattan had an average rent of $1,406 in 2023. The RGB will vote June 30 on raising rents by 1.75% to 4.75% for one-year leases and 3.75% to 7.75% for two-year leases. According to the RGB research, operating expenses for rent stabilized buildings rose 6.3% over the last year. An analysis by Ariel Property Advisors shows that since 2020, expenses have risen by about 28%, while rents approved by the RGB increased by only 10.5%, indicating a shortfall of about 17% between expenses and income. Rising operating expenses over the five-year period include taxes, up by 16%; labor costs, up by 19%; fuel costs, up by 42%; utilities, up by 29%; maintenance, up by 33%; administrative costs, up by 20%; and insurance costs, up by 115%. Additionally, rent arrears in some rent stabilized buildings are substantially higher than before Covid because of post-Covid collections issues and Housing Court delays. Since 2020, expenses for rent stabilized properties have risen by about 28%, while rents approved by ... More the RGB increased by only 10.5%. The cost of capital also has doubled since 2022. Interest rates have risen from 3% to 6%-7%, making it more challenging for owners to refinance buildings because in many cases the assets are worth less than their mortgages and the current loans can't be refinanced without an injection of equity. The misalignment between expenses, including interest payments, and rent growth is creating both operating and financial distress. Owners caught in a downward spiral don't have an incentive to pay bills and operate the building. Consequently, rent stabilized buildings are suffering from deferred maintenance such as leaky roofs, broken windows, non-functioning boilers, peeling paint or unsafe wiring, and neglected capital needs such as a new roof, elevator replacement, HVAC system upgrades and façade restoration. Borrowing for improvements in a building worth less than the mortgage also is out of reach, which leads to further distress, nonpayment of bills, increased violations and deteriorating conditions for tenants. The misalignment between expenses, including interest payments, and rent growth is creating both ... More operating and financial distress. In the two years preceding HSTPA (2017 and 2018), over 80% of lending activity for rent stabilized assets was concentrated in banks, with a notable amount in Signature Bank, New York Community Bank, and Chase Bank, according to research by Ariel Property Advisors. Regulators closed Signature Bank in 2023 and New York Community Bank, now Flagstar Financial, Inc., has pulled back on lending. Thus, bank lending has fallen to around 40%, with agencies, non profits and debt funds taking up a larger piece of a smaller pie. When a building isn't profitable, existing lenders prefer not to take it back. The most favorable situation for them is to sell the property via a deed in lieu arrangement. This allows a buyer to purchase the asset at a steep discount—50% or more—while also agreeing to handle any required improvements. However, L+M Development Partners sued Santander Bank for allegedly refusing to honor a loan agreement it had with its original lender, Signature Bank, which would have allowed a deed in lieu of foreclosure for a rent stabilized property at 320 St. Nicholas Ave, Bisnow reported. Santander, which bought a 20% stake in Signature's rent stabilized loan book after it closed, is seeking to seize L+M's other assets to recoup possible losses from the mortgage. In the lawsuit, L+M blamed HSTPA for the firm's failure to execute its business plan for the building. Additionally, Flagstar Bank filed four separate pre-foreclosure actions against more than half of Pinnacle Group's residential portfolio over a group of loans totaling about $600 million, the Commercial Observer reported. In response, Pinnacle recently placed roughly 5,000 residential units it owns in Manhattan, Brooklyn, Queens, and the Bronx into bankruptcy. The bankruptcy filings indicate that the portfolio's assets and liabilities are each estimated to be between $500 million and $1 billion. Pinnacle is one of New York City's largest multifamily owners, with approximately 136 properties totaling 7.5 million square feet and 8,700 residential units, according to PincusCo. A sample survey of properties initially sold between January 1, 2013 and June 14, 2019 before HSTPA, ... More and sold again after January 1, 2023 shows that values have dropped by as much as 80%. Over the past five years, New York City has seen a sharp pullback in institutional investment in rent stabilized buildings. These investors once brought billions into the sector, funding renovations, improving buildings and units through Major Capital Improvements (MCIs) and Individual Apartment Improvements (IAIs), and enhancing overall building and neighborhood quality—without displacing existing rent-stabilized tenants. Since HSTPA, that capital has largely disappeared, and with it, the ability to reinvest in this critical housing stock. Investors such as Ares, Apollo, Fairstead Capital, the Praedium Group, Sentinel Real Estate Corp. and Related are among those exiting the market. Related recently sold 2,000 rent stabilized units in five neighborhoods in the Bronx for $192.5 million, a 24% discount from the $253 million the firm paid in 2014. Related had also spent another $30 million on renovations to buildings in this portfolio, the Real Deal reported. The article cited a Crain's analysis finding that as of January, Related had sold around two dozen rent stabilized assets over the past few years. In April, the institutional investor sold five buildings for $18 million, or 45% of the purchase price in 2015. The buyers of rent stabilized assets today are private individuals and family offices attracted by the low basis and the belief that HSTPA will eventually be revised. While institutional investors hold the largest share of rent stabilized units, the vast majority of owners – nearly 80% or about 3,500 individuals or families – are small-scale landlords, owning 100 or fewer units. These smaller owners are facing significant challenges, including eroding net operating income and a tremendous loss of equity. For many, these properties have been in their families for decades, meaning the current financial strain will lead to a loss of generational wealth. In a previous Forbes article, I examined the financial strain many owners are experiencing. From the perspective of the owners our firm represents, income can only increase through rents set by the RGB. There are no other tools left. That puts the full weight of the system on the nine-member RGB board, which is unfair to landlords, tenants and to the board itself. Until broader changes are made to HSTPA at the legislative level, however, the board's decisions are critical in ensuring these owners don't lose their rent stabilized buildings to the banks, fall into the Alternative Enforcement Program (AEP) or rack up violations that ultimately diminish the quality of life for tenants. Rent increases are needed to ensure that owners don't lose their rent stabilized buildings to the ... More banks, fall into the Alternative Enforcement Program (AEP) or rack up violations that ultimately diminish the quality of life for tenants. Using internal data from our firm, I shared the following key points at a recent hearing before the RGB: Sam Campion, Director of Housing and Economic Development Studies at the Citizens Budget Commission (CBC), also sounded the alarm when he testified before the RGB, declaring that New York City must immediately address the physical and financial decline of its rent regulated housing. Otherwise, these buildings risk falling into a maintenance "death spiral' similar to what has occurred in New York City Housing Authority (NYCHA) buildings. This 'death spiral' happens when deferred maintenance leads to repair costs so high they nearly equal the cost of new construction. Ignoring the problem will only increase future repair burdens on the City and State and degrade the quality of life for New Yorkers living in rent stabilized housing. In other testimony before the RGB, Mark Willis, Senior Policy Fellow at the NYU Furman Center, was equally concerned about the future of rent stabilized housing. Willis highlighted that the financial gap in rent stabilized buildings, especially those that are 100% stabilized, is expected to continue growing, potentially at an accelerated rate. To prevent the deterioration of these vulnerable properties, solutions beyond the standard RGB process may be necessary, he said. Moving forward, tenants and landlords alike can benefit from more governmental accountability in the form of:
