New York City's real estate market will recover ahead of other areas of the country, perhaps by the end of the year, predicts Manhattan real estate mogul Elie Hirschfeld. The president of Hirschfeld Properties, who owns more than 1,000 apartments and in excess of 1 million square feet of commercial space in the metropolitan area, says most of New York's overbuilt office space inventory will finally be absorbed in 2010. What's more, he expects more distressed properties will become available through deals or foreclosure sales. Furthermore, developers will have the opportunity to begin repositioning themselves as land, construction and renovation costs drop to more reasonable levels.Most real estate forecasts don't predict recovery until 2011 or beyond, as high vacancy rates and plummeting property prices across all real estate categories hamper any revival. Real estate services firm Grubb & Ellis (GBE) has forecast a slow recovery starting in 2011. When forecasting the strength of markets for real estate opportunities from 2010 to 2014, Grubb & Ellis doesn't rank New York on its top ten lists in the office, industrial and retail categories. But New York's Long Island and Westchester County do rank in the top ten in the multi-unit housing category. That doesn't exactly suggest a rousing recovery for New York.
Opportunity For 'Savvy Investors'
It's not surprising that Hirschfeld believes the New York area, where his entire portfolio is located, will be the first to rebound. But his experience there may also allow him to see opportunities when others can not. In fact, Hirschfeld may not be that far off the mark. The Urban Land Institute warns that New York will see vacancy rates skyrocket into the mid teens, office rents plummet 40% and co-op prices drop 25% in its 2010 market forecast. But it also says that "New York offers savvy investors opportunity and more affordable costs over the long term."
The owner of the J&R Music Center, Hotel Pennsylvania, the Manhattan Mall and the Park Avenue Court apartments, Hirschfeld is betting New York will recover before other areas of the country because in his view, the region didn't indulge as much in over-development as did places like Las Vegas and Miami.
"New York didn't suffer the tremendous over-development because the cost of entry into this market is so high," he explains. The high construction costs and the wherewithal needed to obtain all the necessary permits prevent many speculators from coming in and developing properties in Manhattan.
Having Deep Pockets Helps
Those barriers give well-financed industry players an advantage during times of crisis like now. Hirschfeld says that since he resisted buying properties or starting new projects when the market was peaking between 2005 to 2008, his company did not become loaded down with debt. Nor was he stuck owning properties that are now worth significantly less than they were just a few years ago.
While he admits his high profile partnership with the Trump organization to develop the West Side Penn Yards "is delayed now for several years," that disappointment hasn't hurt the company financially. Hirschfeld says he is receiving less rent for the same spaces he did a few years ago, but not having additional debt has allowed his firm's cost structure to stay low enough to remain profitable.
"Now I'm looking at buying projects from banks that are foreclosing on some of the very properties I didn't buy [back] then," he says.
'Avoiding Things That Are Over-Priced'
His guiding principle in deal-making: "Looking for value when we make purchases and avoiding things that are over-priced."
Hirschfeld wouldn't say which properties he was negotiating to snatch up at distressed prices, but he said he is already buying land in the New York market again. The reason? It has become cheap because almost no one will finance it, he says. He also said he is planning to renovate and upgrade some of his existing properties with state-of-the-art mechanics and interior finishes in order to attract higher rents when the market turns.
When looking at investment opportunities, Hirschfeld said residential is the healthiest area of real estate because the need for housing is perpetual. He feels commercial, which will benefit when jobs return, is the next strongest area, followed by hotel, which is benefiting from strong tourism. As prices continue to drop in 2010, he suggests individuals look for opportunities to buy property in Manhattan at a discount while they can.
"If people want to get their foot in the water," he said "They can find a single apartment to buy that they can rent out. Now there is good value in doing that."
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