Bisnow’s State of the Market: How are Deals Getting Done? An Investment and Finance Outlook

Bisnow hosted the annual “State of the Market” real estate event at 4 Times Square on October 22, 2015. Panelists focused on capital markets, growth across asset classes and New York’s new development pipeline.  Herrick’s Real Estate Chair, Belinda Schwartz, moderated the panel entitled: “How are deals getting done? An investment and finance outlook.”

Panelists included:

  • Ralph Herzka, Chairman & CEO, Meridian Capital Group, LLC
  • Michael Nash, Global Head, Real Estate Debt Strategies, Blackstone Group
  • Bob Knakal, Chairman, NY Investment Sales, Cushman & Wakefield, Inc.
  • Abraham Hidary, CEO, Hidrock Realty, Inc.

Belinda opened the discussion with the statement: “Real estate is one of the hottest investment food groups!” Turning to her panelists, she solicited their insights on deals in the market, how to unlock value in properties and how the capital stack has changed over the years. The panel also explored the pipeline of deals that have yet to hit the market, whether the pace of these deals will stay steady for 2016 and what the factors are in creating this exuberant market.

Abraham Hidary commented, “Debt markets are strong. The market was just exceptional in 2014 but up to now we have been doing really well.” Mike Nash added, “Our largest year for business has been 2015. Real estate as an investment is an excellent vehicle.” Ralph Herzka explained, “Real estate has outperformed everything else. Yields keep going down. It is just a solid investment.”

Mr. Nash pointed out that international investors will go offshore to London, Paris or New York where the market is transparent. He noted, “Real estate is a cyclical business but it pays off. It may be a slow burn but it always pays off.” He also said, “Alternative investment forms are not great. There are so many factors spurring on real estate. Where else can you put money down at 0%?”

Mr. Knakal said, “The reason there is so much activity in the market is because capital is thirsty and makes transactions easy to do. In the boom cycles of the 80’s and early 2000’s, lenders were generous with financing. Geopolitical risk around the world is pushing people to invest in NYC real estate to protect their assets. This is what creates demand for the marketplace.” Mr. Herzka added, “Smart money is what we are seeing in the capital stack. The capital stack can get aggressive but we don’t see a lot of risk in our deals. The key is to manage our clients’ expectations.” Mr. Hidary said, “We are in an efficient marketplace. We have to know the right deals and know exactly what we are looking for. Once we find what we want, we bring in brokers like Ralph. Simplicity is key when riding out a downturn.”

On the subject of what neighborhoods might be the “next big thing,” Mr. Knakal explained: “I am kind of bullish about Jamaica, Queens. It’s a remarkable place. The transport in the area is of the best in the city. Retail does well in this area. The affordable housing agenda is perfect for this part of the city. Creating the right incentives in Jamaica will make this area a diamond in the rough.” Mr. Herzka was a bit broader in his response in saying, “Just like San Francisco or even Ohio, people want the ability to walk to work. People do not want to spend their lives in commuter traffic. If we can make jobs more accessible, any neighborhood can be the next big thing. I saw a development in Delaware recently that had beautiful luxury housing. The housing and development phenomenon is not in New York only and technology is big driver in all of this.” Mr. Hidary said, “Ten years ago I would have told you the Garment District was the next big thing but right now West Chelsea is hot. This area has shown tremendous growth and has gone through 50% gentrification already. There are lifestyle hubs, gyms and restaurants. The area around Barclays in Brooklyn has also shown tremendous growth.”

Mr. Nash concluded the discussion by saying, “Formation of neighborhoods, creating cool spaces, converting something old into something new — these are things that drive growth. Areas like Brooklyn and Queens have already shown how successful doing this can be.”