Manhattan | Capital Markets Report

GLOBAL RESEARCH AND CONSULTING

Year-End 2013
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OFFICE MARKET
The Manhattan offce investment market continued to gain
momentum, as sales volume increasedpropelled in part by
interest from foreign investorsand asking rents continued
to improve.
Transaction Volume and Pricing
Offce property sales in Manhattan totaled nearly $19.7
billion during 2013, nearly double the 2012 total of $10.4
billion. Sales transactions totaled 84, eclipsing the 2012
total of 77 and showing the highest level of activity since the
2007 peak of 128. The average sale price during the year
was $611 per sq. ft., a 10% increase over the $556 per sq.
ft. 2012 average. Average volume and pricing levels have
yet to return to their pre-downturn highs, when sales volume
peaked at $38.6 billion in 2007 and pricing peaked at $786
per sq. ft. in 2008. Sales volume is likely to increase in 2014
as debt and equity remain plentiful.
The largest offce sale recorded in 2013 was the $1.4 billion
paid for a 40% stake in the General Motors Building at 767
Fifth Avenue, purchased by Sungate Trust (an entity made up
of the family of Chinese developer Zhang Xin) and New York-
based investment frm M. Safra & Co. (comprising the family
of Moises Safra). The purchase implies a value of $3.4 billion
on the 2.0-million-sq.-ft. building. Downtown Manhattan,
which saw light offce investment activity over the past several
years, experienced $3.1 billion in volume during 2013. The
trend of foreign investors buying properties Downtown also
made news, with the $725 million sale of the 2.3-million-sq.-
ft. One Chase Manhattan Plaza to Fosun International from
JPMorgan Chase & Co. headlining the trend.
Capitalization Rates
According to the H2 2013 CBRE Cap Rate Survey, expected
capitalization rates for Class A stabilized offce properties
ranged between 4.0% and 4.5% during 2013, while returns
on costs for value-add properties spanned 3.5% to 6.5%.
Foreign Investment Activity by Origin
According to data from Real Capital Analytics, Canadians
were the most active foreign investors in the Manhattan
market over the last three years, with a total of $5.9 billion
in volume. Investment from Asia was also strong, with China
and South Korea accounting for $4.0 billion combined.
Proposed changes to the Foreign Investment in Real Property
Tax Act (FIRPTA)which removes the requirement that foreign
$0
$45 $900
$700
$500
$300
$100
$800
$600
$400
$200
$0
$25
$30
$10
$5
$35
$15
$40
$20
Notes: Includes property sales $30 million and greater.
Data does not include deals under contract.
Source: CBRE Research, Q4 2013.
Figure 1: Manhattan Offce |
Transaction Volume and Pricing
Billions
2004 2006 2008 2010 2005 2007 2009 2011 2012 2013
$10.5
$297
$9.4
$399
$12.1
$786
$1.5
$361
$8.0
$474
$14.2
$562
$10.4
$19.7
$556
$611
$15.5
$591
$38.6
$748
Figure 2: Manhattan Offce |
Select Sales Transactions 2013
Address Price (billions)
767 Fifth Avenue
1
$1.4
30 Rockefeller Plaza
2
$1.3
650 Madison Avenue $1.3
550 Madison Avenue
3
$1.1
1211 Avenue of the Americas
4
$0.9
237 Park Avenue $0.8
One Chase Manhattan Plaza $0.7
7 Times Square
5
$0.7
425 Lexington Avenue $0.7
825 Eighth Avenue
6
$0.7
10 Hudson Yards
7
$0.5
Notes: 1. 40% minority interest
2. Condo purchase
3. 3-year sale leaseback
4. 49% minority interest
5. 45% minority interest; leasehold purchase
6. 49% minority interest
7. Condo purchase by user
Source: CBRE Research, Q4 2013.
Volume (billions) Price (PSF)
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pension funds selling U.S. real estate withhold 10% of a prop-
ertys sale price to ensure payment of any taxes owedare
expected to provide relief to foreign investors by freeing up
capital for immediate reinvestment, which could be a beneft
to gateway markets such as New York.
Average Asking Rent and Availability Rate
At year-end 2013, Manhattans average asking rent for of-
fce space reached $63.22 per sq. ft., up 7% from $58.84
per sq. ft. at the end of 2012, although it remained below
the previous market high of $71.92 per sq. ft. reported in
2007. The average asking rent in Midtown also increased
7% year over year, ending 2013 at $72.85 per sq. ft. Rents
Downtown were fairly stable, dropping 1% to $46.47 per sq.
ft., while Midtown South saw the largest jump in rent with a
17% increase during the year to fnish at $64.58 per sq. ft.
At year-end 2013, Manhattans availability rate was 11.8%,
a slight improvement on the 11.9% rate reported at the end
of 2012, although it remained well above the previous low
of 7.8% in 2007.
New Development
New offce development in Manhattan continued at a strong
pace during 2013, with more than 4.0 million sq. ft. of new
product coming online. Notable offce completions included
Downtowns 4 World Trade Center, Midtowns 250 West 55th
Street and 51 Astor Place in Midtown South. Building on these
2013 deliveries, the offce development pipeline remains full
going into 2014, especially around the World Trade Center
and Hudson Yards sites. A total of 7.7 million sq. ft. of offce
space remained under construction at the years end, with an
additional 13 million sq. ft. of offce product to be completed
before the end of the decade. The largest project expected
to open in 2014 is One World Trade Center, comprising 3.0
million sq. ft.
Figure 3: Manhattan Offce | Capital Flow
Foreign Investment Activity by Origin
Country Number Volume (billions)
Canada 14 $5.9
UK 9 $5.0
China 6 $3.1
Germany 7 $1.5
Israel 8 $1.1
South Korea 1 $0.9
Norway 3 $0.9
Australia 1 $0.1
Note: 2010 through 2013
Source: CBRE Research, Real Capital Analytics, Q4 2013.
$0 0%
4%
8%
12%
16%
20% $80
$32
$16
$48
$64
Source: CBRE Research, Q4 2013.
Figure 4: Manhattan Offce |
Average Asking Rent and Availability Rate
2003 2004 2006 2008 2010 2005 2007 2009 2011 2012 2013
Average Asking Rent Availability Rate (%)
$41.79
13.7%
11.6%
10.0%
8.5%
7.9%
11.3%
14.2%
12.6%
10.7%
11.9%11.8%
$40.09
$44.82
$54.56
$68.69
$67.20
$49.01
$48.32
$53.11
$58.84
$63.22
0.0
5.0
2.0
1.0
3.0
4.0
Source: CBRE Research, Q4 2013.
Figure 5: Manhattan Offce | New Development
2003 2004 2006 2008 2010 2005 2007 2009 2011 2012 2013
Square Feet (millions)
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MULTI-HOUSING MARKET
Driven by Manhattans heated rental market, the multi-
housing investment markets strength grew as sales volume
surged and prices hit historical highs.
Transaction Volume and Pricing
Sales volume in the Manhattan multi-housing market reached
$6.4 billion in 2013, 30% higher than the $4.9 billion 2012
total. However, the 2013 number fell 26% short of the previ-
ous high of $8.6 billion recorded in 2006. Pricing was at
record-high levels in 2013, with the average price paid for
multi-housing investments $594,000 per unit, a 54% in-
crease over 2012.
The largest multi-housing sales transaction of 2013 was SL
Greens $386.8 million purchase of The Olivia, a mixed-
use property at 315 West 33rd Street, from Stonehenge
Partners. The through-block building includes 333 luxury
rental apartments as well as offces and a parking garage,
with a fve-level movie theater and retail stores fronting 34th
Street. Several of the largest transactions in the market were
part of Equity Residential and AvalonBay Communities $6.5
billion purchase of Archstone Enterprises, Lehman Brothers
largest remaining commercial property asset. The portfolio
comprised a total of 11 Manhattan properties, including
$0
$700
$420
$140
$560
$280
$0
$10
$4
$2
$6
$8
Notes: Includes property sales $20 million and greater.
Data does not include deals under contract.
Source: CBRE Research, Q4 2013.
Figure 6: Manhattan Multi-Housing |
Transaction Volume and Pricing
Billions
2004 2006 2008 2010 2005 2007 2009 2011 2012 2013
$1.6
$6.1
$8.6
$2.0
$0.4
$1.2
$3.8
$4.9
$6.4
Volume (billions) Price (per unit)
$4.2
$314
$350
$289
$348
$207
$290
$454
$385
$594
$232
Figure 7: Manhattan Multi-Housing |
Select Sales Transactions 2013
Address Price (millions)
305-311 West 33rd Street $386.8
500 West 53rd Street
1
$364.9
250 West 50th Street
1
$346.7
101 West End Avenue
1
$337.4
265-275 Cherry Street $279.3
22 River Terrace
2
$255.0
175 East 96th Street $252.0
303 East 83rd Street
1
$244.0
165 East 66th Street $230.0
400 West 63rd Street
3
$221.0
Notes: 1. Part of 69-property portfolio
2. Leasehold purchase
3. Part of a two-property portfolio
Source: CBRE Research, Q4 2013.
The Olivia - 315 West 33rd Street Source: nyapartmentblog.com.
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500 West 53rd Street, 250 West 50th Street, 101 West End
Avenue and 303 East 83rd Street.
Capitalization Rates
The expected capitalization rate for Class A stabilized multi-hous-
ing investments ranged from 3.0% to 4.0% during 2013, while
returns on costs for value-add properties averaged between 4.0%
and 5.0%, according to the H2 2013 CBRE Cap Rate Survey.
Foreign Investment Activity by Origin
A variety of foreign frms contin-
ued to invest in the Manhattan
multi-housing market in 2013.
Transactions taking place from
2010 to 2013 involved parties
originating from all parts of the
globe, including the Middle East,
Europe and Asia. The United
Kingdom and Israel were among the more active investors as
measured by number of transactions.
Rent and Vacancy Rate
According to data from CBRE Econometric Advisors, the
same-store effective rent index for Manhattan multi-housing
properties was $4,150 per unit at the end of 2013, up 3.3%
from one year ago; while the average vacancy rate showed a
slight increase to 4.4% from 4.1%.
New Development
A total of 2,700 multi-housing units were completed in
Manhattan during 2013, nearly double the 1,500 comple-
tions recorded in 2012yet far fewer than the previous high
of 7,600 units completed during 2009. Development activ-
ity remains strong and will likely approach historical highs
in the near-term, with more than 42,300 units expected to
be completed during 2014 through 2019, an average of
more than 7,000 units per year. Residential conversions
continued to play a signifcant role in the investment market
in Manhattan, although they are property-specifc based on
existing infrastructure and competing nearby developments.
The strong residential demand in Manhattan has also spurred
development activity in the outer boroughs. The most notable
example during 2013 was Greenland Holding Group Co.s
commitment to purchase 70% of Forest City Enterprises Inc.s
$6 billion Atlantic Yards development in Brooklyn.
Figure 8: Manhattan Multi-Housing | Capital Flow
Foreign Investment Activity by Origin
Country Number Volume (millions)
UK 3 $153.1
Kuwait 1 $143.1
Switzerland 2 $122.5
Israel 3 $106.1
Brazil 2 $102.0
Canada 2 $101.1
Turkey 1 $52.5
Note: 2010 through 2013.
Source: CBRE Research, Real Capital Analytics, Q4 2013.
0.0
5,400
1,800
7,200
3,600
9,000
Source: CBRE Research, CBRE Econometric Advisors, Q4 2013.
Figure 10: Manhattan Multi-Housing |
New Development
2003 2004 2006 2008 2010 2005 2007 2009 2011 2012 2013
Completions (Units)
$2,500 0%
2%
4%
6%
8%
10% $4,500
$3,300
$2,900
$3,700
$4,100
Source: CBRE Research, CBRE Econometric Advisors, Q4 2013.
2003 2004 2006 2008 2010 2005 2007 2009 2011 2012 2013
Same-Store Rent Index ($/Unit) Vacancy Rate (%)
$2,809
$2,947
$3,153
$3,491
$3,661
$3,463
$3,785
$4,015
$4,149
5.4%
4.6%
4.2%
4.5%
4.8% 4.8%
5.6%
4.8%
4.4% 4.4%
4.1%
$3,344
$3,497
Figure 9: Manhattan Multi-Housing |
Average Asking Rent and Vacancy Rate
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Type Q4 2013 Q3 2013 Q4 2012
Bank Prime Loan Rate
1
3.25% 3.25% 3.25%
Federal Funds Target Rate
1
0.00%-0.25% 0.00%-0.25% 0.00%-0.25%
5-Year Treasury
2
1.58% 1.60% 0.70%
7-Year Treasury
2
2.45% 2.02% 1.18%
10-Year Treasury
2
2.90% 2.81% 1.72%
30-Day LIBOR
3
0.17% 0.18% 0.21%
90-Day LIBOR
3
0.25% 0.25% 0.31%
U.S. Unemployment Rate
4
6.7% 7.2% 7.9%
U.S. Consumer Price Index
4,5
1.5% 1.2% 1.8%
U.S. Gross Domestic Product
6,7
2.6% 4.1% 0.1%
ADDITIONAL MARKET INDICATORS
The low interest rate environment continued to increase the
attractiveness of real estate products to investors, which was
accompanied by a steep increase in CMBS volume.
Select Interest Rates
Treasury rates steadily increased in 2013, with the 10-year
treasury fnishing the year at 2.9%, signifcantly higher than
the 1.7% rate reported one year ago when quantitative eas-
ing had artifcially lowered the long end of the yield curve
to near-historic levels. Citing the improving economy, the
Federal Reserve announced that it will reduce its quantita-
tive easing bond purchasing by $10 billion per month from
its $85 billion starting point. The policy change built into
the marketssince the Fed had foreshadowed it beginning
months beforeand equity markets rallied the day of the
offcial announcement, especially in the fnancial sector.
Although concerns around borrowing rates remain, newly
appointed Chair Janet Yellen stated that interest rates are
likely to stay low until the U.S. unemployment rate declines
below 6.5% and infation runs above 2.0%. As of year-end
2013, the Federal Funds Target Rate and the Bank Prime
Loan Rate remained unchanged compared to 2012 levels.
Figure 11: Manhattan |
Capitalization Rates (Class A, Stabilized)
3%
4%
5%
6%
7%
8%
2003
Offce 4.0% to 4.5% 4.5% to 5.5% N/A
4.0% to 4.5% 4.5% to 5.0% 5.0% to 6.0%
5.5% to 6.5% 6.0% to 7.0% N/A
5.0% to 5.5% 5.5% to 6.0% 6.0% to 7.0% Multi-Housing
2004 2006 2008 2010 2005 2007 2009 2011 2012 2013
Multi-Housing Offce
7.4%
6.9%
6.9%
5.4%
5.2%
4.6%
4.0%
4.5%
6.5%
5.8%
5.0%
4.8%
3.8%
3.7% 3.6%
4.4%
5.7%
5.1%
4.3%
4.0%
4.3%
4.3%
Class A Class B Class C
Stabilized Stabilized Stabilized Value Add Value Add Value Add
Notes: Cap rate ranges are best estimates provided by CBRE professionals based on
recent trades in their respective markets as well as recent communication
with investors.
Source: CBRE Cap Rate Survey, H2 2013.
Notes: 1. Board of Governors of the Federal Reserve System
2. U.S. Department of the Treasury
3. British Bankers Association
4. U.S. Bureau of Labor Statistics
5. All items, seasonally adjusted, 12-month % change
6. U.S. Bureau of Economic Analysis
7. Percent change from preceding period, seasonally adjusted, based on
chained 2009 dollars
Source: CBRE Research, Q4 2013.
Figure 12: Select Interest Rates
and Economic Indicators
Federal Reserve Bank Source: wikipedia.org.
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2014, CBRE, Inc.
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Commercial Mortgage-Backed
Securities Issuance
Low yields on Treasurys pushed capital into the CMBS
market during 2013. Commercial Mortgage Alert reported
that CMBS issuance in the U.S. totaled $86.1 billion dur-
ing the year, nearly doubling the 2012 total of $48.4 bil-
lion. Since bottoming out in 2009, the 2013 total was the
highest since 2007.
Information and analytics provider Trepp reported a turnaround
in the national CMBS delinquency rate during 2013, which
fell to 7.3%, with December marking the seventh consecutive
month of improvement after the rate reached an all-time high
of 10.3% in summer 2012. Citing a high rate of loan resolu-
tions, Trepp also reported more room for improvement in the
near-term as the rate could drop below 7% in early 2014.
However, with $1.4 trillion in commercial mortgages coming
due between 2014 and 2017 in the U.S., increased need for
refnancing could present challenges for the market.
Further signs of stability were seen in commercial loan
standards. According to a recent report published by CBRE
Research, debt service coverage ratios for loans originated
during 2013 averaged 65%, signifcantly below the 70%-plus
levels seen in 2005 and 2007.
As Ray Torto, Ph.D., CRE, Global Chairman, CBRE Research
recently noted, Commercial real estate is in a sweet spot right
now. It is a highly sought-after asset class with improving fun-
damentals, and for leveraged buyers, a big positive arbitrage.
Notes: Rates listed as: Spread (bps) - Rate (%)
Fixed rate pricing based on standard yield maintenance
Source: Freddie Mac, Fannie Mae, Q4 2013.
Figure 13: Multi-Housing Mortgage
Spreads and Rates
5-Year
5-Year
Freddie Mac
Fannie Mae
235 - 4.07%
226 - 3.98%
245 - 3.83%
243 - 3.81%
260 - 3.33%
259 - 3.32%
215 - 4.57%
214 - 4.56%
196 - 5.04%
210 - 5.08%
225 - 4.25%
237 - 4.37%
211 - 4.72%
235 - 4.96%
247 - 3.66%
246 - 3.65%
216 - 3.93%
220 - 3.97%
174 - 3.46%
184 - 3.56%
184 - 3.22%
201 - 3.39%
235 - 3.08%
239 - 3.12%
163 - 4.05%
172 - 4.14%
152 - 4.50%
168 - 4.66%
173 - 3.73%
195 - 3.95%
167 - 4.31%
190 - 4.54%
235 - 3.41%
226 - 3.45%
191 - 3.68%
200 - 3.77%
7-Year
7-Year
10-Year
10-Year
Q4 2013
Q4 2013
Q3 2013
Q3 2013
Q4 2012
Q4 2012
LTV 75%
LTV 75%
LTV 75%
LTV 75%
LTV 75%
LTV 75%
LTV 55%
LTV 55%
LTV 55%
LTV 55%
LTV 55%
LTV 55%
$0
$250
$100
$50
$150
$200
Source: CBRE Research, Commercial Mortgage Alert, Q4 2013.
Figure 14: CMBS Issuance (U.S., billions)
2003 2004 2006 2008 2010 2005 2007 2009 2011 2012 2013
$77.8
$92.6
$166.5
$198.4
$228.6
$12.1
$11.6
$32.7
$48.4
$86.1
$2.7
SINCE BOTTOMING OUT
IN 2009, THE 2013 CMBS
ISSUANCE TOTAL WAS THE
HIGHEST SINCE 2007.
Page 8
2014, CBRE, Inc.
Matt Maison
Manager, Research and Analysis
t: +1 212 984 8154
e: matt.maison@cbre.com
Michael Slattery
Research Analyst
t: +1 212 656 0583
e: michael.slattery@cbre.com
CONTACTS
For more information about this report, please contact:
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