The Real Estate Roundtable with IPRG
IPRG Partners and guests discuss various topics on New York City Real Estate and the broader Real Estate Market.
The Real Estate Roundtable with IPRG
NYC Real Estate 2025: Market Trends, Investment Strategies & What’s Next
The New York City real estate market is heating up, and we’re breaking down everything you need to know. In this episode of the Real Estate Roundtable with IPRG, we discuss the latest market trends, the biggest opportunities and challenges, and what’s driving investor confidence in 2025.
We kick off with a deep dive into the current state of the market, where buyer and seller activity is surging post-election. We explore why development sites are commanding record prices and why rent-regulated buildings are becoming increasingly difficult to move. Our experts also share insights on hidden investment opportunities, including undervalued rent-stabilized properties in prime locations.
Financing challenges remain a major hurdle, making all-cash buyers more competitive than ever. We also analyze a growing trend—Brooklyn developers shifting their focus to Manhattan—and what that means for future investment strategies. With discussions on interest rates, rent growth, and regulatory changes, this episode provides a comprehensive look at where the NYC real estate market is heading.
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www.IPRG.com
Okay, we're back here at the Real Estate Roundtable with IPRG and it's been a minute, but we wanted to give a quick update in terms of what we're seeing throughout the market and just have some back and forth and just talk with some of the brokers here about what's going on in New York City. It's the middle of February 2025. We're a month into the new administration and the market seems like it's really humming. So we have here today Adam LaBelle, donald Flaherty, luke Sproviero and this is Derek Bestrick, and we just wanted to kick it around, guys, how's everything going so far into the new year? Good, good, busy, yeah, yeah, very busy, very busy of um, lots of people wanting to do transactions right now buyers and sellers a lot of like inbound phone calls from investors.
Speaker 2:I think there's a new confidence in the market, uh, since trump was re-elected and uh, you're starting to see some things trade, some good conversations about 2025, which I, which I'm excited about.
Speaker 1:Is this new money? Is it 1031 money? Is it raised capital? I think it's a blend.
Speaker 2:I mean, there's some 1031 buyers that we're talking to, but I think it's just still the same class of characters that you talk to. I just think they're more bullish going into this year than last year.
Speaker 1:Adam, how about you? How's the activity? Looking on your end?
Speaker 3:I would say more owners than ever before have wanted to meet with us to go over property values. We're meeting with a lot of generational owners that I think were sort of waiting for the election to happen and now it's obviously post-election and I think obviously a big trend of last year was a lot of talks with interest rates potentially going down and obviously that really hasn't happened so much. So I think the market has leveled out, I think people have a good understanding of underwriting and where values are and I think a lot of the generational owners that we're meeting with want to meet with us because they're interested in selling and I think it's going to be a very, very active market this year for a lot of different reasons and I'm very optimistic about where things are at.
Speaker 1:Yeah, nice, that's great, and Luke.
Speaker 4:Yeah, I think from a broker standpoint, historically we were very lucky. We're coming into this year with more deals than we ever had under hard contracts, so obviously that feels from a business standpoint. That feels really good starting a new year. So I think our entire office is obviously happy. I think a lot of buyers still like from 21, 22, whatever it, developers, but people that raised money that were buying a ton in 21 and 22, even parts of 23,. We saw their names in the comps, a tremendous amount, and I think a lot of them are not buying. You call them, you pitch them deals. They have a story about financing and interest rates, which is all very true, but, that being said, they're not buying. And we have a lot of new buyers that are buying, a lot of families, a lot of 1031 buyers, a lot of people that sold in other states buying. I think with the development I think it's the same cast of characters and they're the most active buyers that we're seeing, whether it's redevelopment to condo or ground-up condo. So it's interesting.
Speaker 1:What about development for rentals?
Speaker 4:So there's the same cast of characters. Right, there's people that are buying, like in Williamsburg, for example. One name stands out in my head, I'm not going to bring it up, but he's building a ton of rentals. He's buying very consistently. He's paying more money than I've seen. There's another buyer that's buying rentals, that are building rentals that is paying price for buildables that we haven't seen. So they're very aggressive, depending on where it is.
Speaker 1:So are you saying that the price of land and the for rentals or for condos and the price of redevelopment for, say, vacant real estate? Are you saying that you're seeing higher price per foot and price per buildable than values that we've seen historically? Yes, Right now.
Speaker 4:Price per buildable on condo development, especially even rental, is the price per buildable is higher than we've ever seen by a large amount $50 a foot to even $100 a foot, More than worth On existing buildings or for land?
Speaker 4:No like land right and sometimes there's existing structures right. That has been really crazy and the rental development sites too. There's a huge uptick in the price per buildable. To answer your question, I think this is the better thing. If you said, as a broker, if you could list anything you want, what are you listing? And 100%, it's development sites, redevelopment sites, vacant buildings where someone could come in and do a condo conversion or redevelop it to an apartment building. Those are like alt one or alt two construction. That is what I'm listing every time. If I could choose.
Speaker 1:Okay, cool. So a lot of activity in the market, a lot of deals under contract, stuff is flying off the shelves, a lot of buyers, a lot of demand. Do you think that's a function of? Like people think there's going to be continued inflation, like rent growth and asset values are going to continue to increase, or what do you guys think that's a function of? Do you think it's a function? Yeah, what do you think?
Speaker 2:I mean, I personally think, and like William's bringing it to the point, I think a lot of people are starting to see just the amount of or how should I put this People are really seeing other successful buildings getting built. In terms of their rentals and what they're getting for rent, I think a lot of people are now following suit and getting even more aggressive with the area because they know what's already been done and they see such a high ceiling for these locations that I think that's what's really pushing them up in terms of their pricing. I think, look, you could say City of yes for a lot of the rental guys. I think they could build a bigger building. They have less regulations.
Speaker 2:But I think, in terms of you look at the condo numbers and what the condo sellouts are and then, more importantly, I think, for the rental guys, if you're looking at what these developers are getting for rent for these buildings when they're done, it's crazy, it's astronomical from just like two years ago what they got. So I just think, even the buildings that we've sold like rentals in Greenpoint getting $12,000 a month for an apartment that was never talked about just even a couple years ago, and now you see it more consistently. So I think, once you take a look at that and you see what other people have done, I think that's bringing a lot of other developers from different areas that don't necessarily know the location so much but they're willing to really dive headfirst and get aggressive and bid up the price.
Speaker 4:There's a number of examples of this.
Speaker 2:It means 100% correct.
Speaker 4:Let's hear him. I mean, you could just it was online today, Ravsky, right Ravsky.
Speaker 4:Yeah, so like that is he is a Brooklyn developer historically right, good locations, williamsburg, whatever is Gowanus and he started off. He's doing a humongous building in downtown Brooklyn that's a prime location for him. That's been under the works for a long time. But yeah it was in today that he just bought. You know, the news article said Chinatown. I think it's a little offensive. I mean it technically may be close, but it was like. You know, tribeca right. I'm sure he isn't pitching that this is a Chinatown development, but Definitely not.
Speaker 2:No, definitely not In honor of Broadway and Franklin definitely not.
Speaker 4:Yeah, but that's big for him right, yeah. And they're going into Manhattan. Then we see guys that we did a lot of business with In Bushwick and Bed-Stuy, whatever Ridgewood. Those guys are now developing in Williamsburg, greenpoint. They're just moving up on the markets. People are now developing in Manhattan good locations.
Speaker 3:Well, yeah, I think there's just been a big flight for quality, right, and obviously that was one of the super big trends of COVID people selling condos and co-ops and upgrading into brownstones, people selling in the Bronx and buying in like couriers in Manhattan and Brooklyn. Yeah, you know, I just think the market right now there's just tremendous optimism, given the clarity with the president, the presidential situation and obviously with the leveling of rates. I think people are extremely bullish on where things are going. And you know, the rental market is still, you know, basically at all time highs. There's just, you know, and obviously now, with some city programs to spur some of the development, it's going to take time for all these new units to come to market, but you know, values are very strong right now and banks are lending, though rates are relatively high given, you know, the last few years.
Speaker 1:But you know, I think that's what's really driving the market right now Just real quick on that point with the rentals, anecdotally, I've heard from a few people that January and February this year have had better rentals than we've seen over the past two winters. So you know, typically it's a pretty seasonal market here in New York with a lot of leases rolling in the summer. Owners try not to have their leases roll in the winter, but from what I'm hearing those units are renting just fine compared to some rentals. That's interesting. All right. So a lot of optimism. A lot of stuff is happening. Stock market is at all-time highs. The market is flush with cash and lots of activity. What deals are not moving? Where are we having trouble in the market?
Speaker 2:I mean, I think it's pretty obvious, I think anything rent-regulated like just dirty rent-regulated deals.
Speaker 2:I think those are always tough to sell. I think your buyer pool for those are very small. I don't think a lot of people want to deal with the headache and they want to like. I'm talking big, walk-up rent-regulated buildings. I don't think a lot of people want to deal with the headache I'm talking big, walk-up rent-regulated buildings. I don't think they want to deal with the tax bills. They don't want to deal with all the violations, all the management-intensive stuff that come with those buildings. They would rather just clean their hands with it and just go into something. That's so much easier. All morning I just spent the morning with an investor that owns in Manhattan big walk-up buildings and he was just like I can't get rid of it fast enough to get into these smaller three-over-ones, two-over-ones, mixed-use deals. We were in North Brooklyn but he's like it's just so much easier on me and my investment strategy how I want to move forward with my life.
Speaker 2:He's like at one point I wanted to buy all the big rental buildings in the Lower East Side and in Manhattan and he's like, no, it's just a nightmare to own.
Speaker 1:At one point they were so like sexy, the big apartment buildings.
Speaker 2:Yeah, I mean even for me as a broker.
Speaker 1:The upside, like that's what you wanted, like those buildings, that's all I ever wanted as a broker to sell those. Now, all people want maybe this is to restate the obvious, but all people want is just the small buildings Like Brooklyn locations, low tax bills, free market, not regulated.
Speaker 4:I honestly don't understand how people can hold them. The big ones, the big ones. Obviously, if it's fully rent regulated, your taxes and your expenses are going to go up each year. But it's nominal and you can kind of calculate that. But all the investors are buying these class two buildings, right, 1630 unit buildings, and they're renovating apartments. I mean, your expenses are obviously going up, but every year there's a number of examples of taxes just increase and you just watch two, three, four, five hundred grand just come off the value.
Speaker 4:So, literally, if you're holding a class two building in terms of a cap rate on the tax increase if you're holding, if you're holding a class two building, especially in like a good location, and you're renovating units and you're filing your income, which you have to do, right you are you're literally losing money every year. Your taxes can go up 20, 30, 40 grand and obviously if you put a cap rate on that, you're talking about five, like there's numerous examples I saw just this year, when the taxes went up, people losing six $700,000. So how can?
Speaker 1:you At a cap rate. At a cap I mean at the cap rate In terms of value.
Speaker 4:Yeah, If In terms of value, yeah, If you put the loss. But how do you operate that way? How can you just lose that much? Money, the only way to do it is you buy them, you renovate them and you sell them quick before you realize that increase in expense. I don't get it.
Speaker 3:Well, I was going to say earlier, I think to Donald's point. I think the fully regulated stuff there is demand. I think the buyer pool is changing a little bit for that. It's more family offices and these large operators that are just kind of looking at it as a coupon. I think the 50-50 deals which are like 50 percent free market, 50 percent rent, stabilized, like those are really hard to move. But things that are like 70, 80 percent free market.
Speaker 2:They're hard to move if they're not clean. I think the price has changed a lot too obviously.
Speaker 3:Yeah, but as long as there's a high enough percentage of free market. I think all the syndication groups are still really looking at it because of the promotion structures within their equity holdings in terms of, like, how they operate and they can go in and still get their management fees and their renovation budgets and they can go and actually spend money. But I think the 50-50 half-stabilized, half-free market buildings, those are the hardest ones to sell right now, do you?
Speaker 1:think there's a difference in value for properties that are, like, statutorily deregulated, like there's a letter in order and determination saying it's a free market or it's under six units, so like it's statutorily a deregulated free market building, versus a building where someone says it's free market but it's based on individual apartment improvements that have been done over, say, the past 15 years. And let's just say the paperwork is great. They have all the paperwork.
Speaker 4:Great meaning that, like an attorney, gave you the checkmark that it's free market.
Speaker 1:Maybe. Or the owner says it's great. The owner says they have the paperwork, they can show proof of payment.
Speaker 4:They have the quote-unquote paperwork but no one's going to buy it until they actually see that paperwork and have an attorney look at it For sure. I mean obviously. Do you think there's?
Speaker 1:a difference in value for one versus the other, or it's the same, I mean it depends.
Speaker 4:It depends how good. If paperwork is very good and clean and it checks out and no one denies that, I mean that's very good, obviously, like I would prefer for someone to tell me it's free market, right. I mean dhr is not going to do that unless you go and show them all the ias, I'm sure they'll do that. Right, if you took an apartment, if you, if you took an apartment once it went to dhr right, similar to like jersey city, and you said and filed for determination yeah, like jersey city.
Speaker 1:I don't know if dhr is doing that they do it, they do it.
Speaker 4:City. I mean, why wouldn't they? It's all. There's a rule for that now they should do it.
Speaker 1:I don't know that. I haven't seen people file for determinations on apartments where they did individual apartment improvements. I think it's more a function of like, if there's an overcharge complaint and it goes to court, then you kind of have to demonstrate your paperwork and then I think, yeah, that that's what I was gonna say, like I think, inherently, if you have under six apartments, it's a better thing to have, because all it takes is one.
Speaker 3:You know viral instagram video about some tenant in a free market unit that claims an overcharge case and obviously, then, as an owner you have to you have to spend money to fight that? Yeah, there's no reason to deal with it there's no money on that, though.
Speaker 4:That's the issue. The syndicators, all these guys are raising money. They can't make the money they want to make on these small deals, so they can't go and buy three units, five units, four units, like four over twos. They can't do that. So the IIs, like their deal, like the top syndicators that we all have in our mind right now, like their ideal building, like their listing, that they can get is something in a good location that's $10, $15, $20, $30 million, where it's 80% to 75% free market, with great paperwork, where the renovations are like 10 years old, like that is. Everyone has money for that and that's where they want to spend their money.
Speaker 3:And big units, yeah, where they can go in and convert and really add value and add a bathroom. Those are rare, like how many times it's.
Speaker 4:It's rare to have someone that has a big billing that's 80 free market, and then the paperwork, paperwork. It's hard to have those. I mean, I just can't believe people have them for that long they do. Some people do. Yeah, a lot of people don't. And it has to be organized. For that long too, yeah, they don't. They didn't have that technology back then, like with computers, where everything was saved and scanned in Like you had to have the hard knowledge.
Speaker 1:That's how far back you go.
Speaker 4:Yeah, somebody was going back really far.
Speaker 1:Yeah for sure. All right, what opportunities are being overlooked in the market right now? Like, where do you guys see opportunity that people kind of aren't focused on? Maybe there's like, where are people making bets in different ways?
Speaker 4:I see that at all. I think, if my personal opinion I think rent stabilized.
Speaker 1:You think rent stabilized is being overlooked?
Speaker 4:I do think so. I think people just write it off really, really quickly and there is no raised capital for it. Maybe obviously there is, but in a, in a, in a rare instance, right, maybe on a large scale there's, there's equity for it, um, but yeah, I think there's opportunities to buy clean, rent, stabilized product in really good locations at prices that are very, very low. And obviously you're relying on the law is changing, but it's a bet and it's a bet that I would make in a very good location and it's and it depends on the deal, but I think that's being overlooked, okay, and I like, and what's the play on that? What's the play?
Speaker 1:yeah, the play is's the play?
Speaker 4:Yeah, the play is by clean buildings, right, like clean meaning like no violation, little violations, if any. Mm-hmm, you walk into the building. There's not a ton of deferred maintenance, it's clean and, most importantly, price point for me is price per foot and what feels right If you can buy this stuff in prime Greenpoint, prime Williamsburg, downtown Brooklyn, like the Brownstone neighborhoods, if you can get something where it's in the mid 200s of foot, low 200s of foot. Obviously we can do better, but good, I mean you, just you can't. Sometimes the dirt is worth more. If you just get it vacant, it's worth triple, like literally. There's situations that I've seen where someone buys a building. If they got it vacant, they're tripling their purchase price and the dirt itself that the building is sitting on is worth double what they're paying for it and they're just making a bet in a core location where the laws have to change. They're really going to.
Speaker 1:I think that is being overlooked and there's an opportunity there, and what kind of cap rates would you anticipate on those kinds of properties, if they're available?
Speaker 4:So people will say, okay, where interest rates are I need eight caps to rent stabilized. And there's locations where you need eight caps, for sure, seven and a half caps, eight caps because of where interest rates are. But honestly I'm not so concerned If it's a prime location. Obviously you don't want to. In a market like right now you probably don't want to buy under a six cap. And a lot of people say six cap is way too low for rent-stabilized and it is. But if the price per foot and the amount that you're paying, if that's really attractive, I'm not so concerned about the cap rate Because what's the difference? It's rent stabilized. You're buying a six cap, a six and a half, a seven Like you're screwed. Either way it doesn't matter. But if you're buying at the right basis and it's cheap and it's prime, that's more important than a few extra points on a cap rate.
Speaker 4:And the hope there is the laws could loosen up, or they loosen up, right, they loosen up Do you think that's like in the cards at this point?
Speaker 1:Yeah, I do. Why?
Speaker 4:I just do. I think you can feel it. I think things are changing. I think these laws that were made in 19 are not working. I think people are not paying attention to these buildings. They're losing the buildings to the banks. The banks are tanking these buildings. People are losing a ton of net worth, a ton of equity, and people aren't keeping up these buildings. So if you can buy in, let's say, prime Greenpoint, a building that's in good shape, let everyone else do the work for you, right? That area is gentrifying like crazy. The retail guys, the developers, are making these areas amazing. You're just sitting there on those blocks in this undervalued real estate and letting everyone else just boo you, and then the laws change a little bit. You sync right up to the service with them for cheap, cheap.
Speaker 2:Yeah, and let them spend all the money. Your expenses are controlled, they're not going to skyrocket on you.
Speaker 4:So that's a bet, yeah.
Speaker 1:And I like sub-rehab. Okay, cool, anything else, any other kind of property? Oh, sub-rehab, yeah, I like sub-rehab. Explain I like sub-rehab.
Speaker 4:I think another thing everyone's afraid of is they don't have clarification. And the law's just changed, no one really knows and there's no raised capital for it. When I say no raised capital, there obviously is some, but very, very little. So no one's chasing it, no one really wants to deal with it. They think it's really really impossible and hard, and it is, and you have to buy the right product to do it. Especially today, it needs to be the right building. But if it's the right building and you can buy it right, I think there's a really good opportunity there. Yeah, there's a really good opportunity.
Speaker 2:Yeah, there's a couple of investors still chasing it.
Speaker 4:For sure there's a small amount, but yeah, a lot of people are scared of it, for sure. I mean they just don't want to give up that egg, yeah for sure.
Speaker 2:And I just don't think a lot of these syndicators really have the time or they want to even put the effort behind it. I mean like just seeing people go through this paperwork. It's extensive and so the next syndicator has to move on to his next deal and he has to keep on pushing the pushing the next deal forward. So I just don't think they really want to spend time. I mean, there's been some bad cases that have come out from the courts on sub-rehab and where it gets round.
Speaker 1:Yeah, I mean like it's like there hasn't been clarity.
Speaker 4:No one understood what the 80% presumption really meant in some ways, because the court is kind of backpedaled on that in some ways, they haven't defined substandard condition or seriously deteriorated conditions so like biggest one yeah so like you kind of go into a multi-million dollar development without clarity, but um, that's how you make money, it yeah it's like the counter the more clarity you get in anything investment wise, the cheaper it gets, or, I'm sorry, the more expensive it gets. Once you get in anything investment wise, the cheaper it gets, or, I'm sorry, the more expensive it gets once you get more clarity, more people buy it.
Speaker 4:But when there's the least amount of clarity, that's when you can make the most amount of money, and right now there's a lot. There's not great clarity on the new laws and you do see people getting bad results, which obviously is scary. But listen, I'm not. I don't blame anyone for being scared of doing some rehabs or not wanting to deal with it, because that's all very true. But if you can do it and you're knowledgeable on it, you have the right attorneys and it's the right product. You can make a big spread on that.
Speaker 1:I like it Sounds good, I have one more, oh another. This is obvious. Obvious, man, let's go.
Speaker 4:This is a little more obvious the fully occupied free market buildings that are low rents because of, like, the good cause eviction, which I can't believe that's even it and people are taking very seriously, but it's like not a real law to me because I've it's good luck proving that you don't own more than 10 units or whatever, like. There's just all these like little things and whatever people are taking very seriously. I think you can buy good located free market buildings with low rents and you can buy that. Well, I think people get. Obviously, getting people out is hard, but it's very doable and you can make a lot of money.
Speaker 3:I I mean, I live in Flatiron. The building was, I think, built in the 80s. I just got a lease renewal and there was a whole write-up on good cause eviction and how the building. There you go. It's a lot, it's a lot. Here's my set increase as a tenant. I loved it as a real estate broker. It's a big bet and if you're on the wrong side of that, you can lose as well.
Speaker 1:It sounds to me, like, of the three you described, that the occupied free market buildings are probably the best place to be.
Speaker 4:That's the safest one.
Speaker 1:Yeah, I mean hopefully you get a discount on the price based on the in-place rents.
Speaker 2:How many times do you come across that?
Speaker 1:It's like the least risky and in terms of like the fully rent-stabilized buildings, like that's just like kind of a prayer in a way.
Speaker 4:It's a prayer.
Speaker 1:It might be a good prayer, I think. I hope it turns out to be true.
Speaker 4:I also for the rent-stabilized play that I talked about. I'd like to also understand the investor's age too. Obviously, you need a little time on your side if you are much older. Obviously, you need a little time on your side if you are much older how much time. I mean, I recommend that for someone you know, a younger investor.
Speaker 1:What does that mean? Like 15? No, not 15.
Speaker 4:You need to be in the seat for another 20, 25 years, but, that being said, I don't think someone would be. I wouldn't be pushing that on someone Like I think this could happen, right, like pretty soon, next five years.
Speaker 3:I also think one of the things people are sleeping on are like kind of class B office right now. Like obviously the big trend is office conversions and offices is taking a bloodbath over the last, especially in Manhattan. I mean you're seeing buildings traded to $300.
Speaker 1:This has been well-documented.
Speaker 3:I know, traded to $300. This has been well-documented, I know, but as someone that owns a business and our renewal is coming up and we're starting to basically seek out where office rents are today versus a few years ago when we signed our lease, I mean office rents across the city are going up and the vacancies are going up, so I'm not convinced Vacancies are going up, sorry. The occupancy rates in office buildings are going up, so there's less office space available.
Speaker 4:People are just selling them for cheap, though. Why would they do that? So hear me out.
Speaker 3:There's less office product in the city, inherently because of all these office conversions as well. So I do think that if you have an office building in a Class B in a good core Manhattan location, I think it's something that the demand for it is increasing significantly To use it as office, to use it as office.
Speaker 1:Yeah, let's keep moving, since we're not necessarily so big on the office sales front. And this is in the news a decent amount. I'm kind of trying to figure out a little bit more of where the nuances are in the investment sales market that we kind of play around in Everybody and their mother is trying to renovate office buildings to convert them.
Speaker 4:Everyone is Everyone.
Speaker 3:They all want it.
Speaker 1:What's interesting, though, is the you know what's kind of crazy though that I don't think we've really talked about. I mean, we talked about it in this office a little bit. But you have these guys that we were selling buildings to back like 10 years ago. They were buying like the small renovation deals or like the small ground-up deals. And now these guys, these Brooklyn guys that were so active in Brooklyn, are coming in very strong into the Manhattan markets, like you see them in the transfers for big deals over and over. And I'm hearing it with my clients where they're saying I'm looking at properties in Manhattan, I'm looking at sites in Manhattan. So I think it's really interesting that this crop of guys that we've done business with for so long are stepping into like these larger premier type of redevelopment deals.
Speaker 3:Yeah, I mean Luke was talking about it earlier. I mean you're seeing 500 plus per foot per buildable in Greenpoint, williamsburg, like you're not seeing that in Manhattan and even good areas. You know, I think Manhattan, the big ground up construction sites oftentimes have these amenities and it's sort of like a requirement. Obviously, some of the Brooklyn ones don't, because they're smaller, on like 25 or 30-foot lots and they're usually five-story walk-up condo deals. But yeah, I think the ground-up luxury development in Manhattan I think is going to be a very big trend this year All right, cool.
Speaker 1:Manhattan, I think, is going to be a very big trend this year. So all right, cool um. Next on my sheet here is um, and I don't know if we kind of went over this at all. But where are the market pressures like, where are the stress points in the market? Um, you know obviously there's.
Speaker 1:I'll just throw out a couple broad topics that we could maybe get into, like obviously, with the fires out in california recently there's and the hurricanes and all that, there's been a lot of talk about insurance costs and Adam mentioned before. Obviously this is a big part of the market at this point, but is interest rates, and we touched on taxes and rent regulation. But what are the stress points in the market at this point?
Speaker 4:So you talked about insurance. Do you think that's a stress point? 100%? I mean obviously countrywide. What's going on? It's going to affect everyone, but immediate for us. There's a lot of frame buildings in Greenpoint, williamsburg and Bushwick, so obviously this is a smaller investor issue, right? Six families, eight families and Bushwick. So obviously this is like a smaller investor issue, right, six families, eight families, small mixed use. But you can't ignore it. There's a ton of it in Williamsburg, greenpoint and Bushwick and the tax bills we used to underwrite and be very safe, like this was like a real number 1,000 a unit. I think you're at 2,000 a unit right now in frame buildings. You are right are, I know you are yeah, six families you can use to get insurance for like 6k, using a six family as an example, they are 12, 13, 14 000 for a clean bill.
Speaker 1:What about if it's brick?
Speaker 4:brick. It's way better. It's way better, way, way, way, way better. It's half the price isn't yes, you could still if you had a six family. What's?
Speaker 1:what six-family frame it would make a difference.
Speaker 4:It's a fire risk, it's a fire risk. So the issue is this All the frame housing is connected? Obviously, some are not, but mostly you see rows of six families or eight families that are framed. One lights up, the neighbors are all going up. Wow, the neighbors are all going up.
Speaker 1:Wow.
Speaker 4:Obviously they're wood frame. Wood burns right Classic burns. And they all go up, they all go up and the brick. Obviously it's a more contained fire, so it stays in that unit, stays in that building. It's put out.
Speaker 2:You can get a block. Some of these frame buildings have brick inlaid in them.
Speaker 4:Yeah, but it's still, I know it's still there For sure.
Speaker 1:Is insurance a point of stress for the brick properties? No, like what's going on across the country and just the cost of insurance in general.
Speaker 4:I'm not so. So in New York, yeah, I'm not. I have seen brick be completely fine, like depending on what it is. I haven't seen it's that big. It's what everyone's underwriting to. It's the frame stuff that as a broker I've seen someone, it just, and then if you get into like violations and the insurance company looks into that, let's talk about it. I mean, I've heard of people where they're you know they had insurance for 10 grand and then they get a call that their insurance is going up by $5,000.
Speaker 1:What kind of violations?
Speaker 4:Just like any kind of violations.
Speaker 1:Anything.
Speaker 4:Yeah, like a tenant's calling saying that there's a crack here and there's leaks here and mold here.
Speaker 1:Why do you think the insurance company is doing that? I don't know.
Speaker 4:I mean obviously I mean it's not, the product is deteriorating. So they're probably like, oh they, the frame is the worst that I've seen. Okay, throughout the country. Obviously we're not broke throughout the country, but that obviously that's got to be huge, because new york's the only place that people are like banking on appreciation, like they'll buy it, they'll own it and the cap rates will go down, the rents will double, like other places in the country.
Speaker 4:This is pure yield, pure yield. So you're looking at cap rates. You don't see like the frothy rents, you don't see this stuff go crazy. And insurance is a big line item. So if it goes up, your cap rate gets immediately hit.
Speaker 1:Well, your value gets hit as a function of the cap rate. For sure, that's what I meant, but you can't like in New York.
Speaker 4:Okay, my insurance went up but my rents went up. Right, you can kind of like combat Other states. There's no combating, You're done. Your rents aren't In Georgia. You're not going to get a one-bedroom in Georgia and like double the rent because you gutted it. That's not the plan. So anything that really hurts your, NOI, which insurance does, that's obviously a line item on expenses. You're, you're done. I mean you lose money. You lose money, a lot of just like what you described earlier.
Speaker 1:The tax increases? Yeah, same thing. Yeah, so if my insurance goes up, five grand a year.
Speaker 4:That's five grand off my ny. Okay, that's a small amount out of five cap yeah yeah then five grand is a low amount of money, but like you get what I'm saying for sure. So I think that's a headwind and just financing in general, monster headwind. It's the hardest thing.
Speaker 1:So let's talk about that, let's talk about financing, let's talk about interest rates, let's talk about just what's going on in the debt markets.
Speaker 4:Yeah, I mean someone else take this, but like that's the hardest thing in buying real estate right now or owning real estate financing, I think um well, let's just keep going on it like is it a function of um.
Speaker 4:It's a function of interest rates impacting debt coverage ratios, which impacts ltvs, and therefore ltvs are coming back low yeah, obviously like that's kind of the issue right yeah it's obviously like the issue, but like it's also like timing and banks not wanting to do business and everything takes forever to get the appraisal in and for someone to go and underwrite and then commit. There's a huge song and dance and then obviously it all comes. Banks don't really want to do business right now is what it feels like. Maybe they do, but it depends on who the client is. But obviously interest rates are very, very high, so it's just very hard to get acquisition financing on a deal at the right LTV. It's very hard to refinance a deal and get what you want out. That's why we're selling so much new construction building. It's just very hard to deal with banks. I'm envious of people that have, like the family funds that could just buy the stuff in cash because they have such an advantage over someone else right now, absolutely.
Speaker 1:It's amazing it must feel so good.
Speaker 4:Yeah To not have to worry about getting financing.
Speaker 1:If you, if you can offer a seller a real like close in two weeks or close closing 30 days, and it's real man, you could probably get some really good deals. Yep, you have to be putting it out there. That would be.
Speaker 4:And people are People are.
Speaker 1:People are getting really good deals for being able to close quick and certainty of execution For sure, all right, good. So you know, I think that kind of wraps up what I had here on the agenda.
Speaker 4:Does anyone have anything else on financing, I mean?
Speaker 2:other than from what I hear from Mortgage Broker saying it's just a pain and it's just extremely time-consuming and very long for people to get financing. Our Mortgage Broker that we talked to he said that every deal he's happening right now. He's stressed, it's never been.
Speaker 4:Every deal, no matter if it's cookie cutter or not, there's issues with it. That goes back to what I'm saying the bank. Everything is so hard.
Speaker 2:Not only issues, but it's like if you have no relationship whatsoever, it's not happening. That's what I've been told, at least.
Speaker 3:I'm also hearing, just like the amount of banks that are actually out on the street like lending is decreasing, right Like so there's, there's only a handful that are that are actually out there trying to make deals right now. So yeah, they'll say they're trying to make deals but they're not Right.
Speaker 4:They will at like some stupid cap or some stupid interest rate and like, yeah, if you give me like 700 K and I hold it forever like there's that.
Speaker 1:Right, yeah, for sure, the whole relationship thing which is really just a discount on the loan proceeds by like 10% yeah.
Speaker 4:And then they don't really actually give you a return on all that money. They make a return.
Speaker 1:Yeah, they make a return and you sit there and make zero interest rate and then they lock up all your money and they want 10% of the loan.
Speaker 4:Yeah, that's cool, that's, but they're lending quote unquote.
Speaker 1:Yeah, I hear you alright, so any any takeaways from the discussion? Anything else that you think is worth hitting on? Adam, it looks like the wheels are turning.
Speaker 3:No, I'm just really optimistic on the year, I think coming into January, I think all of a sudden there's just been a lot of contracts getting signed. I think in terms of stuff that I'm working on, we're bringing out a lot of product in Manhattan, fully stabilized, some really nice building up west side, a nice free market building. In Tribeca we just put a nice corner property, condo development, condo redevelopment and park slope and contract for a nice number. I think things are moving right now and I think this is going to be a great year, especially for sellers and for buyers, because I think we're in a rising market and I think things are doing really well, that's what that market seems to be humming pretty well, like the park slope, cobble Hill area, I mean with what you guys are selling and what's going with some of the prices that I see there.
Speaker 1:I mean, we were just talking about it earlier, jj Reddick saying selling his townhouse for $2,500, but is, yeah, 2,500 a foot, it's 13 million. It looks nice, it looks like it's a lot of cash.
Speaker 2:Yeah, it's just like it's a lot of money being spent he just got renovated.
Speaker 1:It was a full gut and it was.
Speaker 4:it's like other people come to the Brooklyn and buying a house builder For our business though, like macro, macro, if you can show like these people that have raised capital or have money to spend, if you can show them like a path to do it, like or they're going to buy something and get renovated and get some huge rent or sell it to condos, they are pushing the envelopes so much to be able to try to make a transaction. To be able to try to make a transaction If there is a path for them to do whatever they need to do. I've heard some of the most lofty rent projections ever. I'm going to get $30,000 a month for this three-bed, three-bath in Tribeca. I've heard these numbers and those could happen, but if they can make that argument and get investors to do it, they are pushing pricing as much as they can, because everyone needs to buy deals too. They need to.
Speaker 1:They need to buy deals, so people are very optimistic in terms of where costs of housing or values of housing is going and values of rent. Is that right Correct 100%?
Speaker 2:And then also they're projecting what when they finish these buildings. How long does it take to finish? Like two years.
Speaker 4:Yeah or maybe over two years.
Speaker 2:I mean best case scenario. For some of these projects it's two years and it's like where's the market going to be in two?
Speaker 1:years, and where are interest rates going to be?
Speaker 2:I mean a of people are making that bet that it probably interest rates hopefully are going to go down and with the new administration especially things that they're seeing Less regulation. Like they're going to they. That's also why. I think they're being so aggressive, but maybe I don't know if interest rates are going to come down? I mean, maybe they come down a little bit.
Speaker 4:I mean, unless Trump can like it, puts a drum pal on a headlock and makes him do it. I mean, look, trump.
Speaker 2:It seems like it's been there for like four months. It's not the Fed In terms of us.
Speaker 4:it's the Treasury, it's not the Fed, it's all the 10-year Treasury. I saw a post on.
Speaker 1:X that Elon Musk made, where he said if we can get government spending under control, get like what's going on. He said the 10-year Treasury will drop, which will obviously be very good for the economy and the market, as a whole. I have no clue what kind of truth there is to that, if he says it, it's probably right.
Speaker 2:It sounded good. They're doing some cutting.
Speaker 1:But I guess that also leads to inflation, at least in terms of rent growth and property values going up in value. So yeah, who knows? Hopefully interest rates go down and we get some relief. I think, as long as the stock market stays high and stays humming, I think once we get some relief on the rates, you're going to see the market just explode in terms of activity. It's not like we haven't already. We're already experiencing it like just a huge amount of transaction activity, but we're still at at a sticky point with where interest rates are and people's ability to get financing.
Speaker 2:You're still seeing the right product.
Speaker 1:The right product is moving. I agree with Adam's optimism. I think there's a lot to be optimistic about, because 2024 was, in a way, where the interest rates were a tricky market. It was a little bit tough. Things got slow at points in the year and now things feel like there's a lot of activity Not as tricky as 23.
Speaker 4:23 was the trickiest.
Speaker 3:Well, now you have certainty. We know where rates are at, you know where the rental market's at, All these obviously new regulations of development and the elections behind us, the election behind us, we know where we're at.
Speaker 3:We can underwrite deals now, in 2023, 2022, 2024, when things were changing so rapidly, it was really hard to price stuff out. By the time it went to, market rates were changed drastically. Values were changing so much. I think the market's stabilized. I think it's going to be a great year, especially for our company and for the broader market in New York.
Speaker 1:Good stuff, this was fun. It's been a while since we did this. So good to get the guys talking about real estate again.
