Anyone familiar with NYC commercial real estate?? I am… idea- Shorting brokerage firms CBRE or MMI

by bsd65

If anyone is familiar with what happened in June to the NYC commercial real estate market, they know there’s been major panic and major drops in pricing / much lower transactions.. funds and investors are simply sitting on the side line as the new rent laws completely diminished all future upside / value – add to rent stabilized properties, which is the majority of the housing market in the 5 boroughs.

I just checked and major brokerage firms such as CBRE and MMI have yet to announce Q3 results.. I personally am very familiar with NYC brokerage and there has never been such panic / drop in transactions since the recession.

However, I have no knowledge of investing in the stock market. Those brokerage firms I mentioned are nationwide however NYC is a beast of its own and even if there are 5 major city markets for the firms, just having 1, especially NYC, take such a huge fall, should of course impact their stock pricing… yet it clearly hasn’t since June…

Furthermore, I believe, although I’m not sure, it’s always about investing against the grain… well in this case, go take a walk down NYC and ask anyone if their familiar with commercial real estate and where it stands.. I’m talking 40% drops in values on rent stabilized buildings.. let alone buyers completely have dried up as they are waiting for cheaper and cheaper prices… (I’m not talking about the residential sales market which is all you hear about in the news)…

Long story short… you used to be able to take a rent stabilized tenant, buy them out for however much money (as long as they agree), and get 20% bump in rent immediately, then 1/40th of your renovation costs to the apartment.. then if that passed a threshold of $2700, you’d destabilize it and make it free market..

For instance – $1000 tenant leaves a 3 bedroom unit, then that becomes $1200.. then you’d invest $100k for arguments sake, that adds $2500 (1/40) to the $1200.. equaling $3700 legal rent.. that’s well over $2700 threshold so you destabilize.. now you can charge whatever the market rent for the area is.. 3 bedroom let’s say in Bushwick in Brooklyn is $3k appx… so you tripled the income on that 1 apartment..

New laws- take that $1000 tenant.. you no longer get the 20% immediate bump AND for the first 15 years, you only get 1/168th of a $15k cap which equates to only $80 and change… so that $1000 apartment now becomes $1080, then for the next 15 years after the initial 15, you can do that one more time.. so let’s say that $1000 apartment goes only as high as $1200 appx. In a span of 30 years… after 30 years, it rolls back to $1000!

I’m currently selling a 6 unit in Queens that 2 years ago was worth $1.6m… right now it’s selling for $900k… and to even find a buyer interested was hard enough because the markets only going lower so investors are simply holding off investing until they REALLY “feel” a bottom…

One other example.. I had another 6 unit in contract pre-June that was going for $1.8m… the new laws hit mid-contract period and the investor negotiated the seller down to $1.4m or threatened to tie the seller up unless she returned his deposit.. and that 1.4 itself is too much for the building as we speak..

 

Thoughts? Especially from someone very familiar with NYC commercial brokerage as I am?

 

 

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.

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