Jan 17, 2020
Welcome to the Newest New York Real Estate Update from Brooklyn Made.
This year we’ve seen more big real estate moves in play, and see developers marching on with new projects that will continue to change the skyline and living trends over the next few years. The data continues to show the market is changing. Though there are a variety of factors that could tip the market, either way, this year.
In this special episode, we’ll dig into the latest data and the most notable trends of the year. What’s happened in 2019, what to look forward to in 2020. Plus, the most impactful factors to watch over the next 12 months.
Make sure to check out our special report on the next 100 years for Brooklyn and what planning and developments are going into place to shape it and sustain its place on the map and a more prosperous community for all those that call this borough home.
The Real Estate Market in 2019
Looking back at our annual report this time last year it appears we called the market pretty well.
The main theme 13 months ago was the peaking of the market. While new records were still being set, there were signs of some correcting. We’ve seen a lot of the same trends flowing through 2019.
There have definitely been undeniable cracks deepening in some segments of the market. Yet, we’ve also seen some parts of the market outperform expectations, stay stronger than expected and even rebound.
A dive into Brooklyn rental market statistics shows that overall the market is holding quite well, and prices are still high. Even though some gains maybe only being maintained by an equal amount of discounts, and landlord concessions. Though this gap may finally be closing.
Still, it is impossible to deny that the data also shows that home sales are dropping off, more price cuts are happening, and both residential and commercial buyers and renters are gaining more negotiating power out there.
Yet, on the commercial property front, America’s largest corporations show no sign of lack of appetite for new offices. In fact, some continue to set records with big, bold deals in prime locations.
Factors that have been affecting the market and influencing these trends include:
One of the things everyone seemed to get wrong about 2019 was rising interest rates. In fact, global interest rates appear to have reversed course. Internationally negative interest rates have become more common. There has been more talk of pushing US rates to zero or below.
While some mortgage rate offers are approaching the 5% range as predicted, Bankrate also reports many lenders are still offering long term fixed-rate mortgage deals at under 4% as of January 2020.
Access to mortgage credit now appears to be more of a concern for 2020 than interest rates will be until at least mid-2021.
2019 brought some incredible new master-planned projects to the market in New York. They’ve added a lot of additional commercial and residential inventory to the marketplace. At least one developer has been sitting on 1,000 plus unsold luxury condos. Many have gone unsold for years.
However, the amount of inventory hitting the market is expected to drop significantly this year, providing better balance in the market. Then it will grow slowly with new deliveries hitting the market more modestly though 2022.
One of the most surprising and unexpected turn arounds of 2020 is retail. It’s no secret that Manhattan and even Fifth Avenue have been some of the most affected by the big shifts in retail over the past couple of years. Now, in the past few months we’ve seen a few major retailers attempting to stage a come back with brick and mortar, and even some very notable online and tech businesses setting up real shops on prime shopping strips.
One of the biggest fails of the year, and perhaps the decade has been the demise of WeWork. The office giant who tied up an enormous amount of prime office space, and then lost investors tens of billions of dollars in value. We likely haven’t felt the full impact of this yet.
Perhaps most impactful of all in 2019 was the institution of new rent controls and regulations favoring tenants over landlords. This definitely has caused concerns for real estate professionals, lenders and investors in both California and New York. These types of rules haven’t detracted from the demand for prime properties in these areas in the past. Though they certainly don’t ever seem to work to really help renters or the market either.
The one bigger threat to the markets and national economy in 2020, is an expansion of California’s recent regulations ending freelance and remote work. With some 12 million freelancers on a single platform as of 2019 and as many as 60% of Brooklyn workers now working remotely, the impact of rules like these spreading to New York could create unemployment at the highest levels ever seen in America. It could be triple the rates seen in the Great Depression in the 1930s.
The National Property Market
While all real estate is local and every market is very different, one of the most significant metrics over the past year has been house prices.
According to Realtor.com, the average asking price for a home peaked in May 2019 at $315,000. The Federal Reserve Bank of St. Louis even puts the average price of sold properties in Q3 2019 at over $380,000. Yet, as of January 2020, Zillow reported the median sales price of a home in America at just $236,900.
Multifamily and other types of real estate have stayed in demand as domestic and international investors maintain their appetite for US property and search for yields and a safe way to diversify from the inflated stock market.
Most Notable Property Deals in 2019
2019 kicked off incredibly strong with the record setting penthouse purchase by Kenneth Griffin for $238M.
The biggest success of 2019 may have been the grand opening of the $25B Hudson Yards project.
The most newsworthy was the deal that didn’t happen. The Amazon HQ2 debacle. The $2.5B deal in Queens that was ripped up due to the extreme incentives and breaks being used to secure the deal. Amazon has since announced it is leasing over 300k square feet of additional space in Manhattan.
New Rules & Taxes
It’s been a great and terrible year for taxes for New York real estate owners.
Many are still coming to grips with the SALT tax deduction limits imposed starting in 2018. New ‘mansion’ taxes and real estate transfer taxes have added a heavy burden to sellers. Nassau County on Long Island has been especially hard hit. The county recently reassessed every property at peak values, resulting in many owners seeing annual property tax bills soar by as much as 50%. There is also talk of ending property tax relief checks which could further hurt lower end property owners.
At the same time, local governments are still buying and holding property, which is taking revenue from tax rolls and increasing the burden on taxpayers.
This year’s presidential election is also likely to significantly hinge on taxes. Some candidates have been very vocal about their goals to dramatically increase income taxes and implement a whole barrage of new real estate-related taxes, including a 25% flipping tax on investors.
At the same time, NYC real estate investors have also enjoyed another year with many great tax benefit opportunities. They have included investing in real estate tax-free with self-directed Roth IRAs, Opportunity Zones, and 1031 exchanges. We never know how long these breaks will last, but they should remain available through 2020.
As April’s tax deadlines approach investors should be seizing on the opportunity to restructure portfolios, maximizes write-offs, and max out contributions to self-directed 401ks and IRAs.
Biggest Factors Impacting The Market In 2020
What’s in store for 2020? These factors will be major influencers in what we are reporting in a year from now.
An anticipated surge in commercial mortgage lending could help support the market through 2020. Leading this charge is life insurance companies who have said they plan to invest another $150B in these investments.
The one thing that could derail these plans to plow billions more into the US commercial market is mortgage defaults. At least one of NYC’s most notable investors has already been losing properties due to defaulting on loans. That together with any deep correction could put the freeze on new financings.
Declining residential property prices will be a significant factor too. Defaults on loans could lead to more discounts on the new Manhattan luxury condo inventory. Much of which has been sitting on the market for years. When home and condo owners start seeing hundreds of thousands of dollars in equity disappear and high rates of property owners in negative equity situations rise, fear can set in.
All eyes are also on Manhattan retail. It is can really make a come back it will give markets a lot of fresh confidence. If they don’t pull off this new return to brick and mortar, then Brooklyn could be a major beneficiary as more retailers move to this borough.
Tech will be a big driver too. Not only because the largest tech companies have been buying expensive chunks of NYC real estate. The efficiency new technology offers real estate investors and property managers will make all the difference over the next 12 and 24 months too. New tech tools mean being able to invest more accurately, and operate leaner and more profitably, even if rents are going up and asset prices remain high.
Thanks to California’s crippling new laws, including the CCPA and freelancer law that went into effect on January 1st, 2020, more and more tech companies and startups are likely to choose NYC as their preferred headquarters. We’ve already been experiencing great traction in the creative loft and small office space market. There are great opportunities in this space to acquire assets, raise rents and generate cash flow.
Of course, the number one factor this year is the presidential election. Expect plenty more chaos in the media and plenty of misinformation and fake news. Some will tune out, keep focused and make the most of the investment opportunities. Most of the herd will let their emotions get the better of themselves, sit on the sidelines until after November and then miss out.
What To Explore Now
Don't get so busy in your business you forget Valentine's Day. Here are some ideas to make it a special one, and some of the NYC spots to check out and help you fall in love with your city again.
For those looking for a break from the cold and snow, this can be a great time to vacation around the globe while your real estate investments in NYC keep putting money in your bank accounts.
Top destinations for this winter include:
It has been a busy year in the New York real estate market. Big players, buyers, and developers haven’t been shy. In fact, we continue to see a run of aggressive new projects coming onto the market. Brooklyn continues to be one of the biggest beneficiaries of this action and is receiving much of the investment capital. Manhattan condos and retail are facing some trying and uncertain times. Though there are many economic factors that could impact the direction of the market in this new year. Looking at the big picture, not much is expected to change. NYC real estate will always be in high demand. In the short term, there may be some great opportunities for those who can move fast between now and the 2020 election.
Well, that’s it for this month and year’s round-up. Look out for our other upcoming reports, and check out the latest data on the Manhattan and Brooklyn residential and multi-family market, and which features and neighborhoods are yielding the best rents at NewYorkMarketReports.com.
Thank you for being loyal listeners and readers this year. We’ll see you in 2019, with plenty of fresh new information.
Make sure you like and share this report, and leave your comments on this news, or any trends you think we overlooked or you want to hear more about in the comments section.