Real Estate
When we first came to NYC, we lived on 28th and Madison Avenue. The neighborhood was close to our work; we could walk, and we didn’t realize that this area was filled with SROs, prostitutes, and drug dealers. It was the 80’s.
We would walk down to the village through Madison Square Park, not a pretty sight, multiple times a week. It took little to realize that owning real estate is a significant asset. Admittedly, I was obsessed with buildings that were only for parking cars. There is only a little upkeep on a car lot.
US real estate is an asset class divided into residential and commercial. The asset class is different in other countries, where they have figured out a way to keep the cost of real estate, which means purchasing and renting, down to a price that fits into the economy.
The cost of residential and commercial space in cities has gotten so high that I wonder how long this can go on. Too many people have jobs but can’t afford a roof over their heads. How does that change?
A case is in front of the DOJ accusing Real Page, a real estate software developer, supposedly colluded with landlords to keep rents artificially high. Unclear where this case ends up but I know countless people who got deals during COVID only be told after the pandemic subsided that their rent is now going up 75%. Yes, 75%.
Commercial real estate is also questionable right now. A few weeks ago a $100m property was put on an auction site, highest bidder wins. Supposedly in the past this has been a good place to sell but this time a commercial midtown building that was being auctioned off, had only one bidder, for $8.5m. And that bidder now owns a building that was once valued at $100m for a steep discount.
I am not sure where all these small red flags are going but there are ample vacancies in the city that are sitting there empty with landlords hoping for higher rents. The only thing that changes the value is building more residential real estate. As for commercial real estate, no matter what people want to believe, nobody is every going back to a 5 day workweek at the office.
The conversions to commercial to residential speak volumes. Significant buildings are being converted from commercial to residential but that does not fill the void and needs of many residents who are vital to our city who can’t afford housing. Will the zoning change? What will these areas look like in a decade?
At one point, something will shift, and what happens will be interesting to watch.