October 2022

“I am waiting for the market to crash to find great deals.” – NYC Retail Property Buyers

“Someday never comes.” — Creedence Clearwater Revival

I’ve been a retail real estate broker in NYC since February 4th, 2001, through multiple downturns, upturns, and side turns, and each one has been different. Through it all, I have heard the first quote above too many times to count. The refrain has surged to the forefront yet again in recent weeks.

After the Dot Com bust, some retail markets faced headwinds while others experienced explosive growth. The financial crisis and great recession were rife with their own contradictions. And as we leave the pandemic behind, instead of a rush of property bargains, we see a number of would-be sellers simply waiting for a more favorable time to offer their properties. I myself have taken several great retail properties off the market, because the market isn’t where my clients wanted to transact. Overall, there are a lot of hopeful buyers, but not a lot of retail properties on the market, and the hoped-for under valuations just aren’t there.  

The other consistency is that times like today are when long-term investors get their biggest scores and most profitable deals. And that’s for a couple of reasons: (1) The retail leasing market in going up, with recently signed leases likely to be below market soon (some are already); and (2) It’s better to buy into a high cap rate with a high interest rate, than a low cap rate with a low interest rate. If and when rates go back down, refinancing will increase properties’ liquidity, and as one investor told me, “I won’t need to compete again [with other buyers on the open market] for the cash flow.”

In short, capitalization prospects should hold at least as much weight as economic forecasts. One way to evaluate those prospects is to ask yourself, “How would the lives of the people in this area change if these retailers left the building?” How we shop is a reflection of how we live.

Taking all the above into account, the biggest challenge to buying NYC retail properties right now is that a buyer can enter into an agreement with a loan quote from a bank, only to have the bank renege on the quote 30-45 days later because the Fed fund has changed again. Financing can be a moving target.

We must always keep our eyes on the horizon, but we will also do well to keep our eyes on today. Remember that during Covid, investors kept waiting for waves of distressed properties that never came.

—–Trever Gallina is a Vice President at Marcus & Millichap. Specializing in Retail property sales in New York City. 917.692.992