Prices for Manhattan Office and Multi-Family Properties at or Beyond Peak Pricing

---

Prices for office buildings and apartment properties in Manhattan are going through the roof, and in Manhattan, those roofs are very very high. That is essentially the message from the CBRE Group, Inc. Winter 2013 Manhattan Capital Markets Report released on Monday.

On average, valuations for prime office properties in Manhattan are approaching levels seen in 2007, at the market peak, and valuations for similar quality multi-family housing assets have already surpassed peak pricing, according to an Office & Multi-Housing Capital markets report put out by CBRE Global Research and Consulting on Monday.

According to Bill Shanahan, vice president, CBRE Investment Sales Institutional Group, "Capitalization rates are near 2007-levels, but with current low-financing the returns are actually better now," he says.

One illustration of just how bubbly the atmosphere has gotten in the prime office category, is a transaction which occurred last month: Sony sold its Sony Plaza, located at 550 Madison Avenue, for $1.1 billion to a group of investors led by the New York-based Chetrit Group, a real estate company headed by Joseph Chetrit. The firm also owns stakes in other office buildings including the Willis Tower in Chicago.  The sales price was more than four times what Sony paid for the building in December 2001, which was approximately $235.5 million, according to Real Capital Analytics. The stratospheric January 2013 price worked out to $1287 per square foot, which was confirmed by RCA.

As for Manhattan's multi-family market, the CBRE report notes that rents have passed their pre-recession highs. "Even when inflation is taken into account, multi-housing rents are at the highest levels recorded since CBRE Econometric Advisors began its index in 2000," according to the report.

There were fewer trophy assets sold in 2012 than in 2011 in Manhattan, according to the CBRE report. Although fewer trophy asset sales occurred only in 2009 and 2010, following the financial collapse, the limited number of these kinds of asset sales was not due to a lack of investor interest, according to CBRE. The limited number of buildings for sale has made owners hesitant to sell their trophy assets because they may not have a suitable reinvestment option, says the report. "As a result, there have been an unprecedented number of partial interest transfers, refinancings and recapitalizations, which allow owners to monetize an asset while retaining the option to sell at a later date," according to the report.

Debt capital is more widely available than at any point since the market peak in the 2005 to 2007 period, according to CBRE. Although underwriting standards are more stringent today than before the financial crisis, there are more lenders to choose from, and they are more aggressively going after assets than at any point since the financial crisis, according to the report.