As the summer of 2004 draws to a close, the beat of the New York real estate market continues to resonate ever so loudly. Apparently, the summer doldrums do not apply to the red hot condo market or practically all segments of the market for that matter. Investors continue to repress the fears that so many talk about but refuse to accept. I hear many active investors voice concerns about rising interest rates; which most believe will increase as we approach the election and move beyond. Certainly, Chairman Greenspan has given us good reason to believe that monetary policy will only tighten and there is a general feeling that this may be our last chance to “lock into” the lowest rates we may see for a very long time. Another fear is the prospect of operating expenses, namely fuel and insurance costs, outstripping the rise in rental rates and culminating at refinance time when rates that were locked years earlier may need to be refinanced at less attractive levels. And of course we all fear the unthinkable event of a serious terrorist attack close to home.

Now with all these elements at play, coupled with the fact that we all know “what goes up, must come down”, you would think that the investing community might take a more cautious approach when reaching for a deal. Wrong. More and more “players” have entered the market. The more “established players” continue to be a driving force in pushing up values. Capitalization rates continue to decline especially for condo conversions as well as ground up projects. Areas that once did not support new condo construction, now do and price points on a per square foot basis continue to climb to record heights. If land prices get too pricey for a condominium development, build a hotel.
What is contributing to the depth of this market? From my vantage point overlooking the many mortgage transactions my firm arranges each year, I continue to see what appears to be an endless supply of capital available for almost all property types from lenders of all shapes and sizes. Lenders are in the business to lend and their need to increase shareholder value has ripened the environment for acquisition and development. Of course, there is adequate demand on the opposite end of the equation for the space being created but I feel that the real push is coming from the front with a huge availability of institutional debt and equity driving values to unprecedented levels.
It’s amazing. But New York is an amazing place and still the greatest city in the world filled with an ever optimistic investing population. Indeed, the New York Real Estate deal has always been the most romanticized way of creating wealth since the Dutch first settled Lower Manhattan centuries ago. I think this market has more to go.