Robert Ranieri joined four other NorthMarq Capital producers to discuss and answer questions regarding tertiary and secondary markets. In his responses he pointed out challenges, such as the possible concern of oversupply in the multifamily market in Westchester and Fairfield Counties, and opportunities, such as Fairfield County’s 18+ retail properties traded in 2016 (allowing for more chances for acquisition financing in the market). Read Robert’s responses below.
1. What property type/niche are seeing/hearing about in your market? What conditions make this possible?
Multifamily remains the base of transactions in Westchester County and Fairfield Counties though some concerns have arisen regarding oversupply in the more urban markets. Most development is transit oriented. Suburban areas are typically retail driven as the markets are littered with single family homes. Retail is mostly small strip centers and there has been good trading activity in both Westchester and Fairfield Counties creating strong acquisition lending opportunities. The retail demand is for supermarket anchored centers. Office space is slowly coming out of the basement, though still seeing average vacancies of 20 percent. The Westchester County market saw a 1.8 percent decline in employment in the first quarter of 2017 which puts a slowdown on office space recovery. Fairfield County was down just 0.5 percent in the first quarter but office is driven mostly by larger spaces leasing or coming to market. Leasing activity has been strong in Fairfield County, driven by Stamford with 237,958 of the nearly 630,000 square feet (up 80 percent year over year) in the first quarter. Vacancy increased by 240 basis points, but this was due primarily to 550,000 sq. ft. coming online between two properties in Stamford and Norwalk. In general, the market is in good shape.
2. What type of borrowers/lenders are in your market? For example; is it primarily agency or are bank and life companies also part of the mix? Why?
Borrowers in Westchester County tend to lean more towards bank lending, having smaller portfolios, and accepting the recourse that banks require in favor of a simple underwriting process and competitive rates. Life companies remain competitive for those borrowers looking for non-recourse but cannot always compete in the market on leverage. Agency lending is in the mix for borrowers who have experience with the more detailed underwriting process but they are not always competitive with the banks on rate for new customers with smaller portfolios. There is still many family owned borrowers in Westchester and Fairfield although the office sector is dominated by larger institutional players. The new multifamily development is also mainly larger institutional players.
3. What are the unique challenges facing your market?
In the urban areas of both Westchester and Fairfield Counties there has been some concern of oversupply in the multifamily market. Westchester County is expecting over 1,300 units to come online in the next two years while Fairfield County is expected to see over 1,500 units. Demand, while steady in the markets, is expected to lag behind these numbers creating an upward trend in vacancies. Westchester should fare better as inventory is more spread out, but Fairfield County is already one of the highest average vacancies in the region at 7.4 percent. Both these counties are experiencing higher real estate taxes and some movement out of the area to cheaper cost options.
4. What are the unique opportunities present in your market?
There have been limited sales in Westchester County, but Fairfield County saw 18+ retail properties traded in 2016, creating opportunities for acquisition financing in the market. Larger scale buyers and anchored centers allow for life company executions. Real estate fundamentals are still relatively strong but Westchester and Fairfield do well when NYC does well. Any downturn there, hurts us here.
Read the full story here.