Avison Young's Q3 2024 State of the Market

Take it away.

The emails would be a pretty accurate state of the market, but no, happy, happy to jump in. So starting off with sort of the, the, the office market really building off of the second quarter state of the market. So, so in terms of leasing activity where we find ourselves is up 25% year over year. So while we're still trailing sort of the historical Pre Covid average Q1 to Q3, we do find ourselves up 25%. And I think what's most important there is following Q2 we were up about 18%. So again momentum is building. I think we're seeing it and feeling it on a daily basis. Since COVID The only outlier year is 2022, which again is that year where we saw sort of some pent up demand from 2020 and 2021. But you know, where we're seeing that leasing activity, which we'll move to the next slide to break it down by tranche, by size. Here we go. Is you know, I think the true story here, which is 2023, 17% of deals in the market were north of 100,000 square feet. What we're seeing this year you'll see about 24%. Interestingly our market intelligence group pinged us because two deals hit our data set on October 1st. So that number is really more like 25% within 24 hours of sort of the quarter shift. But what we're seeing there, and we met last night as a, as a leasing team to sort of go through our Tim's and sort of share information. We are seeing a massive uptick in terms of 100,000 square foot to 300,000 square foot users in the marketplace. And what that will do for the market is really accelerate sort of this uptick in activity right where you'll see some, some large and medium sized blocks begin to go with, with I think more of a pace as we approach Q4 and Q1. So that, that's the real, real note there. Moving right along to available space. Look we, we have not been south of 19% since Q1 of 2021. So very happy to report that we came in at 18.7 with, with a real focus on direct leasing being the result of that. You'll notice the sort of shaded bar graph here of darker green and light green sublease space has really stayed pretty constant across the few last few quarters. But it's the direct, it's the direct deals that are driving this down which again I think is a sign that there's not as much quality sublease space out there and, and we're seeing folks signing deals with confidence, longer term deals. And then you might remember during the second quarter we focused on sort of the amount of activity happening in the class A market. What we've done this time around is focus on comparing Q1 of 2020. So right before COVID to as we approach Q4 of 2024 and what you'll find is we use 2010 as sort of a line in the sand. And you'll see on the left side here pre2010 construction in Q1 of 2020 had 12.7% vacancy. That number now sits at 18.8%. And on the flip side, post 2010 construction has actually dropped from 17.3 to 16.6%. So the flight to quality that you're, that you're reading about, that you're hearing about, that many of our clients and other tenants in the market are feeling is, is, is a reality. The nicer product, the newer and new product is the product that's moving. So again good, good work by our market intelligence team there. Tracking again our, the AY Busyness index which we introduced during our last report. New York continues to outpace the, the, the balance of the country as well as the, the US average sits around 60% where we find ourselves currently at 73.4%. A little plug here for our market intelligence team and sort of the data we, we use placer AI is the data that we lean on as opposed to card swipes or other indicators that are used by some of our competitors. Place your AI data really hones in on mobile data and, and that mobile data requires a two hour ping. It's a, it's a very accurate depiction of sort of I think the movement throughout the building. So again seeing it higher in Manhattan than you are the balance of the country. And this is comparing August to August. So I really look forward to seeing what September has in store and then breaking it down by on the bottom of this you'll see Midtown, Midtown south and downtown. Again comparing August 2023 to August 2024, you'll see there's a mild uptick across all three markets. And then further breaking down Midtown, you'll see that uptick shared in the bulk of the markets. But what we decided to do here is also show James the next slide the July comparison. We do have an outlier market which I'll speak to in a moment. But I think the real, the real story here is comparing July 23rd to July 24th. Midtown is feeling a 25% uptick downtown, 17% uptick. And then Midtown south about a 10% uptick, which I think tracks in terms of, you know, Midtown we are certainly feeling has sort of led the return. But downtown seeing a 17% uptick is I think a great indicator. In Midtown south, which, which leans very heavily in sort of the TAMI or the tech sector. It's no surprise when speaking to our team here that that market is lagging a bit. So July versus July. The real, the other story I'll note before, before we move along is Midtown west, which I think, you know, North Hudson Yards, North Penn Station, it sits over there on the, on the west side, home to sort of cbs, Viacom, some other large operators that have the sort of RTO set in stone at this point. So a 90% uptick year over year is really an indicator in sort of larger occupiers being more concrete in what they plan to do. And I saw a quick question come up around busyness. So again the ay Busyness index, which when we send around the report, happy to send a link to something we have available online that you can sort of slice and dice the market. But the busyness index is essentially our way of judging the return to office and the activity in the market. And it focuses, as I said earlier, on place AI data. So taking buildings, using mobile data to track the uptick that we're feeling post Covid. So that's and how we slice and dice it and sort of what buildings are used. It's broken down by industry, it's broken down by multi tenanted. Obviously we didn't show that here, but it's really an opportunity for you to see, you know, if you're, you know, a law firm relocating from downtown to Midtown and want to track sort of where you're, who's getting the most employees back, you can focus in on legal and focusing on the submarket. So hopefully that answers the question and sort of concise way. But, but that's it. James, I'll turn it back over to you.

Awesome, thanks so much, Rory. And I think also of note not just how Manhattan is outperforming the rest of the country by a pretty significant margin. I still call it return to office. I know we're now calling it busyness. We like, you know, things being busy, but I know we're also a top three city as far as that return to office and I think only outpaced maybe by Dallas in one secondary market. So that's certainly good news as well. Okay, so now we'll Talk about what has taken place in the investment sales market. Again, this is the major food groups, multifamily retail, office development, over $5 million with the exception of retail, where we dip down to $1.5 million. And you can see 15% increase since last quarter for $4.6 billion in trades. Annualizing this $15.5 billion, still only about half the 10 year average, but a really significant improvement over last quarter. You can see really Brooklyn doing a big part, driving the way with a billion dollars of trades. Manhattan with over 3 billion. And we're starting to see more significant transactions. Sixteen trades year to date, over $100 million. And what's amazing is this, if you think about the sales reports, this is really a rearview mirror indicator because it always takes, typically takes 60, 90 days, sometimes even longer, as Scott will tell us later, to close the transaction. So this really tells us how was the market in April, May and June, maybe even early into the summer. And by then I think investors were hoping there was going to be a rate cut, but obviously we didn't even find that out until September 18th. And so all of this boosted sales activity happened without the benefit knowledge of an interest rate cut. It also happened before 45x was implemented. So I think those are only more positive things. But clearly I think what's going on here now is that, you know, investors realize that, you know, we've hopefully turned a corner here and are willing to jump back in and participate in the market. And there's a big reason as a result for the dollar volume going up. As far as the number of sales, not as dramatic here at 11% increase. And again, that's really just because it's the larger transactions that are driving that shift in dollar volume. Again, those 16 trades year to date that are over $100 million, we're on pace to do 532 sales across the city this year, which you know, is about two thirds what it was on the 10 year average of 874. When you look at it year over year, it's definitely more significant. So if you annualize this year, the dollar volume of New York City sales compared to last year, it's a 60% increase. Manhattan, 76% increase. Again, the larger dollar volume taking place in Manhattan, the number of sales a little less significant at 14% increase in New York City or 17% for Manhattan. So with that, and this is actually interesting as far as the breakdown of where the activity is coming from. And you can see that for dollar volume, okay, this kind of bottom of the stack, which is you have development. Excuse me, Office, which traditionally provided a lot of the dollar volume, certainly multifamily. But you really see the green up here. Stealing the show is development. Development accounted for 24% of the dollar volume in Manhattan. That was the highest quarterly percentage share since 2018. Going back to 2018, office accounted for almost half the dollar volume. Today it was 25%. So really, this quarter is a big story about development. It's a big story about conversion. Office to resi. So you see this on the number of sales here, not as impactful because it was really here, retail making a huge step up. Retail as a percentage of inventory. The overall asset class, certainly not over 25% of the stock. But here you see a lot of these smaller retail condos. We see them flying off the shelf. A lot of end users stepping up, buying space for their own use. That's certainly a positive thing. Now who's selling properties? Okay, this is interesting. So right now, 43% of the sellers year to date have been private. And you see the institutions finally getting off the sidelines, feeling better about transacting almost 30% of the sellers institutions year to date, compared to 18% the two years prior. You see less foreign sellers. A lot of them were very active in 22. We'll see on the next slide, slide on the buyer's composition. So in last year, foreign buyers were over a third of buyers of the investment activity, and now that dips to 19%. Now, I do not see that. We do not see that as a negative trend. What that means is a lot of domestic buyers, institutions getting back in the game. A lot of the foreign buyers. And Even look, in 2020, 31% of the activity was coming from these foreign buyers at that point, many of them cash, not relying on financing. So no surprise that they were a big percentage of the dollar volume last year. But now, as Scott will tell us later, with financing kind of easing up and becoming more available, we're seeing the domestic private buyers really kind of take a dominant role. And so I think the next opportunity here that we see is for the institutions and the REITs to really get involved. And I think on the tail of the Blackstone acquisition of the ayers community, a $10 billion acquisition of the company that whose portfolio consisted of multifamily in the gateway cities is going to bode very well for. For the market. So we'll go ahead and now talk about the multifamily market.

Thanks. Hi. So, yeah, I'd say on the, on the Multifamily front. I'd say the best way to describe it, even in terms of, you know, dollar volume numbers, it's really just been steady. Eddie. I think more of the same is, is probably a good way to put it. Where I think we will see an uptick is going to be on the value add side. So for a long period of time, syndicators who, who do, you know, compose a large part of portion of the buyer pool, they struggle to raise equity. Right now you speak to these, these same groups and they're finally if anything over subscribed and just unable to find opportunities. So that's going to be probably your biggest shift on the value add properties that we've been working on recently. That 5 to 10% spread that we weren't able to bridge the gap on, you know, we're definitely able to do that right now on the renovated product. It's, it's pretty similar. I think that there's definitely an uptick in demand. We're signing contracts a lot with foreign buyers as we have been. We have seen an uptick so you know, we have to see how that plays out. But definitely starts to feel like things are getting a little bit better. But it's, it's still early so we can go to the next slide. So these are the three major sales. So there's 20 exchange place. That was an office conversion that our, our friend Scott Singer financed back in the day. It was purchased by Dermot for about $470 a foot. They're going to go in, they're going to renovate the units. I would say, you know, you hear $470 a square foot, it sounds pretty low. For these type of buildings that were converted, there's a huge amount of loss factor. So on the net square footage it's going to look a lot different. PH Realty Portfolio this is, this is your perfect rent stabilized story. So this was purchased at 138000 a unit. It's like 118 a foot. 85% rent stabilized across Brighton, upper Manhattan. The big thing here, yeah there was a 40 drop off from where these purchase, where these buildings were purchased previously. You know I think that just kind of goes, that's the before 2019, after 2019 story. 275 Park Avenue. This was just, this was another building that was purchased by actually a group that historically had bought in other asset classes. They saw an opportunity here. Attractive cap rate, some upside in the apartments. So that was purchased by Thor.

It was the Chocolate Factory, right?

Yes, yeah, that was the chocolate factory. Exactly.

Brandon, I'm sorry, I don't know if you mentioned on this last slide, I know we talk about the average.

Yeah, yeah, I did. I talked about it earlier today.

Yeah, we had a big discussion on how widely the cap rates can change based on is it regulated, is it fair market, is it 421A. So just, I didn't want to jump over that, that we do.

Yeah, as I was, you know, I, I, as I said earlier, I struggle with average cap rates because you know, there's a very different, there's a huge difference between a, a value add building in the West Village with a ton of upside compared to a rent stabilized building in fidi. You know, that someone might see as a depreciating asset, which might be that 7 cap. But yeah, the average is, I guess you can look at the average as an overall 5.3% cap rate. You know, these are backwards looking. So that wouldn't have factored in any of the, any of the, the rate decrease that we saw, you know, towards the end of the summer, which has now started to move back up. But yeah, I think, look, I think it's people just believing that things are going to get better so they're willing to pay a little bit more than they would have, you know, six months prior, three months prior, and hopefully it keeps trending in that direction. And you know, but as I always say, I'm not, I'm not an oracle, so I don't know, but hopefully we keep heading in the right direction.

Well, you do see the range and how wide it is. The cap rates range from a 4.2 to a 7 cap and on the price per foot, 421 to 2500 a foot. So that's pretty dramatic. But it just, it really shows that, you know, would you really just look at these averages as just that and kind of a barometer of the market. But obviously every asset is very unique in that regard. And so if you ever want to get into specific cap rates and comps, we're happy to do that. Okay, so next for development here, we've seen a huge uptick in not only dollar volume doubling over the previous quarter, as are the number of sales, but look at this average price per buildable. Again, the range, we have to point out 279A buildable all the way up to 1135 a foot. And this is where we see outliers. Whether it's an assemblage pie, you know, maybe it's a Madison Avenue prime site. But where these are averaging out are in the six hundreds a foot again for really driven by the condo activities. So that being said, the number, the volume of buildable that's being added is still, you know, well below the 10 year average of 4 million square feet. Thinking back to peak of the of the market 2007, I mean there's close to 10 million square feet built in Manhattan. So again, 45x, you know, HPD just came out with the guidelines, the applications, I mean the developers are running numbers on sites now as we speak, but we don't think that the development will, those sales will not really be registered based on the 485X program until next year when it really takes effect. So from here, you know, as a result you could see that the number of units being produced in both Manhattan and New York City is still nowhere near on pace to fill the void of 500,000 units the city says that we need. You know, last year was only 12,000. This year we're only at 10,000 year to date. So again we really need 45x to jumpstart more development. Unfortunately, as many of you have been hearing, the 150 plus units, those become more challenging with the increased labor costs, the deeper level of affordability. But we're certainly getting plenty of activity in the 149 units and below unless really priced accordingly. Okay, so let's talk about some of the development here, Brandon. 625 Madison being a pretty significant one.

Yeah, I'll try to be quick. This is actually purchased by related. They're going to demolish that building and build condos. Historically wouldn't have been what you would have expected, but it should be an interesting project. 43 West street that was purchased on the waterfront by from Jack Gutman. So it's going to be a rental project. They're also looking to potentially carve off a piece of that site to sell to a condo developer. I think what you'll start to see and then obviously we have Fleet Place which will also be a rental. We're promised we're probably going to see majority of the sites in, in Brooklyn. You know those, a lot of those are still priced for rental development in prime areas where the difference between especially for a large scale site where you need to sell a lot of condos, it's a lot of risk. So if that site's trading in that 250 to 300 available range, it's a lot of condos. Someone might go rental there and then in Manhattan, you're generally seeing sites right now trading closer to 400 available. That does not generally pencil for rental unless you can hit absolute monster rents. So you're still seeing condos being developed and then maybe in some of the, call it secondary locations where lands trading closer to 300 a foot, maybe high, two hundreds. You could start to see some rentals in that range, but it'll predominantly be condo in Manhattan.

Great. Brandon, I see we're getting a question. In the chat, they said this is a New York state of the market. Why do you have a picture of a Dallas Cowboy behind you?

Sounds like Matt Tarpley. It's a good question. I may.

I'm just messing with you.

Oh, got it, got it.

All right.

Sounds like.

Okay, we digress. Yes, we, we know you're, you're a die hard New Yorker, but we know you love the Cowboys, so. Oh, wait, we got jets on there. Okay.

Just representing Scott.

We, we could definitely take some time to figure out what's happening with the coaching situation, the jets, but we got a lot to cover here, so. All right.

I have an undeterred call from Woody. Maybe it's me. Okay, good.

All right. Conversions were also, as we had mentioned, very active here at 80 Pine, 100 Wall Street. These are major office buildings converted for rental. Brandon, if you want to speak to 419 Park Avenue south, that was a trade that was slated for condo.

Yeah, sure. So this was a, this was an office building in. We'll call it Nomad. It's owned by Walter and Samuels, is highly vacant. Look, a lot of people looked at this deal and they were pricing this in the mid to high three hundreds. A lot group came along and paid them a number in the mid-400s a foot to do a condo conversion. So, you know, hopefully they do well. There's some successful projects over there like Rose Hill that Rockefeller did. And you know, I think that that's really it. I mean, it's, it's. It was purchased as a condo conversion by a lot group, so. And then 180 pine, those are going to be rental redevelopments. I think what you're looking at is kind of what I was describing earlier. You know, when you look at 100 wall or 80 pine, you know, those are big, big properties. Very, very risky to do a large scale condo conversion there. 419 Park Avenue South. More of a bite sized asset in a more prime location. So I think that's something you'll generally see for these types of assets.

Yeah. 80 Pine Street. 1.1 million square feet that was more than 80% vacant after AIG left. So Bushburg Properties purchases from Rudin for $145 a foot. Wow. 100 Wall Street. That was a 29 story building with almost a half a million square feet. David Werner teaming up with Lloyd Goldman to purchase for 116 million doll 250 a foot. Okay, retail here. We had doubled the amount of sales over the last quarter. With retail in particular, you see a lot of outlier sales. So I would not read into the fact that the average sale price was down by about a third. But look at these cap rates now averaging seven and a half. But once again we have to qualify that by. Look at the range anywhere from 2.9 to almost 13%. Now I will tell you that 13%, although it was in Soho, that was a leasehold that sold which is why we saw such a high cap rate. But yeah, I mean we're even seeing examples of triple net deals with credit brand new credit leases that are still in the 6 cap range. So that, that we'll see what, what where cap rates end up on that as, as we track where interest rates go. Okay, so let's talk about some of the major trades. ESRT and this is interesting that you have a major office landlord who's now making a big push into retail, specifically into North Brooklyn, North Williamsburg at $143 million. They purchased this from L3. So that certainly was a significant transaction. We look at Two Times Square, it sold for $99.2 million. Bando Construction buys it from Sherwood. This was a retail condominium with 207ft of frontage. This was a first time foreign buyer. And then 673 Madison Avenue. $36 million, $3,800 a foot. This is where your 2.9% cap rate came from. Although short term lease and no doubt is going to be a major redevelopment here. The Friedlands family who owns up and down Madison Avenue getting off the sidelines seeing advantage here to take down a prime corner. This is where Vyond Coffee shop has has been for over 45 years. Okay, so moving to office sales here you've got, look at this, an average of 382 square feet ranging from $184 a foot up to $1400 a foot. We basically stopped tracking cap rates because unless you had a fully leased office building, you know, these are really now more trading on a price per pound. And as Rory mentioned, huge difference on whether or not you're talking about a, a class A, A Trophy A class B or C. So that is certainly what we're experiencing there as we start looking at the various trades. 250 Park Avenue south here. JPMorgan Chase purchasing for their own use. Certainly a big trend of end users stepping up. They paid $616 a foot, a rentable foot I should say buying from AEW Capital. This was over a half a million square feet. Word has it that JP Morgan has already outgrown their office tower that they have yet to occupy. So looking to build a little bit of a campus in the area. Meanwhile, 180 Maiden Lane. This is 99C and they have been a very active buyer. This is from Banyan Street Capital. This was a 41 story million square foot office tower. Property was 68% occupied at closing and was part of a short sale that took place. Meanwhile, 446 Broadway Spear street capital purchases from KPG funds. This was 37,000ft. So it did register at a fourteen hundred dollar a foot price. Certainly the retail helped bring up that value. The sale had seller had previously bought the property for $46 million and spent over $10 million renovating. And the sale I think was very well also driven by a loan maturity. Okay, so historical pricing and you can really see with the exception of land that it really seems that hopefully values here are bottom bottoming out. Likely why things and sales volumes have picked up. Buyers are seeing opportunities. Sellers are starting to feel more confident to bring things to market. I know Scott's going to speak on that topic as well with many lenders coming off the sidelines getting more active as well. Meanwhile, cap rates, look at this again. Retail reaching 7% compared to 2018 where you saw sub 5 caps for pretty much every single asset class. So we certainly see this as a buying opportunity. So what are we watching in this next quarter? Certainly how much more will these rate cuts drive investment sales? I mean we think a lot just because again the psychology of the market is that things are turning. Buyers are sensing maybe they missed out on the bottom of the market and looking to jump in. A lot of dry powder on the sidelines. No doubt office to resi conversions are going to continue. The fact that so many of these have happened even without 467M rules going to affect. I mean many of these large conversions will no doubt use that but it's a great tax abatement. It's a 30 year tax abatement. You end up paying 10% of what the real estate taxes would be underwater otherwise. We think that's going to drive A lot of activity. As far as city of yes. And we haven't talked about what's going on in City Hall. You know, as far as just specific to city of Yass, this is already in motion. City Planning presented it to the city council. They have 60 days to opine on this. It really seems that hopefully there is support on this that should stimulate more development, give more density, ease parking requirements and also allow for a great portion of the city to have office product that is easier to convert. Bumping up that threshold of the late 60s of an office building and before to convert now up to 1991 and before that's going to unlock somewhere between 25 to 30 million square feet that will likely get developed. I think the total combined square footage of the office product just moving it is close to 125 million square feet. So I think that will certainly be well received. Okay, so with that I'm going to turn it over to Scott to talk about the state of the debt and equity finance market.

Thanks James. I appreciate it. For us we saw a shift in momentum to the positive at a time I didn't expect, which is early July. And counterintuitively it I believe it happened then or what we heard was a belief that the Fed was not going to cut rates. Numbers have come out that pointed to them not needing to and there was this capitulation that we felt that we are where we are with regard to pricing, pricing of debt. And so we saw a massive uptick in calls from investors and lenders who wanted to put money out and from owners who had been on the sidelines who wanted to buy. And then when the cut happened that I agree with James, that accelerated the FOMO and the desire to move. I think that as we started putting these slides together last week when the treasury was down, the 10 year treasury was down to 375. Now it was 4%. It was 405 this morning. And I think that the, what we've been focusing on often here is for existing, for borrowers with existing properties and the decision to make do I finance, where do we stand in that cycle and what, what may happen going forward? And from my perspective, looking at a lot of metrics that we'll go through, we we're looking pretty good in terms of where treasury rates are from a historical standpoint. On the spread side for most asset classes spreads are down substantially. Office is different and I'll dig into that. But on the other asset classes spreads are pretty good. We've, we have a couple multi family Deals that are out where we're seeing spreads that are, that are not that far above 100 over low 1/ Hundreds. And in my, I've been at this for 30 years. The proportion of the time that I've been in the business that there were spreads of for any fixed rate deals that were less than say 140 over is very low. So on the spread perspective for most asset classes we're pretty good. And in looking at the forward curve, which is where traders shows what traders are doing, they don't show a lot of momentum going forward, going forward for further decreases. So James, if you can go forward, I'm going to quickly run through what we looked at in thinking of similar things over the last couple years. So this is a slide from 2022 when the treasury had gone all the way up from under 2% for a long period of time to 287. And the question was, wow, borrowing rates are over 4 and a half percent, maybe even 5%. That sounds so high. And we were looking then at how high is a 287 treasury? And it was still, I started in the business in the early 90s, so going back to 20 to 1994, that was still 100 basis points below that average over the course of my career for the 10 year treasuries. So then when we went forward another six months and we did the next presentation in November, James, if you'll flip it, the treasury was up another 100 basis points. So now we had hit that rolling average of the, of the 30 years prior and started focusing on when was the period of time, you know, over my career when Treasuries were higher and so, and, and how much more. And then we did it again. I think maybe the next one was, it was a year later now treasuries were another 100 basis points higher. And so in bringing context to that we started looking farther back and this is a 60 year. I know it's hard to see the numbers, but the left side of this graph is 1962, which was as far as we could track back. So we saw a few things here. One was that the long term average 10 year treasury was 5 and 3 quarters. So still significantly higher. Partly that had been driven by the period of time that has the green line where from 1978 to 1991 the average was 10%. So that was a, you know, a very, very, let's say abnormally high period. And then we looked at the period of time from 2008 through Covid when Treasuries were abnormally low and that average was, was two and a half percent or less. And when we knocked those two out, the overly high period, the overly low period again the average was about four and three quarters. And so you know if we flash forward now I think we have one more James. Okay so here's today or yesterday and a Treasury around 4%. And thinking of this in the context of over the longer term where have we been? The, the we are pretty close, you know within 20 basis points for the average over all of my career and still well below the longest term average that we could get to. This leads us into the question on the next slide of the forward curve. So the forward curve, this is not a prognostication by us. This is, it's pulled off a Chatham and it's the summary of all the bets that traders are making. The traders who make their money by betting on the direction of short versus long term rates and the orange line towards the top is the 10 year treasury and the bets that are being made show a low point of about 375 with a then gradual uptick above 4 and continue. And the black line here is important that is SOFR. So that's the short term rate, that's the one that's directly tied to the essentially to the Fed funds rate and that and those traders who are making bets based on the assumption that the ten year treasury will not drop significantly below where we are now are expecting substantial tightening and further decreases in the Fed funds rate essentially because they are showing another 200 basis points of drop in short term rates without a commensurate drop in tenure charges. So one graph that we don't have because we couldn't make it legible was we looked at the delta over time between the short term rate LIBOR and then SOFR versus 10 year treasury rate and over the last 60 years we looked at it, that average Delta is about 140150 basis points. And so in thinking about the likelihood of the treasury rate dropping substantially more if you use the historical data a bet for the treasury for the 10 year treasury rate to go and stay significantly below 3.75 or 3.5 is a bet that over time the short term rates will be below say 2%. So we, we, we're seeing on a, on a data driven historical look that borrowing rates, there's not a lot of momentum for borrowing rates to go to go lower. That is different from the question of whether there is a momentum and a desire to transact based on the Fed cutting. And I, and we do see the excitement around the Fed cutting as a signal that is a belief that the economy is recovering and that the world is rec. I think, James, if you go to the next one, I think we're back to the summary. And so asset classes, of course matter. Office really stands on its own now as an outlier. And during the course of my career, most of the asset classes have at one point or another been an outlier to the negative. There have been times when no lender wanted to finance retail as a whole. And it was really driven by the change with big Box, the challenges with big Box retail being overbuilt. There were times when the hotel, the hospitality industry was essentially redlined by lenders. And, and we've been in a period of time where office was close to redline by the, by the lending community. I, I do believe that we are coming out of it. And I had a great pleasant shock last night sitting with our leasing team and Rory started to talk about this. But our leasing team went through the tenants in the market list and it was pages and pages long of tenants, a very substantial number looking for, you know, leases of over 100,000 square feet and then dramatically more in the 50 to 75,000 and then the 15 to 20. And it's, it's just a very positive indication that, that we may be turning. That has not translated into great aggressiveness from lenders for the most part on office, but it is likely that there will be FOMO there as well. Other than Office, virtually all asset classes are in significant demand. There's such positive news around retail in the city. There are many, many pockets of industrial that are still very strong, although some have weakened. From a timing perspective, this is something that James and Brandon and I are often talking about in the context of acquisitions. The fixed rate financing market does not work as quickly, for the most part, as buyers. Sellers in the acquisition market would like. It is possible to now, you know, very quickly get indications of, of where pricing is going to be. But to get to the finish line and to run a process takes, let's say, longer than, than they would like. So our suggestion to not so much acquirers, but to existing owners is to think about the metrics that are here and whether there's. If you have a conviction that rates are really good now, then of course move. If you have a conviction that it might get a bit better, it is a good time to get started. Because to run a process and get the benefit of not having to rush takes A meaningful amount of time.

Okay, we'll pull down the presentation. Unless anyone else has more questions on it. I'm just looking at the questions we have here. We received a question from Jay on what is the stabilized yield on cost that these office to resi conversions? What are the developers solving for and what I would say and then I'd love to hear Brandon's thought on this is kind of initially and maybe this was before and I'm pretty sure yes, this was before mid 22 when rates started going like this. You saw some of these developers solving for 6 caps, 6% stabilized yield on cost and then obviously once rates went up, cap rates went up. You know, I think you're typically looking for at least a 200 basis point spread. You know, so if cap rates today are in the, you know, mid 56 range, I think that someone who's taking the development risk for sure they're looking to solve for, you know, a high single digit stabilized yield on cost. So Brandon, I don't know if I know for a value add multi deal that might be a little tighter because there's not maybe the same kind of risk of converting an office to resi. But what, what would you say to that?

No, I think you nailed it. I, I would say the one thing that's interesting is with the new 467M like if you look at the because you're getting 90% of your of an abatement over 30 years, you know, so when you're looking at that the net present value of the building of the savings is oftentimes equal to the value of the building. So that's just something to think about is with the new abatement program, it's just, it's so significant that that also plays into it.

Yeah, no, it's a great point. And when we value these multifamily deals with tax abatements, we're capping them on full taxes and then we're net present valuing, you know, kind of in the same range we're npv the savings. It's usually that same kind of cap rate, five and a half, six percent discount rate. Scott, at a question for you, what are the most active lending sources? So I know in past discussions, I mean you're talking about how active CMBS has been talking about agency maybe talking about how maybe some of these community banks have been a little skittish on lending on New York multifamily. Where is the debt coming from these days?

Yeah, happy to say that most sources are available to Finance something. And so CMBS is an important factor in the market. There's volatility from week to week and month to month in that environment. But the CMBS volume is increasing dramatically. The banks are trying to be back. And so if we talk about office and banks, that's a hard mix now because regulators sell banks what they can and cannot do. So there's certainly some conversations with banks saying, I would love to finance this borrower, I would love to finance this asset. It works well. But the regulators are telling me I cannot add more office exposure. The insurance companies have done an awful lot of lending. And so we're getting to a period of time, in time when it becomes harder for institutional lenders with allocations to close this year. But we're also at a point in time when most or many closings that are happening now can occur in next year. And what we've found is that the institutions say, okay, if you can close next year, we can be more aggressive. So happily, there's plenty of liquidity in the market and there's probably even more liquidity for the more challenging aspects of the deals and the higher portions of the capital stack than from investors who are seeking yield. So liquidity is not the issue.

Okay, Scott, we have a question on how many rebny Deal of the year awards have you won? I had, I had to comment on Brandon's backdrop, so I'll comment on yours. I, I see at least three there. I know there's more. I know your office is not. But we need to get you a bigger office to display those.

Our team, Our team is 1 6. We're very proud of them and we, I like that there's no I in team and across. We encourage submissions were. And I'll give a plug for revenue and that the revenue finance committee is restarting now. That was a vibrant group for good for about 75 years and is back now.

Can't wait for that to come back. Okay, we have a question. Stefano. Thank you. On Local Law 97, you know, which is the carbon emission, the taxes. I mean, what's amazing is I don't hear a lot of conversation about that. I don't know if that's just kind of typically investors mindset that it's like, okay, well maybe they're going to give extensions. I mean there's questions on whether or not are these benchmarks even possible? You know, is it going to change? I just, again, when we're selling office deals, we're not getting asked that question. I'm not saying that it's not something that you should be aware of and plan on. But it's kind of like the election as well. I'm surprised no one's asked about that. Which is kind of the point. You know, some people say, oh, are investors going to wait to find out who our next president is? I mean, we speak to hundreds of people, you know, in a given week and, you know, we're not hearing anyone say, oh, we're waiting on, you know, to find out who our next president is to make an investment. But Brandon, are you hearing anything on the Local Law 97 front? Any owners, investors concerned now? Yeah, we might want to ask Rich.

It's leasing. I mean, leasing, it's more relevant today obviously than it was in terms of lease review, in terms of, of protecting your tenant or, or advocating for your landlord. Much more of a topic now than it was, you know, 24 to 36 months ago. But just a comment.

Is that because the landlords are trying to pass through? Because theoretically, if you have a tenant in your building who's, you know, working 24 7, or maybe they're mining Bitcoin or whatever they're doing in the office, those fines could, I mean, it's ultimately the landlord's responsibility. So I mean, this is pretty nuanced, but in these leases, when we're doing tenant wrap, are we saying, you know, are we pushing back on those pass through penalties? Are landlords trying to recoup that potential exposure?

Yeah, a number of factors in that. Very nuanced answer, but the overall answer is yes. So it's about who, who's gonna be responsible for what. And obviously the asset type, the size of the tenant, the, the ownership's position, the, the stat, you know, the state of the building. A lot of things come into play there. But it's a nuanced. Nuanced answer. But overall, yes, it's about who's paying for it.

And our project management team, they're advising on how to retrofit your building. And you know, I had Douglas Durst on my podcast last week and he was talking about when they did the bank of America Tower and they looked at recouping their energy savings costs by, you know, in five years. So, like, there's reasons why you want to do this anyways to run a more efficient building, not to mention the, the savings we do have.

James, let me have to ask for a question, and I'll sort of say it in the context. It's a question about the duration of tenants and what, and whether you've seen any trends with regard to them taking either shorter or longer leases. We're seeing it on the financing side. Over the course of this summer there was far more 5 year fixed rate borrowing than 10 year. It actually created a dislocation and some challenges in the CMBS market because borrowers were saying, well, I do want to fix but I hope rates are going to come back down so I'll fix for five. And I'm wondering if you're seeing, I don't know, the opposite, or tenants saying well, I believe we're at a dip, so I want to, I want to at least for longer, which is what I'm hoping. Or, or I'm not ready to decide about back to office. Any trends there.

I think the trends, again, it's very not dissimilar from the conversation around cap rates and knowing exactly what asset you're talking about. I think that from a conversation at term like you're seeing some owners wanting to do two to three year deals because they don't want to lock anyone long in long term based on the currency of the market. And on the flip side, I think you're seeing more confidence from tenants than you were 24 to 36 months ago around term length, especially as it relates to the sort of historic concession packages we're seeing. I think a lot of, a lot of folks are seeing value in the ability to commit long term, amortize those costs and contribute to the, to the, you know, to the fit out. So it's a nuanced answer again, but I think we're certainly seeing more long term leases than we were 24 months ago. And then, and how that sort of plays into the negotiations we just talked about is again, probably a separate call.

Okay. And then we have a question on self storage. I mean we don't track that individually as an asset class. You know, you said that you, you're witnessing an uptick. I don't know if that's in the New York metro. Very difficult if not impossible to build new self storage in the city. You know, these IBZ zones and industrial areas don't allow them. So really tough to create, you know, new storage that makes the existing storage more valuable. We actually sold a, a public storage space down in Nolita. It was on the ground floor in the lower level on Mott Street. So that's pretty wild that they were able to fit in 300 storage lockers below grade and that sold at a very tight cap rate. So yeah, there's definitely need and demand for storage. It's just, you know, you can't seem to build it here. So I think that is everything we appreciate everyone jumping on. As always, we're here to answer any questions that you have. We'll share the deck. And definitely headed in the right direction here, so. Looking forward to it.

Thanks, everybody.

Thanks.

All right.