Interviews Joe Koicim Exec MD, Marcus & Millichap

0:00 Speaker 1 Good morning. This is Michael Stola for the Stolar Real Estate Report on the CATS round Table. Today, I have mister residential real Estate. We’ll call him the man who knows what’s going on in the residential rental for sale market in New York City. His name is joe Coosum.

0:16 He’s a founder and a managing director at New York Multi Family division of Marcus and millerchap Joey also had the title of one Cap, but one cap is no longer really happening in New York, so he has to get out of the one cap and change the five cap for the people. Understand what cap.

0:33 Speaker 2 I don’t know if it’s five cap either right now. Great to see you, Michael, thank you for having me.

0:37 Speaker 1 Let’s talk about HSTPA, the Housing Stability and Tenant Protection Act, what it had on an effect in twenty nineteen and today.

0:46 Speaker 2 Well, Michael, you said it best. My name is the nickname is gone after twenty nineteen with the rent law that was passed that really prohibits owners from raising rents and also per prohibits tenants from getting quality housing because of what was passed in that law and that law of twenty nineteen was a detrimental to the New York

1:09 City housing market, mainly because property owners where they have taxes and insurance and all different expenses going up, do now longer have the ability to increase rents, increase income and rent and rent their properties. So before there was a lot of incentives given, including MCI’s major capital improvements to properties, which that refers to, and that was taken away.

1:36 Speaker 1 Now with regard to that, there was something called warehousing of apartments. Let’s explain that.

1:42 Speaker 2 So a lot of the owners decided to hold the units offline because the units required a lot of work and in order to bring the units up to code, they have to spend money. But there was no incentives given because they can no longer raise rents. And with those rent laws caused a lot of issues within within

2:05 the organization. UH and CHIP and RSA has teamed up to challenge those loss and that’s what’s happening. At the end of the month, we’re gonna hear about the Supreme Court case. If they’re going to let’s talk a little bit about the Supreme Court case. What is the position on this? So it’s unconstitutional. What’s happening. It’s taking a

2:24 property and a private property. So it was in the District court and in New York in New York and it got taken out and now is being tried in Supreme Court. We’re hoping that it’ll be picked up at the end of the month. We feel pretty positive because there’s been a lot of amicist briefs from the lobby

2:49 groups submitted on behalf of chip in RSA, more than ever in the history that we’ve ever seen before the Supreme Court. We’re getting a lot of national support, so we think that there’s this Preme Court is the best chance of getting this through and we’ll see what happens at the end of the month. I’m getting a lot

3:06 of calls from owners saying that I want to buy renstivilise buildings again because of the hope that things will change. It moved too far and it’s time things have to change.

3:17 Speaker 1 So where are we in the sales cycle today?

3:22 Speaker 2 It’s no longer one caps. There’s property selling. Unfortunately, a lot of owners got hurt from the rent laws. Obviously there were some impacts during COVID and then interest rates right, interest rates are the biggest topic besides the rent laws in New York City as it relates to multi family buildings because a lot of those debt maturities have now

3:43 expired or coming due. And where rates were three and a quarter three and a half, now you’re north of six percent. So that has a big impact in values, and owners have a lot of tough decisions to make in terms of what to do with their properties because it requires more capital to be invested in the property

4:00 in order to keep it afloat, and that’s you know, cash and refise and and and it’s obviously impacting value. So we’re seeing that firsthand, and owners are coming to us for advice and what they could do to get out now before their loan comes to.

4:15 Speaker 1 So what are you recommending in these difficult days.

4:18 Speaker 2 Every situation is a little different. Some of these lenders are a little bit more aggressive than others, and you know, obviously some of the lenders also disappeared, and that’s also made a challenging in the market for property owners in terms of moving forward on refinances and acquisitions. So foreign buyers, you have a lot of capital coming in, new capital

4:41 coming in. You know, everyone that fled New York It is coming back, and we’re seeing a lot more capital coming in from the owners that went into the garden style Southeast markets and into those type of assas.

4:51 Speaker 1 So everybody was abandoning New York City going to the Midwest and the South.

4:55 Speaker 2 And now now New York looking great with the rank growth, you know, over six percent. You know, things feel better, the energies here. People are back to the office for the most part. You know, maybe not Mondays and every Friday, but you feel Midtown’s different and it feels better. And you know, we’re seeing a lot of foreign capital come

5:14 in seeing New York as an opportunity, and we’re seeing other groups as well.

5:17 Speaker 1 When we were talking the other day, you mentioned this concessions surprising.

5:22 Speaker 2 Not in all markets, and it’s you know, it’s coming out of a hot summer months, but you’re starting to see it a little bit. However, you know, it got so inflated, so it had to cool off a little bit, but occupancy and rents are still high.

5:39 Speaker 1 Now, what’s happening with notes sales by the banks.

5:41 Speaker 2 It’s happening, and that’s you know, what’s being done right now with the signature of loan sales is going to have a big impact on the market. And that just is getting launched next week.

5:51 Speaker 1 Okay, besides Signature, what about the other banks who just want to get out of some of these deals because they can’t work.

5:56 Speaker 2 We’re seeing them tire, Yeah, we’re seeing them take hits. We just sold a deal for a bar who the lender worked with them to make it happen. So we’re starting to see that happen across the board.

6:10 Speaker 1 Which Burrows are it happens still the leader especially?

6:14 Speaker 2 Yeah? Yeah, but Brooklyn is still strong, especially Williamsburg and other you know, Brooklyn Heights, Dumbo. You know, you’re still seeing strong rents and strong growth there and a lot of trades. Listen volumes down seventy percent this year, but there is more action today and we’re getting a lot of deals done with assumable debt sellar financing, and that’s

6:37 been you know, kind of increasing the activity.

6:39 Speaker 1 Of the What about the private equity firms.

6:42 Speaker 2 They’re back the institutional money and the larger deals that dried up, but it’s starting they’re starting to look again. The biggest thing is the political risks of New York, and that’s why a lot of people left. But now it’s starting to come back because with hope that things will get better.

6:54 Speaker 1 What’s your thoughts about the conversion of office buildings into residential.

6:58 Speaker 2 It’s happening, but they don’t all work right. So, you know, you have a lot of office building owners that have experiencing a lot of vagancy and their alternative is to try to reposition the assets. You see a lot of these hotels, you know how people are making money today pivoting into you know, shelters, and you’re seeing that as

7:16 a playout in New York City right now. And I have a lot of clients that have been executing on those strategies.

7:21 Speaker 1 So would you say a number of people who are buying are buying specifically to put migrants into shelters.

7:27 Speaker 2 I don’t know if they’re buying specifically, but there are a bunch of you know, contracts that are being made to those type of owners that have those type of properties.

7:34 Speaker 1 Now, what’s happening with the mixed use buildings with retail down in the bottom and residential.

7:39 Speaker 2 Sure, retail seems a bit stronger than it was about a year ago. You know those you know, Madison Avenue high retail rent corridors or you know you’re not getting quite that pricing, but retail rents have come back, and retail has come back, especially service oriented retail.

7:55 Speaker 1 Now some of the big names like Blackstone have really shedded some of the assets.

8:00 Speaker 2 Yeah, so that wasn’t due to rent laws. That was just due to aggressive underwriting and assumptions that were made a couple of years ago when black someone bought a very large portfolio for about eight hundred plus million dollars, which unfortunately they have to let go of and the bank and now worked out a deal with a new

8:18 buyer and they had to you know, take a little bit of a haircut, and you know, you see that go down, And that was really due to where rates are today. Right, So their rates back then were in the mid threes and now you’re mid sixes and you’re not going to be able to justify the underwriting. But

8:36 new capital could come in and start fresh. And that’s what’s happening.

8:40 Speaker 1 Are you seeing new lenders who might be going into the market. Certainly the Asian lenders who board and never in the market are a financing properties.

8:52 Speaker 2 You’re seeing that, and you’re also seeing agency loans get done in New York City, which you didn’t see a lot of. But they’ve been the most aggressive Fanny and Freddie, and then you’re starting to see some alternative lenders and some owners that have become lenders you’re seeing as well.

9:07 So it’s you know, it’s not just the local savings banks anymore, but they are still players.

9:11 Speaker 1 And what a rates these days?

9:13 Speaker 2 You know, around six percent depending on how much retail. I mean, you know, I got quote high fives for agency loan recently on a deal that we’re selling in the city. You know, we’re selling a portfolio for one hundred million dollars that has assumable debt at four and a half percent interest only. We’re selling another portfolio with

9:31 three and a half percent, so that it looks attractive today, but you know a lot of owners buyers are looking at that as Okay, I have four years where rate’s going to be? Can you tell me, Michael, I.

9:43 Speaker 1 Don’t have my crystal Apple here, like where is it? I have to have it on the TV show over here. So in so, where would you see the market in six months? I mean, it’s predicated on the Supreme Court case is one of the major things that.

9:56 Speaker 2 Where rates go, which I think we’re going to see a slight increase again, but then things should calm down, and then it gets a little worse before it gets better.

10:03 Speaker 1 Okay, I’d like to thank Joey Cassam otherwise known as Joey one cap, but he’s getting to get new hats because it’s Joey’s six cap. Thanks for being here today, Appreciate it.