The Stoler Report with Michael Stoler: Shimon Shkury

0:00 Speaker 1 Good morning. This is Mike Stola for the Stola Real Estate Report. What’s happening in investment sales in New York City? It’s a boom year, but are there any troubled lights coming ahead? So today I brought my friend Shimon Shikori, who’s the founder and principal of REO Property Advisors. Thanks for being here, Shimon.

0:19 Speaker 2 Thank you for having me, Michael. Always, always a pleasure to be here. And I got to tell you, you’re right. It’s an exciting time in the New York City market. We just came out with our quarterly reports. Very, very grateful for our analysts and brokers who put that together.

0:34 And what we saw is that transaction volume is up by 8% year over year to date. We had $ 24 billion so far. What is also interesting is that the third quarter was lower than the third quarter of 2025.

0:51 And I attribute that to two main reasons. Number one, We didn’t have as many big transactions as we did last year in the same third quarter. And number two is interest rates. I can tell you from our own inventory, things that took us a while longer to close, like we were supposed to close some deals in June, July,

1:12 and August, they’re closing now. I suspect many of our competitors feel the same. So I expect a more robust Q4 and probably 5% to 10% higher dollar volume compared to 2025. The other part that I thought was interesting is that the main food groups accounted for 75% of all transactions. That’s multifamily, office, and development. And if you want,

1:40 I can go through each one of them.

1:41 Speaker 1 Yeah, why don’t you?

1:43 Speaker 2 So let’s start with multifamily. And there we’ve seen about $ 7 billion of transactions year-to-date, a 10% or 8% year-over-year increase. And what we know about the multifamily market in New York City is that it’s really not one market. It’s three markets. It’s free market multifamily, rent-stabilized multifamily, and affordable housing.

2:05 And each one of them behaves very differently. So when we look at the free market multifamily asset class, we look at fundamentals and supply constraint. And that shows in the numbers. 70% of all multifamily that traded was free market private, national, and institutions are looking into it. Rents have grown to $ 4, 900 per unit on average below 96th Street,

2:35 which is an 8% year-over-year increase. And I can tell you from transactions, for example, a deal that we sold earlier in the quarter on Avenue B in East Village, sold for about $ 900 a foot, about a five cap, did have some value add. Another deal that we so sell is on 118 Hope Street in Brooklyn, which had

2:57 a newer construction, 421A tax abatement. So deals that have strong fundamentals and free market, new construction, are getting the pricing premiums. And that’s free market.

3:11 Speaker 1 And Brooklyn is doing robust.

3:14 Speaker 2 Exceptionally well, head-to-head with Manhattan sales. And if you look at the pricing, like you said, if you look at the pricing today versus the peak in 2017, Brooklyn exceeds that already. So Brooklyn, as you said, does extremely well, and it’s driven by fundamentals, driven by the rental market.

3:39 The rent-stabilized situation. multifamily market is very, very different. There, we have a structural repricing, and it’s because of three main things. One is regulation, two is expenses, and three is interest rates. When it comes to regulation, we know about HSTPA that took place in 2019. It prevents you or landlords to increase rents even upon vacancy. Now we

4:03 also have rent freeze, which is not helpful. We have expenses that have grown drastically, specifically insurance and the last year oil, and they’re hurting NOIs, and lastly, interest rates and mortgage maturities. And as a result of that, what you see in that market is distress. And you see that in the numbers. We sow a billion to a

4:28 rent-stabilized multifamily sales year to date, 35% of it. was in one distressed transaction, pinnacle to summit. But in addition to that, the balance of the 65% included discounted payoffs from lenders, foreclosures, and deeds in lieu. So much of what’s happening in that rent-stabilized market is distressed. Some of it is not, but the pricing is down. So for example,

4:54 we just sold a deal in Fort Washington uptown. And we’re talking about six and a half times rent. That’s half of what we’d sell a deal before 2019. We’re marketing now several assets, specifically in the Bronx, where we could have gotten 150 plus per unit. We’re getting about 50.

5:13 So we definitely see valuation distress in general in rent-stabilized multi. And lenders, lenders are exiting. You’ve seen the sale of the Book of Ocean first to, Cerberus, for example, lenders are trying to get out of that rent-stabilized market. There are buyers in that market, and the buyers there are looking for higher cap rates, lower bases, and so on.

5:42 Speaker 1 And these are established buyers in many cases.

5:46 Speaker 2 Correct. Established buyers, private buyers. And the one thing I do want to mention about rent-stabilized, it’s about 40% of all rental units. So it’s really important that the city and state pays attention to it in a good way, not in a regulatory way. So it encourages private money to go into these buildings and not out of these buildings.

6:09 Speaker 1 What about the warehousing of apartments?

6:13 Speaker 2 There are about 50,000 to 60,000 units that are vacant now. And, Michael, that’s a really good point because one of the items that the city should advocate for is a one-time reset. A one-time reset is a win for every single stakeholder, for landlords, for tenants, for the city as a whole.

6:36 You reset to market valuation, any vacant apartment, you can keep it stabilized at that level, but that encourages money going into the building. So that’s a great, great comment. And the last one is affordable housing. which we haven’t really spoken about. That’s multifamily affordable housing. There were $ 430 million of transactions year-to-date. About $ 208 million we sold as

7:03 aerial property advisors. And the one asset class within affordable housing that does it exceptionally well is project-based Section 8, where you do have predicted.

7:15 Speaker 1 Explain for my listeners what Project 8, Section 8 are.

7:19 Speaker 2 Project-based Section 8 is a contract on a building that the federal government pays the landlord. So you can anticipate what your rents are going to be like. You can market up to market in some instances. And so from a mission-driven perspective, if you’re a mission-driven investor that wants to provide affordable housing, you have the alignment with the

7:42 federal government to provide that housing, to rehab the units, and to get rents. that are closer to market. And that’s what’s getting most of the attention. We’ve seen several sales in that, specifically Hudson View 2 and 3 and Manhattan Valley that we sold earlier in the year. So it’s really about the steady cash flow projections there. And

8:09 in general, going back to the multifamily market, investors today are not just buying apartment buildings They’re buying the certainty or uncertainty of cash flows in the future. Office.

8:25 Speaker 2 Office has done well, $ 5. 2 billion of transactions year to date. Very similar to last year, but double the year before. In office, you’ve had Michael Cohen here last week. He was talking about rents at $ 375 a foot, and that’s what leads capital to invest in high-end office. We’ve seen that.

8:46 What we have seen also is lenders coming back for acquisition financing and refinances, for example, East 55th Street. not only was purchased by Essel Green, but also received a $ 480 million CMBS loan. So we have tenants that recovered, capital that followed, and now lenders that are willing to lend.

9:11 And lastly, development is doing exceptionally well, $ 5. 2 billion of development transactions in the past year, a 10% year-over-year increase. And that’s because of good policy. You see that in office conversions where you have the 467M, which allows for a tax abatement for office to residential conversion. We’ve seen one Whitehall trade this quarter. Metro Loft was the purchaser.

9:46 That’s a $ 104 million transaction. Super interesting building because it was purchased originally for $ 184 million in 2019. Cannot be a profitable office building and can be converted. as a result of the 467M. So, again, good policy. And we’ve seen many lots trade because of the 485M. Okay.

10:09 Speaker 1 In conclusion, what do you see for the future?

10:13 Speaker 2 So... I believe we’re going to see a better quarter in the fourth quarter. People are clearly focused on rates. They’re focused on mortgage maturities, which will force decision-making. But I believe that capital is investing in what they believe is good assets, free market buildings, affordable housing, office buildings.

10:42 and development because of the policy. So I believe 2027 is going to be another good transactional year absent any major macro issues.

10:52 Speaker 1 I appreciate your comments. They’ve been very important. And I know that I’ll see you together on the show later on in the year.

11:00 Speaker 2 Thank you very much, Michael.