Generational Buyers Are Feeling Flusher in New York’s Outer Boroughs – Commercial Observer – Commercial Observer

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Talk about a generational shift. 

Institutional buyers are beating a retreat from Queens and Brooklyn after years of dominating these outer borough markets. Taking their place are the sorts of families that used to drive the New York commercial real estate market beyond Manhattan. 

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This new crop of generational buyers — so called because they tend to buy and hold property long enough to pass it down to the next generation in the family — finds even the tough lending market easier to navigate given the absence of shareholders or other investors pressuring them for a quick flip, according to Ripco Real Estate’s Stephen Preuss.

Preuss, who has worked in investment sales since the early 2000s, is now seeing familiar names popping up after years in hibernation to profit off residential and industrial real estate, property that will eventually be handed down to children or grandchildren after it has accrued long-term value.

“A lot of these groups that I was dealing with in 2005, 2010 that took a step back over the last 10 years because they had been priced out … now they’re coming back with a vengeance,” Preuss told Commercial Observer. This crop of generational buyers “are really the ones moving the market in this lower transactional volume phase.”

One example of this could be the sale of 42-50 24th Street in Long Island City, Queens, for $57.5 million in early March. It represented a $11.5 million loss for Fisher Brothers, which bought the undeveloped site in 2015 and just sold it to Queens-based developer Chris Jiashu Xu’s United Construction & Development.

While Fisher Brothers is technically a multi-generational family outfit, they’re certainly on the level of other major corporate firms based in Manhattan.

In March 2023, Ever River Realty acquired four industrial properties from Robert Mannheimer for $51 million, with Preuss negotiating the deal with Kevin Louie on behalf of the seller. It’s near where the Special Flushing Waterfront District is expected to bring 1,725 units of housing, 400,000 square feet of office and community space, an 879-room hotel and 286,930 square feet of retail on a stretch of wetlands known as Flushing Creek.

The generational shift in the boroughs dates back to at least October 2022, Preuss said, when an individual named Hang Dong Zhang purchased 138-28 Northern Boulevard, a 13,702-square-foot building for $48 million from Kit Realty, with the hopes of developing condominiums.

Why the resurgence?

In short, generational investors who used to roam free in the outer boroughs found themselves locked out of the market starting in 2010, when big names expanded their hunting grounds. But the state’s tenant-friendly Housing Stability and Tenant Protection Act of 2019, followed by the pandemic and extreme interest rates, have made corporate buyers more or less gun-shy.

Now, institutions are playing defense with existing assets that are still bringing revenue, selling off the underperforming properties, and holding off on new investments.

“Lenders are also taking a very conservative approach on issuing larger loan tickets,” Preuss said. “So, if there is an $80 million property at a decent cap rate, typically it’s going to be a very expensive debt load and there aren’t going to be a lot of banks willing to take that kind of a risk and get aggressive on that loan. … Institutions and the larger capital, they have to make sense of their money being returned to investors in a three- or
seven-year period.”

Local families with money to park somewhere see these same conditions under a very different light, however.

“When you ask the [generational buyer] when they are going to sell the property, most of the time their answer is, ‘It’s not my problem. My son is going to deal with it or my grandson’s got to deal with it,’ ” Preuss said.

One deal that Preuss worked on was for 12 Franklin Street in Greenpoint, Brooklyn, which sold in October 2023 for $23 million to Astral Weeks Development, based in Great Neck just over the Queens-Long Island border. 

In Queens, 95-06 Roosevelt Avenue and 40-09 95th Street were sold to the Malekan family of Mineola, Long Island, for $4.2 million in May 2023.

Data from brokerage Avison Young painted a more nuanced picture of the push and pull between the two groups.

In Queens, the buyer composition for institutions reached a peak of 40.1 percent in 2018 compared to 47.4 percent for private investors. Private investors began taking an even larger share in 2019 with 65.5 percent of transactions that year, and then took 57.6 percent in 2021, 81.8 percent in 2022, and 71.4 percent in 2023, according to Avison Young.

The Bronx in 2023, however, saw a different story play out with institutional buyers making a big push into the borough. Institutional buyers made up 23.6 percent of purchasers in 2014 and 9.3 percent in 2022, before hitting 50.2 percent in 2023. Of all buyers in the Bronx, private investors comprised 74.9 percent in 2014, 87.7 percent in 2022 and 48.5 percent in 2023, according to Avison Young.

But in 2023, 50.2 percent of all buyers were institutions versus that 48.5 percent private share in the Bronx.

Brooklyn actually saw little change between the types of buyers from 2014 to 2022, with institutions doing about 16.2 percent of acquisitions in 2014 (the lowest share) and 31.2 percent in 2021 (the highest), the Avison Young data indicated.

Ariel Property Advisors President Shimon Shkury affirmed that it is not only a trend in the outer boroughs, but one that is taking shape in Manhattan and divided more along the lines of asset class rather than county lines.

“The offices that were not Class A’s that were recapitalized by the institutions, but the smaller B’s and C’s that traded, actually traded into private hands,” Shkury told CO. “You also saw companies that were buying their own buildings. … Those are not institutional investors, but users.”

Kaufman Organization and Sovereign Properties were two that made moves in the office world. Another was Wharton Properties’ Jeff Sutton, who in the past few months sold off Manhattan assets to tenants such as Prada and Kering for $1.8 billion, Shkury pointed out.

But where multifamily assets are concerned, it tends to get a little tricky

“In the free-market category, you saw the whole gamut. Institutions are investing in the larger multifamily buildings, the larger luxury apartment buildings,” Shkury said. “In the rent-stabilized category of multifamily it’s only private money, and that’s because of the Housing Stability and Tenant Protection Act of 2019.”

Before 2019, apartments were routinely deregulated if a tenant vacated a unit or landlords made improvements. Private investors are interested in the passive income of a building, however, rather than maximizing profits by turning stabilized units over to market rate, according to Shkury.

“The investors today are private investors looking at the very hefty discounts they can get for rent-stabilized multifamily housing because they are looking at a very, very long-term horizon,” Shkury said.

One deal that Ariel helped arrange was the sale of a mixed-use development site at 125 Third Street in Gowanus, Brooklyn, to private investors Allan Lebovits, Joel Wertzberger and Moishe Loketch for $29.5 million in September. The site was grandfathered into the state’s 421a tax abatement program, which expired in 2022.

The firm also helped with the $28 million sale of a luxury residential property at 69 East 125th Street in East Harlem to GO-RE Partners, led by Doron Greenberg and Aviad Ohayon. The 77-unit development was purchased from Greystone Development, which built it in 2017.

“There’s enough income that they can carry the building and costs over a certain amount of time and hopefully put a few dollars in their pocket, but with the intention of switching their business plan whether it be this cycle or the next real estate cycle,” Preuss said.

Queens in particular has become a good place for families to park cash when times are good, but especially when times are a little more uncertain.

“There’s a heavy amount of workforce in residential communities here, and that housing has been less affected than any other type of residential asset,” Preuss said. “I also think the retailers in the middle of these workforce housing areas with good transportation have been generally performing pretty well. These are local staples — your dry-cleaning, barbershop, your deli — that can’t be taken away by our Amazon world.”

The trend should continue, too. Preuss pointed to buyers from Long Island scouring farther afield in search of good deals.

“They’re going all over the tri-state to find this elusive yield and value,” he said. “Half of them are new buyers for that specific sub-
market or asset class.”

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