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Inflated bldg price tags worry cautious brokers.

With price tags for New York City's office buildings in the millions and air rights over the West Side Rail Yards being valued at $1 billion, some members of the industry are beginning to feel uneasy. According to Bryan Cave Real Estate Executives' Forecast Survey, 54% of U.S. real estate professionals believe that the market is overvalued. Moreover, a study recently completed by the New York State Financial Control Board found that investors are paying top dollar for properties that are not likely to offer a top performance.

Barry C. Ross, co-leader of Bryan Cave's real estate development, construction and project finance client services group, admits that "to some extent, if someone is willing to pay a particular price for the property, it is the value of that property at that moment."

He cautions, however, that many buyers have an overly optimistic outlook on the future of New York's economy, an outlook that is not supported by market data.

"There is a great deal of concern that the prices that are being paid right now are not grounded in rentals that are achievable; they are based on projections," he said. "I suppose it's a result of the general confidence in the future of New York and certainly some of the buildings getting top prices are very unique in terms of their positioning, like the General Motors building and 200 Park Ave. But there are instances where I am not sure you can make that argument. And many people that I work with are sitting out the market--they feel that [investors] who are bidding [a lot of money] are doing something that doesn't make sense."

On the other hand, those directly involved in New York's disposition and acquisition frenzy, counter that people like Ross are shortsighted. Daniel Gohari, a director with the Moinian Group, points out that, "Overpaying has and always will be a relative term. Overpayment is typically measured in simplistic financial metrics and rations which disregard the important qualitative factors which contribute to the true value of the property."

Among such factors, Gohari lists future developments in the surrounding area, the possibility of conversion to another property type and long-term market projections.

For example, "The city is developing a subway line for the far West Side. There is the possibility of a West Side stadium. There may be an Olympics in New York City if the stadium is built. There is a rezoning plan currently being passed in part of the [area], allowing for new development. All of these trends will greatly increase the value of ... real estate and thereby lower the forward multiples that are currently being paid."

Another investment specialist, Woody Heller, a sales broker with Studley, disagrees with the pessimists completely.

"I don't think buyers are overpaying at all," he said. "There has been a discrepancy between city projections and industry projections for years."
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Author:Misonzhnik, Elaine
Publication:Real Estate Weekly
Geographic Code:1U2NY
Date:Apr 6, 2005
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