WEBVTT - Megalith's Sidhu on Real Estate: Buyer Pool Has Shrunk (Audio)

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<v Speaker 1>Let's get on with our live broadcast here from Eisner Amber,

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<v Speaker 1>their Midtown Manhattan offices. They're getting ready for their annual

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<v Speaker 1>real Estate Private Equity summit this Wednesday, Chelsea Piers, and

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<v Speaker 1>we are getting ready to bring into the show now

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<v Speaker 1>Sam to Do, founder and CEO of Megalith Capital Management,

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<v Speaker 1>to talk about foreign investment in the New York real

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<v Speaker 1>estate market. Sam, welcome, Thank you, Kathleen and Pam. It's

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<v Speaker 1>great to be here. You know, I've heard contradictory things

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<v Speaker 1>on our show from people in the real estate business

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<v Speaker 1>that yes, uh, money coming in from China, to a

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<v Speaker 1>couple of years ago coming in from Russia from at

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<v Speaker 1>least drove up prices in New York and southern California,

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<v Speaker 1>any coastal city. Others saying hasn't been that big of

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<v Speaker 1>a deal. What's your view now, It absolutely has been.

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<v Speaker 1>I think what we first saw in two and fourteen

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<v Speaker 1>was in the luxury condom market. You saw a lot

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<v Speaker 1>of buyers, firstly driven by Russian and Chinese and then

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<v Speaker 1>broader Asian coming into that market. And what you're seeing

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<v Speaker 1>now in two thousand, fifteen and into sixteen is the

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<v Speaker 1>second wave of buyers more in the institutional sales market

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<v Speaker 1>buying office and residential product. That's definitely propping up the market.

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<v Speaker 1>And what you hear from the investment sales brokers out

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<v Speaker 1>there and the market is that, you know, historically you

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<v Speaker 1>would have a cluster of five ten people in the

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<v Speaker 1>in the top top echelon of the sales process, and

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<v Speaker 1>now you have only one or two foreign bidders sort

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<v Speaker 1>of sitting there propping up the prices. So sellers are

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<v Speaker 1>meeting their expectations, but the buyer pool has shrunk. The

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<v Speaker 1>buyer pool has shrunk. What's that done the prices? And

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<v Speaker 1>do you think that perhaps the buyers ought to expand

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<v Speaker 1>their range of what they'd like to invest in. Well,

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<v Speaker 1>New York City real estate is New York City real estate, right,

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<v Speaker 1>That's the reason that buyers are are sort of, uh,

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<v Speaker 1>will always be investing in this safe haven, you know

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<v Speaker 1>here in New York. The question about the buyer pool.

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<v Speaker 1>The buyer pool has shrunk, I think because there has

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<v Speaker 1>been a recognition that there has been a you know,

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<v Speaker 1>sort of a global I wouldn't call it a slowdown,

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<v Speaker 1>but a global correction or a global reversion. New York

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<v Speaker 1>City has experienced it and I think that there's less

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<v Speaker 1>of this um euphoria to catch the wave while it's

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<v Speaker 1>still um, you know, on it's on the up and up,

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<v Speaker 1>and I think people are calling the top of the market,

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<v Speaker 1>and I think that has led to the tier one

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<v Speaker 1>players to kind of come back and sit on the sideline.

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<v Speaker 1>So broadly speaking, the residential and condo market in New York,

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<v Speaker 1>howes it look to you? You know, we are currently developing,

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<v Speaker 1>by way background, about a million square feet of mostly

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<v Speaker 1>residential condo as well as some rental product in Manhattan

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<v Speaker 1>and Brooklyn. Um, what you saw, what you are seeing

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<v Speaker 1>right now is at sub five million dollar units are

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<v Speaker 1>are selling well. More efficient and smaller units are selling well. Um.

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<v Speaker 1>But I think what you're gonna see in the next

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<v Speaker 1>wave of supply as it comes onto the market is

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<v Speaker 1>that buyers are going to become a lot more discerning,

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<v Speaker 1>a lot pickier, because the commodity product is about to hit.

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<v Speaker 1>Folks that paid a little bit too much for land

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<v Speaker 1>and had higher construction costs and thus need to price

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<v Speaker 1>their product at a higher price per square foot and

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<v Speaker 1>or an absolute dollar value are now going to find

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<v Speaker 1>that their product is not as appealing and buyers may

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<v Speaker 1>want to be in a tier tier one building and

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<v Speaker 1>take a tier two unit rather than taking a tier

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<v Speaker 1>one unit one of these commodity buildings. The commodity buildings

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<v Speaker 1>that you talk about, are we are we're going to

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<v Speaker 1>see some kind of you know, weeding out. I mean

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<v Speaker 1>people are gonna are some people are going to go under.

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<v Speaker 1>I think that you will see definitely people making less

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<v Speaker 1>money than they thought they were going to make. Development

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<v Speaker 1>is a very tricky and complex business, and everything always

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<v Speaker 1>goes wrong, and that's what our job is as developers

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<v Speaker 1>is to manage that risk um. But I think that

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<v Speaker 1>you know, what you will see is that that you know,

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<v Speaker 1>I think that the price per square foot that folks

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<v Speaker 1>initially ought was going to continue to rise and rise

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<v Speaker 1>and rise, um has now slowed, and buyers are going

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<v Speaker 1>to become a lot more cognizant of that, and they

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<v Speaker 1>want to see the finished product. They want to see

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<v Speaker 1>the finishes, they want to see the unit layouts. And

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<v Speaker 1>I think that that's what you're gonna I don't want

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<v Speaker 1>to just hear about the power is shifting. So are

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<v Speaker 1>we at the top in the market. I guess I'm

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<v Speaker 1>thinking of a seller. If I'm a seller, and I'm thinking,

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<v Speaker 1>oh boy, I've written this wave. I'm sitting on a

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<v Speaker 1>lot of money. Now, baby, should you think about selling now?

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<v Speaker 1>Our acquisitions team hasn't been very active in the last months,

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<v Speaker 1>and we're expecting to become a lot more active in

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<v Speaker 1>the next six to twelve months. And that's not for

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<v Speaker 1>marketed processes for sellers who are getting top dollar. It's

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<v Speaker 1>for picking up some of what we would call I

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<v Speaker 1>wouldn't call the pieces of a distress market, but sort

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<v Speaker 1>of having an opportunity to come in and recapitalize projects

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<v Speaker 1>that might be going sideways and some of the projects

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<v Speaker 1>that I mentioned earlier. Uh, you know, we started off

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<v Speaker 1>this segment by talking about foreign investment outside of the

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<v Speaker 1>United States. Uh, what if I was going to be

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<v Speaker 1>in this business? Now? What language, What's who? Who do

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<v Speaker 1>I need to understand in order to to do well? Well?

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<v Speaker 1>I can tell you don't really need to understand any language,

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<v Speaker 1>because I've said in many meetings with interpreters, and I've

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<v Speaker 1>gotten very accustomed to sitting across the table from various Asian,

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<v Speaker 1>Um and Russian you know, investors and developers who want

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<v Speaker 1>to get experience and you know, and access to the

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<v Speaker 1>New York City market. UM that come and bring those

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<v Speaker 1>types of you know, UM interpreters, quick questions. We hear

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<v Speaker 1>that Disney has maybe a bid out on Twitter, considering

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<v Speaker 1>it seriously, you just purchased land from Disney right here

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<v Speaker 1>in Manhattan, so quick, quick to part. Does this deal

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<v Speaker 1>make sense? And where you building now? Well, believe it

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<v Speaker 1>or not prior to real estate. I come from a

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<v Speaker 1>background in media, UM, and many of my colleagues have

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<v Speaker 1>been at Disney as well as at Major League Baseball

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<v Speaker 1>and are working on some of the deal that you

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<v Speaker 1>mentioned right there. UM, I think it's a very interesting deal,

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<v Speaker 1>and I think it's you know, Twitter has lagged in

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<v Speaker 1>the past couple of years, and it's Instagram and Snapchat

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<v Speaker 1>and Facebook have really taken over. So I think it's

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<v Speaker 1>interesting to show to your earlier point that UM, Disney

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<v Speaker 1>is pivoting into sort of the next wave. All right,

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<v Speaker 1>we're gonna I think I'm signing up for your Twitter.

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<v Speaker 1>Sam to Do is a founder and the chief executive

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<v Speaker 1>of a Megalith Capital Management. You can follow them on

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<v Speaker 1>Twitter at Megalith Capital. This is Bloomberg