Loser's Market

There’s an unspoken rule in real estate that a successful transaction is one where both parties leave the table slightly miserable and happy. Everyone compromises. Occasionally, there are those transactions where one side leaves much more comfortable than the other, and there’s a clear winner and a clear loser. ?But those deals are almost always distressed, like a foreclosure, a job loss, an estate sale, or a bidding war.?

But this is a challenging market, and, for the first time in my career, almost everybody feels like a loser. I’m hearing this in my conversations, and here’s what people are telling me…..

Buyers have less choice and have to pay more. Higher interest rates and higher demand-driving prices mean that the cost of the same house is higher today than it was a year or two ago.?

Sellers are stuck. If you sell your house for slightly more than you paid due to taxes and closing costs, it must sell for at least a 5% premium to break even. ?When you do sell, the new mortgage on your next house won’t have the same interest rate or term, so sometimes a seller is better off sitting on the sideline and staying put.?

Developers can’t make a deal pencil out. There are very few sites available for purchase, and if there is something on the market, the competitive nature of New York has driven up the cost of land. In addition to the lack of liquidity, high construction costs and interest rates on construction loans have made it prohibitive and too risky to start a project.?

Landlords (a notoriously curmudgeonly group) are feeling the strain. Their post-Covid momentum has lost some gusto, and now, even though vacancies are down, rents are trending in the same direction.?

Renters are overpaying. With over one-third of NYC renters spending 50% of their income on housing, it’s no mystery why this group is miserable. ?

Commercial Landlords are running on fumes. ?Offices are still mostly empty, and unless they’re delusional, they’ve realized that WFH isn’t going anywhere, and it’s going to be a long while before they can get a fully occupied building with the same pre-COVID rents. Many landlords are sitting with buildings that can’t make a rent roll to cover their expenses, and now, the value of the building is possibly lower than the mortgage, and some owners are considering handing the keys back to the bank.?

While the above sentiments are valid, the irony of this narrative is that this is precisely the kind of market these people always tell me they wait for. If you’ve been sitting on the sidelines, the best opportunities exist in this market.?

History has proven that some biggest winners emerge from a loser’s market.?

Let’s do this.?