COMMENTARY – Bob Knakal

MAY 13, 2009

A 25 Year History Holds Clues

to Multifamily’s Future
Now that the Manhattan multifamily market is in a slump,
investors and other market participants have been asking me
to compare current conditions to various points in previous
cycles in the past 25 years. They want to know what the market
looked like in the 1980s, when we were booming, and in the
early 1990s when we almost went bust. What were the peak-
to-trough comparisons then? How long did the recovery take?
They have the same questions about what happened before and
after the recession of the early 2000s. Above all, they want to
know how low the market is going to dip this time, from its
high point in 2007.

Looking at the market from 1984 (the year I started selling

buildings) to the present, we notice cyclical patterns that
indicate that to some extent, history repeats itself. However, it
has never been easy to anticipate the peaks and the valleys. This article, and all other Commentaries by Bob Knakal, can be found
on The Massey Knakal Reel – a blog for breaking sales, listing and
neighborhood real estate news – at www.masseyknakal.com/blog
The most effective way to analyze Manhattan’s multifamily For weekly observations on the New York City Investment Market,
market over the past generation or so is to compare capitalization please visit Robert Knakal’s blog, StreetWise
– a joint initiative of Massey Knakal and GlobeSt.com –
at www.knakalstreetwise.wordpress.com

GRAPH A: cap Rates manhattan apartment buildings

13%
12.34% elevator
12.02%
12% 11.74% walk-up
11.54%
11.23%
11.52%
11% 10.67%
10.83%

10% 10.31% 9.74%

10.15%
10.13% 10.02% 9.54%

9.09%
8.92%
9% 9.27% 8.71% 9.24% 9.25%
8.53% 8.49%
8.96% Current
8.75% 8.22%
8.52%
Recession
7.92%
8% 8.37%
7.55% 7.58%
7.75% 7.22% 7.50%
7.42% 7.45% 7.05%
7% 7.19%
7.03%

6% 6.27% 6.31%
5.50%
5.30%

5% 4.75%
4.60%
5.00% 4.40% 4.50%

4.50%
4%
Major Tax 91-92 01-02 3.80% 3.90%
Code Change Recession Recession 3.65%
3%
3.05%

2%
year 84 85
85 86
86 87
87 88
88 89
89 90
90 91 92
92 93
93 94
94 95
95 96
96 97
97 98
98 99
99 00 01
01 02
02 03 04
04 05
05 06
06 07
07 08
08 09
09
Source: Massey Knakal Realty Services, Miller Cicero (2003-Present) 1
 Commentary - Bob Knakal

GRAPH B: WALK-UP cap Rates compared to GRM manhattan walk-up

apartment buildings
16%
15.35
grm
Major Tax 91-92 01-02 14.90
Code Change Recession cap rate Recession
14.25
14% 13.80

12.60
12.34% 13.00
12.02%
12% 11.74%
11.23%
10.67% Current
10.83%
Recession

10% 9.58
10.13% 9.36 10.15
9.32
9.74% CMBS
9.20
Issuance
9.09% 9.25% 8.49% Explodes
8.85 8.92% 8.80
8.71%
8.53%
8% 8.22%
7.50 7.92%
7.50%
7.27 6.89 7.37 7.22%
7.19% 7.05%
6.95
5.93 6.00
6%
6.02

5.31 5.30%
5.00%
4.73 4.75%
4.52 4.60%
4% 4.40% 4.50%
4.09
3.57

2%
year 84
84 85
85 86
86 87
87 88
88 89
89 90
90 91
91 92
92 93
93 94
94 95
95 96
96 97
97 98
98 99
99 00
00 01
01 02
02 03
03 04
04 05
05 06
06 07
07 08
08 09
09
G RM 6.02 7.27 9.20 8.85 9.32 7.50 6.89 5.31 3.57 4.09 4.52 4.73 5.93 6.00 6.95 7.37 9.36Source:
9.58 Massey
8.80 Knakal
10.15 Realty
12.60Services, Miller 15.35
13.80 14.25 Cicero 14.90
(2003-Present)
13.00
C ap R ate 12.02 11.23 10.13 10.67 9.09 8.71 9.74 10.83 12.34 11.74 9.25 8.92 8.53 8.22 7.92 8.49 7.19 7.22 7.50 7.05 5.00 4.75 4.60 4.40 4.50 5.30
rates and gross rent multipliers (GRMs) during that period. Graph A on Page 1 shows the 25-year trend in cap rates for
YEAR
both walkup properties and those with elevators. The average
The “cap rate” is the ratio of a property’s net operating cap rates for that period have been 8.40% for walkups and
income, and either its original price or current market value. 7.68% for elevator buildings—but you can see that in the
In other words, if you paid $1 million for a building that nets mid-1980s, average cap rates for both walkups and elevator
$60,000 in a year, the building’s cap rate is 6%. This is a way buildings were in the double digits, and that in the mid-2000s
of determining how soon a property will pay for itself. By they’re much lower.
dividing a property’s cash flow by its cap rate, you can estimate
the property’s market value. The GRM is simply the ratio of This might make you think that investors used to make a lot
a property’s price to its annual rental income before expenses. more money on apartments—but keep in mind that in 1984
The multiplier is the number of years it would take a property and 1985, commercial mortgage rates were higher than 13%.
to pay for itself in gross received rent. The 10-year Treasury rate, which is considered the risk-free
rate, was over 11.5%. So when you consider the debt service,
While GRM analysis is useful—particularly in a regulated those double-digit cap rates of the mid-1980s were actually
environment such as we have in New York City—cap rates aggressively low. Multifamily properties were selling at rates
are stronger indicators of the relationship between a property’s of return below the risk-free rate, and below the rates on
risk and its cash flow growth potential. The price of a higher- commercial mortgages.
risk property should be justified by a higher cap rate, while
a property with a low cap rate should show greater upside Investors were willing to accept low returns on multifamily
potential in its cash flow. properties for several reasons:

By itself, a building’s cap rate doesn’t mean much. You have to • Owners of apartment buildings received tremendous tax
compare that rate with those of similar properties, and observe benefits.
how the building’s cap rate has changed over time. You also • Debt was available in almost limitless supply.
have to compare it to changes in commercial mortgage rates • We saw a tremendous wave of conversions of elevator
and 10-year Treasury bill rates. buildings to cooperative ownership.
2
 may 13, 2009

GRAPH C: ELEVATORED cap Rates compared to GRM manhattan elevatored

apartment buildings
18%
17.10
Major Tax 91-92 grm 01-02 16.75
Recession 16.40
Code Change cap rate Recession
16.00
16%

13.83
14%
14.00

12.06 12.06 12.05

12% 11.52% 11.55
11.34
11.54%
Current
10.45 Recession
10.52
10.31% 10.77 10.75
10%
9.24% 10.02% 10.15%
9.05 CMBS
9.54% Issuance
9.27% 8.52% 8.37%
8.96% Explodes
8.75% 7.92
8% 8.54 7.75%
7.58%
7.31 7.42%
7.55%
7.03%
7.45%
6.31%
6.70
6% 6.21 6.27% 5.50%

5.60
5.25 4.50%
4.75
4% 4.38
4.11
3.80% 3.90%
3.65%
3.05%
2%
year 84
84 85
85 86
86 87
87 88
88 89
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04
04 05
05 06
06 07
07 08
08 09
09
8.54 10.52 12.06 10.77 11.34 10.45 7.31 5.60 4.11 4.38 4.75 5.25 6.70 6.21 7.92 Source:
9.05 11.55 12.06Massey
10.75Knakal
12.05Realty
13.83Services,
16.00 Miller
17.10 Cicero
16.75(2003-Present)
16.40 14.00
G RM
Cap Rate 11.52 10.31 8.96 7.92 8.52 8.37 9.24 10.02 11.54 10.15 9.54 8.75 7.42 7.75 7.45 7.03 7.55 6.27 7.58 6.31 5.50 3.80 3.05 3.90 3.65 4.50
Thus, the true value of a property reflected not only the value construction virtually ceased. You can see from Graphs B
of existing cash flow, but also tax benefits, the value of access YEAR
and C that starting in 1990, cap rates began a steady climb
to high levels of debt, and a conversion premium. But the and GRMs began a steady decline. The volume of sales also
good times were subject to an intermission in 1986, when the started a rapid decline in the early 1990s (See Graph F). An
tax advantages were substantially removed. The higher taxes interesting note: if we look at the three points of intersection
created cash flow problems, which is why you see an increase on Graph C, we see that the intersection is at a lower point
in cap rates and reduction in GRMs in 1987. successively. We believe this is indicative of the fact that the
rate of increase in operating expenses is greater than the rate of
In October of 1987 the stock market crashed, but the bull increase in revenue. This proves the owner’s position relative
market in real estate didn’t end for another couple of years. to the inadequacy of RGB rent increases over 25 years.
Note that in 1988 and 1989, cap rates for elevator buildings
were still lower than the 10-year T-bill. In 1989, cap rates for New York City real estate hit bottom in 1992. Sales volume
walkups were below the risk-free rate as well (See Graph G). hit an all-time low of 1.6% of the total stock of multifamily
and mixed-use buildings (the average turnover had been about
To sum up, the period from 1984 through 1989 was characterized 2.6% during this 25-year period). Most of the sales were on
by high prices, negative leverage, and yields below what could foreclosed properties. We also saw cap rates hit cyclical highs
have been obtained on a completely risk-free basis. Tax benefits and GRMs hit cyclical lows. In the walkup sector, cap rates
and co-op conversion potential were the main stimulus during increased to 12.34% with the average GRM hitting 3.57. For
this period. elevator buildings, cap rates increased to 11.54% and the
average GRM hit 4.11.
However, in the early 1990s, the real estate debt markets
evaporated as the Savings and Loan crisis started to take These cap rates were only very slightly higher than those we
hold. Leverage wasn’t nearly so available; in fact many saw in 1984—but those numbers by themselves are misleading.
investors had to under-leverage. Too much access to debt had Compare these figures:
led to overbuilding in the 1980s, but in the early 1990s new
3
 Commentary - Bob Knakal

GRAPH D: Cap Rates compared to Mortgage Rates manhattan

apartment buildings
14%
elevator
12.02%
12.34%
walk-up
12% 11.54%
11.74%
11.23%
11.52% 10.67% 10.83%

10% 10.31% 9.74%

10.15% 9.54%
10.13% 10.02%
9.09%
8.92%
8.71%
9.27% 9.24% 9.25% 8.53% 8.49%
8.96% 8.22%
8.75% 7.92%
8% 8.52% 8.37% 7.55% 7.58%
7.22%
7.75% 7.05%
7.42% 7.45% 7.50%
7.19%
7.03%

6% 6.27% 6.31% 5.50%

5.30%
4.75%
4.60% 4.40% 4.50%
5.00%
4% 4.50%

3.80% 3.90%
3.65%

3.05%

2%

0%
Mortgage 84 13.21%
13.52% 85 86
10.93% 87
9.27% 88 10.85%
10.50% 89 90
9.96% 91
9.67% 92
8.37% 93
7.92% 94
6.94% 95 96
9.25% 7.12% 97
7.80% 98
7.06% 99
6.79% 00
8.17% 01
7.12% 02
6.87% 03
5.73% 04
5.45% 05
5.52% 06
6.11% 07
6.30% 08
6.02% 09
5.71%
Rate
ate 13.52
M ortgage Ryear 84 13.21
85 10.93
86 9.27
87 10.50
88 10.85
89 9.96
90 9.67
91 8.3792 7.92
93 6.94
94 9.25
95 7.12
96 7.80
97 7.0698 6.79
99 8.17
00 7.12
01 6.8702 5.73 03 5.45 04 5.5205 6.1106 6.30 07 6.0208 5.7109
E levator 11.52 10.31 8.96 7.92 8.52 8.37 9.24 10.02 11.54 10.15 9.54 8.75 7.42 7.75Source:
7.45 Massey
7.03 Knakal
7.55 Realty
6.27 Services,
7.58 6.31 5.50 3.80 3.05 3.90 3.65 4.50
Miller Cicero (2003-Present), Federal Reserve Bank
W alk -U p 12.02 11.23 10.13 10.67 9.09 8.71 9.74 10.83 12.34 11.74 9.25 8.92 8.53 8.22 7.92 8.49 7.19 7.22 7.50 7.05 5.00 4.75 4.60 4.40 4.50 5.30
GRAPH E: Leverage (Cap Rates minus Mortgage Rates) manhattan

4% 3.9
7%
2%
YEAR apartment buildings
3.8
POSITIVE LEVERAGE
7% elevator
3.1
3%
2.6
0% walk-up
1%
3% 2.3
2.2
2% 0%
1.7
0% 1%
1.4 1.4 2%
1.3
6%
1.1
1% .86
%
%
.71 .63% %
% % .58
.35% % .42 .39
.30 .24
%
% %
.10 .05
0% 0% -.0
-.2 5%
2% -.3
3% -.4 -.4
-.5 5% 1%
0% -.6
-.7 2% -.7
-.8 2% -.8 7%
-1 % 0%
-.9 5%
8%
-1.
-1. 21
-1. 41 -1. %
50 % -1.
% 51 52
-1. % %
72
-2 % -2. -1. -1. -1. % -1.
90
00 98 97 98 -2. %
% % % % 14
% -2.
-2. -2.
40 37
48 % %
%
-3 % -2.
90
% -3.
06
%

NEGATIVE LEVERAGE
-4 %
year 84 85
85 86
86 87 88
88 89
89 90
90 91 92 93
93 94
94 95
95 96 97
97 98 99 00
00 01
01 02
02 03
03 04 05
05 06
06 07
07 08
08 09
09
4 E levator -2.00 -2.90 -1.97 -1.35 -1.98 -2.48 -0.72 0.35% 3.17% 2.23% 2.60% -0.50 0.30% -0.05 0.39% 0.24% -0.62 -0.85 0.71% 0.58% 0.05%Source:
-1.72 Massey
-3.06 Knakal
-2.40 Realty
-2.37 Services
-1.21
W alk -U p -1.50 -1.98 -0.80 1.40% -1.41 -2.14 -0.22 1.16% 3.97% 3.82% 2.31% -0.33 1.41% 0.42% 0.86% 1.70% -0.98 0.10% 0.63% 1.32% -0.45 -0.77 -1.51 -1.90 -1.52 -0.41
 may 13, 2009

• Average mortgage rate in 1984:13.52% • A wave of commercial mortgage-backed securities (CMBS)

• Average rate on a 10-year T-bill in 1984: 11.86% issuances made debt more available;
• Average mortgage rate in 1992: 8.37% • Increased investor awareness brought in more buyers of
• Average rate on a 10-year T-bill in 1992: 6.79% REIT stocks;
• Institutional investors (pension funds, insurance companies)
In 1992, positive leverage hit a 25-year high at 3.17% for became more attracted to real estate as an asset class.
elevator properties and 3.97% for walkups (See Graphs D &
E). Additionally, the return spreads above the 10-year T-bill From 1994 through 1999, we saw slow steady declines in cap
hit 25-year highs: 475 basis points for elevator properties and rates, with slightly positive leverage, and risk premiums within
555 basis points for walkups. To give you some perspective on a range of 100 to 250 basis points. During this period, GRMs
these numbers, look at Graphs G & H, which illustrates that also began a slow steady climb. Throughout the 25 years of
over 25 years those risk premiums averaged only 107 and 178 this analysis, this period was the most stable—and I attribute
respectively. that stability directly to the very disciplined lending practices
of debt providers. Memories of the over-leveraging of the
For the next two years, this market was dominated by sales of 1980s and the distress of the early 1990s were still very fresh
distressed assets—by private owners who had no option but to in their minds. In 2000, the market began to take advantage of
sell, or by the Resolution Trust Corp. But by the mid-1990s, the momentum created in the previous five years, and we saw
real estate fundamentals were improving and real estate capital distinct cap rate reductions and GRM increases from 2000 to
markets were returning to normal. There were several reasons 2001. Risk premiums during this time were at the lowest they
for this: had been since 1995, and we saw negative leverage return for
only the second time since 1991 (See Graph G).
• The banking industry stabilized following the Savings &
Loan debacle, and became profitable again;

sales under
GRAPH F: NYC Investment Property Sales Volume $100,000,000
11% 11.1% 8%
01-02 Current
NE

10.3% Recession Recession

WY

10% 7%
91-92
ORK

Recession 9.4%
9% 6%
8.7%
CI

TURNOVER PERCENTAGE
8.7% 8.8%
D
TY

8.8%
UNEMPLOYMENT RATE

ECTE

8.3%
8.2%
8.2% 8.0%
8% 5%
7.9%
7.5%
PROJ

7.5%
7.4%
7.2%
NA

7.1%
7% 6.9% 4%
TI
O

7.0% 6.7% 6.9%

6.8%
NA

6.9%
6.2% 6.1%
L

6.0%
6% 6.1% 3%
5.6% 5.8% 5.8%
5.5%
5.6% 5.8% 5.8%
5.7%
5.5% 5.0% 4.9% 5.5%
5.4%
5% 5.3% 2%
5.1% 5.1%
4.9%
4.7%
4.6% 4.6%
PROJECTED

4.5%
4% 4.2% 1%
4.0%

3% 0%
turnover
Rate 84 2.8%
2.5% 85 3.4%
86 2.8%
87 88
3.5% 89
3.1% 90 1.7%
2.2% 91 92
1.6% 93
1.9% 94
2.5% 95 2.6%
2.4% 96 97 3.9%
2.8% 98 99 2.9%
2.6% 00 1.9%
01 02
1.9% 03
1.6% 04
1.9% 05 3.4%
2.5% 06 07
3.0% 08 1.6%
1.8% 09
year 3.7%
Interes t Rates 84 3.2%
85 3.4%
86 2.8%
87 3.5%
88 3.1%
89 2.2%
90 1.7%
91 1.6%
92 1.9%
93 2.5%
94 2.4%
95 2.6%
96 2.8%
97 3.9%
98 2.6%
99 2.9%
00 1.9%
01 1.9%
02 1.6%
03 1.9%
04 2.5%
05 3.4%
06 3.0%
07 1.8%
08 1.6%
09
G RM
Source: Massey Knakal Realty Services, Federal Reserve Bank of NY, Federal Bureau of Labor Statistics
7.03 8.21 9.20 8.85 9.32 7.50 6.89 5.31 3.57 4.09 4.52 4.73 5.93 6.00 6.95 7.37 9.36 9.58 9.59 10.15 12.60 13.80 14.25 15.35 14.90 5
 Commentary - Bob Knakal

manhattan
GRAPH G: Cap Rates compared to the 10-Year T-Bill apartment buildings
14%
elevator
12.34%
12.02% walk-up
12% 11.54%
11.74%
11.23%
11.52% 10.67% 10.83%

10% 10.31% 9.74%

10.15% 9.54%
10.13% 10.02%
9.09%
8.92%
8.71%
9.27% 9.24% 9.25% 8.53% 8.49%
8.96% 8.22%
8.75% 7.92%
8% 8.52% 8.37%
7.55% 7.58%
7.22%
7.75% 7.05%
7.42% 7.45% 7.50%
7.19%
7.03%

6% 6.27% 6.31% 5.50%

5.30%
4.75%
4.60% 4.40% 4.50%
5.00%
4% 4.50%

3.80% 3.90%
3.65%

3.05%

2%

0%
10-Year 84 11.70%
11.86% 85 86
9.04% 87 88
7.18% 8.83% 89
9.23% 90
8.02% 91
8.25% 92
6.79% 93
6.75% 94
5.66% 95
7.88% 96
5.67% 97
6.51% 98
5.38% 99
4.84% 00
6.50% 01
4.96% 02
5.06% 03
4.15% 04
4.09% 05
4.28% 06
4.38% 07
4.66% 08
3.79% 09
2.41%
T-Bill
10-Y ear T-B ill 11.86
year 84 11.70
85 9.04
86 7.18
87 8.83
88 9.23
89 8.02
90 8.52
91 6.79
92 6.75
93 5.66
94 7.88
95 5.67
96 6.51
97 5.38
98 4.84
99 6.5000 4.96
01 5.0602 4.15
03 4.09 04 4.28 05 4.3806 4.66
07 3.79 08 2.41 09
E levator 11.52 10.31 8.96 7.92 8.52 8.37 9.24 10.02 11.54 10.15 9.54 8.75 7.42 7.75 7.45 Source:
7.03 Massey
7.55 Knakal
6.27 Realty
7.58 Services,
6.31 5.50 Miller3.80
Cicero3.05 3.90 3.65
(2003-Present), 4.50
U.S. Treasury
W alk -U p 12.02 11.23 10.13 10.67 9.09 8.71 9.74 10.83 12.34 11.74 9.25 8.92 8.53 8.22 7.92 8.49 7.19 7.22 7.50 7.05 5.00 4.75 4.60 4.40 4.50 5.30
GRAPH H: Risk Premium (Cap Rates minus 10-Year T-Bill) manhattan
6% YEAR apartment buildings
5%
5.5

9%
elevator
5% 4.9
5%
4.7
walk-up
4% 8%
3.8
9% 5%
9% 3.5 3.6
3.4 0%
3.4

6% 0% 9%
3% 2.8 2.9 2.8
4% 2%
2.5 2.5 .44%
1% 6% 2
2.3 9% 2.2 6%
9 % 7% 2.1 2.1 9%
2.0 2.0 2.0
2% 2% 5% 1%
1.7 1.7 1.7
0% 1%
1.5 1% 1.4
%
2% .24 1.3
.09
% 1.2 4% 1
5%
1 1.0 1.0 %
1% .87
% .91
%
% .71
.69
%
.47
% %
% .26 .22
.16
0%
-.0 -.1
8% -.2 4%
-.3 -.3 6%
4% -.4 1%
7% -.5 -.4
2% 8%
-.7
-1 % -.8
6%
6%

-1. -1.
39 33
% %

-2 %
year 84
84 85
85 86
86 87
87 88
88 89
89 90
90 91
91 92
92 93
93 94
94 95
95 96
96 97
97 98
98 99
99 00
00 01
01 02
02 03
03 04
04 05
05 06
06 07
07 08
08 09
09
6 E levator -0.34 -1.39 -0.08 0.74% -0.31 -0.86 1.22% 1.50% 4.75% 3.40% 3.88% 0.87% 1.75% 1.24% 2.07% 2.19% 1.05% 1.31% 2.52% 2.16% 1.41%Source:
-0.48 Massey
-1.33 Knakal
-0.76 Realty
-0.14 Services
2.09%
W alk -U p 0.16% -0.47 1.09% 3.49% 0.26% -0.52 1.72% 2.31% 5.55% 4.99% 3.59% 1.04% 2.86% 1.71% 2.54% 3.65% 0.69% 2.26% 2.44% 2.90% 0.91% 0.47% 0.22% -0.26 0.71% 2.89%
 may 13, 2009

The recession that began in 2001, when the tech bubble burst, So where do we go from here? Based on the massive amount
had only a slight effect on our market in terms of price—at first. of government intervention we’ve seen as a reaction to our
Cap rates and GRMs remained fairly flat in 2001 and 2002. present recession, a period of significant inflation is likely.
However, there is no metric that impacts the fundamentals of The Federal Reserve will try to keep that inflation within its
our real estate markets more than unemployment—and by comfort zone—1% to 2%—and will utilize monetary policy
2003, the recession had impacted the local employment rate to try to do so. That means higher interest rates.
to the point where the fundamentals of our real estate market
were highly stressed. In 2003, cap rates did drop, and GRMs Loose lending standards have been blamed for having a
increased—and sales volume was back to its all-time low of part in high prices we saw in the past few years—but now
1.6% (See Graph F). the portfolio lenders, who currently drive our multifamily
market, are lending much more conservatively. They’re
However, something else was brewing: something that would typically offering 55% to 65% leverage, as opposed to the
change the industry and lead us into the predicament that we 75% to 85% that was obtainable three or four years ago.
face today.
With debt more expensive and less available, we’ve seen
Note, on Graphs B & C, the dramatic divergence between a strong shift in the buyer profile. For much of the period
rising GRMs and plunging cap rates seen from 2003 to 2007. from 2004 to 2007, most buyers of multifamily properties
During this period, we saw CMBS issuance reach $93 billion were local operators, investing with equity from institutional
in 2004, $169 billion in 2005, $206 billion in 2006 and $230 partners. For the past year or so, though, the typical buyer
billion in 2007. This explosion of capital available to real has been the high-net-worth individual or the old-line New
estate—both from traditional banks and from “shadow” York City families that have been around for decades. Those
institutions—stimulated our market like nothing we had ever investors can provide all their own equity, and use little or
seen before. no leverage.

It was “déjà vu all over again.” As in the mid-1980s, leverage Those investors have a lot of capital, and they’re eager to
and risk premiums both reverted into negative territory. place it in the currently depressed market. But it remains to
Practically any type of multifamily property was a candidate be seen whether commercial real estate will remain a favored
for conversion to condominium ownership. Cap rates slid asset class with other investors. History would indicate that
as low as the mid-3s. We knew these numbers weren’t if interest rates increase, and lenders employ conservative
sustainable—and we’ve been proven right, the hard way. underwriting, we will enter another period of positive leverage
where cap rates will reach levels higher than mortgage rates.
But what will these graphs presented here look like in 10
years? If there’s one lesson we’ve learned from this quarter-
century overview, it’s that the market is constantly shaped by
external events—and by investors’ reactions to them.

If you have any questions about this commentary,

please feel free to call me at 212-696-2500
or on my cell at 917-509-9501.

7
 For weekly observations on the
New York City Investment Market,
please visit Robert Knakal’s blog,
StreetWise – a joint initiative of
Massey Knakal and GlobeSt.com –
at www.knakalstreetwise.wordpress.com

Robert Knakal
Chairman
212.696.2500 x7777
RKnakal@masseyknakal.com

During Mr. Knakal’s almost 25-year career, he has sold over 1,000 buildings having an aggregate market value of over
$5.8 Billion. He was the top salesman, with partner Paul Massey, at Coldwell Banker Commercial (now CB Richard
Ellis) in New York in 1986, 1987, and 1988 prior to forming Massey Knakal. In 1990, he was awarded Crain’s New York
Business “40 Under 40” awarded annually to 40 business people under forty years of age for outstanding achievement
in the New York business community. In 2001, Mr. Knakal was named one of “The Top Dealmakers” by Real Estate
New York Magazine. He has twice been the recipient of the Robert T. Lawrence Award in the Real Estate Board of New
York’s Most Ingenious Deal of the Year Contest. First in 2002, for the assemblage of the easterly blockfront of Second
Avenue between 54th and 55th Streets. Then again in 2004 for the sale of the historic Gotham Book Mart at 41 West
47th Street.

Robert Knakal’s Transactional Support Team

daniel hagan Thomas Willoughby

director of sales senior Associate
212.696.2500 x7775 212.696.2500 x7730
dhagan@masseyknakal.com TWilloughby@masseyknakal.com

Jonathan Hageman
Sales Team Manager Elysa Berlin kevin gleason
212.696.2500 x7773 senior Associate Associate
JHageman@masseyknakal.com 212.696.2500 x7764 212.696.2500 x7750
EBerlin@masseyknakal.com kgleason@masseyknakal.com

MA SSEY K NA KAL REALT Y SE RVIC E S

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