Top 5 Predictions for 2023

Hochul had a scary moment before getting reelected as Lee Zeldin came too close to comfort in his polling and results on an anti-crime platform. Our Governor and Mayor heard that message loud and clear. Notwithstanding the drum beat of gruesome crime reporting out of the NYC press, the subways are already much safer than they were this summer. The NYPD surge underground has already been having a salutary effect and the feeling is less, well, scary and hostile. Mayor Adams’s plan to remove severely mentally ill people from the streets (and particularly the subways) will inevitably bring down the random violence that has been so unsettling. This will give both foreign buyers and locals the confidence to invest capital here.

I am totally unsure why I seem to be the only person saying this, but the peak in the 30 mortgage rate already happened in late October/ early November when the rate briefly crossed 7% for conforming mortgages.  The Fed’s actions in both the short and long end of the yield curve are having their effects and inflation is cooling. The yield curve inversion means longer term rates are lower than short term rates, and this tends to precede a softening economy. So the Fed will loosen up on the short end of the curve and there you go. How obvious is this?? And yet people are still grousing about rates. That story is behind us and 2023 will see mortgage rates drop further.

---

3. There Will Be a New Law Authorizing a 421A-like Tax Break for Developers

This means the sheer pressure on lawmakers to create more housing will become intolerable. That being said, higher interest rates and the lack of the 421A tax abatement program make most development uneconomic for developers. So there will be a new tax abatement program to spur new housing development in 2023.

---

4. Commercial to Residential Conversions Will Begin In Earnest

As we wrote in The Insider last week, the work from home movement has hollowed out many office buildings, particularly those that are older and rather tired. With demand for office space at an all time low and demand for housing at a fever pitch, we will start to see conversions of office space to residential apartments in 2023. In fact Silverstein Properties has already raised a $1.5 billion dollar war chest for this effort (and is in the midst of converting another building at 15 Broad already).

—businessinsider.com

---

---

5. There Will Be Major Institutional Interest In Multi Family Properties During a Year-long Flight to Quality

Even before Work From Home and the pandemic, the multifamily asset class was considered a more blue chip asset than office space. Why? Commercial is more volatile. Think about it this way. If you have a class B or C office building that is getting long in the tooth, your anchor tenant could move to, say, Hudson Yards and leave you with a 40% vacancy rate. A few more tenants leave and you have big problems. But in residential, in a town where the vacancy rate is typically in the low single digits, 40% of your tenants just don’t walk out of the door at the same time. That is not a thing. Blue chip means predictable, long term income, which is exactly what you get from residential multifamily properties.

These things are going to push global assets to the bluest chip of all real estate investments (NYC multifamily properties):

• NYC’s distance from Europe’s theater of conflict with Russia
• Equity volatility globally
• China’s Covid mess (not to mention their own property mess)
• The crypto dumpster fire

---

Insider Conclusions

I know this flies in the face of almost everyone’s predictions that 2023 will be characterized by lower sales volumes and lower prices, but I think we’ll pull out of buyer market territory and be back in a seller’s market by fall.

The thing that kills transaction unit counts is uncertainty. And as it becomes clear that (1) crime is being brought to heel (2) interest rates have peaked (3) revitalization is happening in NYC and (4) NYC is a stable asset, confidence will drive asset purchases. With few new developments coming online there is no supply-side overhang to worry about. 2023 will be a solid year for real estate, with rising prices and healthy transaction volumes.

Have a great weekend, everyone!

SUBSCRIBE TO THE INSIDER