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NEW YORK ROUNDTABLE 84 • SHOPPING CENTER BUSINESS • December 2016 SCB: Is anybody looking to buy properties? Scott Plasky: Yes. The market is, for at least what we do, really strong for retail. You definitely have to work harder than you've ever had to before. You're working twice as hard to get half the offers. Pricing has held, but it's really only held because of the exchange buyer market and some one-off kind of people looking to park money. The guys who always bought — the guys in your rolodex that you've been talking to for a decade — are sitting out right now because they just can't make sense of the prices. I'm not sure where a lot of these areas are going; where the ten- ants are going; where the rents are going. As far as the actual market itself, when you look at the comps, the pricing has held in the last 24 months. It's just a little bit harder to find the people buying them. The majority of the deals that are getting done at the top level are exchange guys, all being driven by people selling stuff in Manhattan and Brooklyn and looking to get into retail at pretty low yield but safe yields. It's also a lot of guys with money parked that are essentially looking at what their alternatives are and the alternatives really aren't much. Cohen: The exchange market is very in- teresting because, right now, while real estate, particularly in New York City, has driven to an extremely high level the val- ues, there are a lot of other things happen- ing. One of which is a multigenerational shift in ownership, which then creates, when you have high values, creates an opportunity for people to liquidate and get out of the real estate as opposed to having to figure out how all of the cous- ins and sisters and brothers are going to operate it. What's happening is a tremen- dous amount of opportunity in the deals that are happening, everybody hears about these off-market deals, a lot of the off-market deals are off-market because they're in connection with settling some sort of partnership or a multigenerational shift. That's creating an opportunity for people to look for real estate and retail assets, like the kind that you were talking about, which have a very low level of man- agement requirement, particularly I guess in some of the big box or something could be triple-net, because there's all of this capital where people are trying to figure out well if I do sell, then what do I do with the money, and that seems to be what I see from my perspective. We represent a lot of these families and groups that are selling off these assets, and that's what they're looking at. Jackson: We're looking at a lot of off- shore deals. And honestly, what I think is happening in Manhattan and throughout the country with better assets is that it is a tremendous amount of money for good real estate. Everybody wants something good; everybody wants something that if it's not great, it has a story. You're sitting there, and you're saying, 'oh, they didn't manage it well' or something is going on there. It's got to have a story. There's not a lot of product out there. There's a lot of stuff that's garbage; there's a lot of stuff that's out there that's available for sale that nobody wants, but if you want some- thing, that's what's holding the brakes. Spiegelman: There's a lot of pushback now on pricing and cap rates depending on the market type, and what happens is everyone sees the big institutional trade with Chinese or Middle Eastern buyers come and buy real estate to park cash and get it out of their countries because there might not be a country. Basically, what happens is that skews down to almost a zero cap rate because they're getting neg- ative cap rate in Europe for their money. They just want to know they can get the principal returned after 10 or 20 years. What happens is the second tier prop- erties and third tier property owners see that and want that price. I play a lot of dif- ferent ends of the table, I say 'you're not going to get that price. You're never going to see that.' A 2 or 3 cap is not realistic anymore in the marketplace. Also, look- ing at the run rates and the projections on rents, with the exception of very few properties, project rents going forward. In SoHo, they're not going up, they're going down. Everyone thinks they're on Broadway, they're going to get $1,000 per foot, and guess what? There's a ton of vacancy and they're lucky to get $550 or $600. That's affected the whole market- place and there's a disconnect between the sellers and the buyers. The buyers are sitting around now getting smart and say- ing we're not falling for that. If there's any uptick in interest rates, it's going to really shake down a lot of players in the market. Plasky: Exactly what Lee [Spiegelman] said. What we're seeing is a lot of guys are sitting there waiting, and a lot of people that own B and C properties are trying to piggyback off what they're saying with the core stuff and they're just not getting the pricing that they thought they could have gotten. If it's A, it's core, it's great tenants in a solid market, you're going to get what you want from an exchange buyer or a one-off buyer, but the buyers with the secondary stuff, there's a 25 basis point tick down and as long as there's no disconnect with the seller, he can still do the deal but the buyer is holding out for some number that he sees on comp. A lot of those deals just aren't getting done. SCB: Are the sellers being unrealistic? White: There is not a lot for sale. There is almost no Class A product for sale, and when there is an A, I'm not even sure there's a number. There's not an open market, and that makes the market very tight. When you look at things and you try to add value, not necessarily in Man- hattan, but the construction costs are out of control. They're so high, they're partly cost-prohibitive to redevelop. If you want- ed to get materials and you wanted an A development team from the construction guy, you can only get the B team. There are way too many big projects going on, so you get the B team for that no matter what you do. The cost for build out for retail has probably doubled in the last 10 years; that is a problem. SCB