06/12/2014 | By Sarah Borchersen-Keto
New York REIT started as a public, non-listed REIT (PNLR) before listing on the NYSE in April. Happel was asked about market reaction to the listing.
“The market response has been fantastic,” he said. He explained that the listing had two main purposes - to provide liquidity to existing shareholders as well as to provide the company with long-term access to public market debt and equity.
“This is the end of chapter one for some of our shareholders but it’s really the beginning of chapter two for our company,” Happel said.
Happel also commented on the advantages, and possible disadvantages, of New York REIT’s tight geographic market focus.
“We are 100 percent focused on New York City, and we will stay 100 percent focused,” Happel said. ”I think that Manhattan, and New York City overall, is arguably one of the best real estate markets in the world long term, so we’re glad to be focused on this market. Having said that, if we get in a down cycle in New York City we will be impacted when and if that happens.”
He added that long-term, New York is a supply constrained market. “It’s a market with a lot of rent growth potential and a market with a lot of appreciation potential, so we are going to remain as a pure play on New York City,” he said.
Happel explained that the company’s primary focus is on office and retail properties in Manhattan, with about 80 percent of the portfolio in office assets, and 10 percent in retail.
In terms of the office market, “we’re still able to buy below replacement cost…we’re buying at yields that are higher than our borrowing costs, so we’ve got a nice positive spread,” he said.
The company is also buying at a time when office rents in the city are well below their previous peaks, Happel noted. Office rents are still down roughly 17 percent from their peak, he said. Barring unforeseen circumstances, “we’re going to have several years of very strong rent growth in the office sector in New York,” Happel observed.
Happel also noted that the company’s retail portfolio is also seeing strong rent growth, fuelled in part by a boom in tourism.