Shimon Shkury: Hi everybody, it's Shimon Shkury here with Ariel Property Advisors at Coffee and Cap Rates, the podcast that talks about New York City real estate. Today I have with me Mike Tortorici, my partner who does a tremendous amount of business in Manhattan, together with our director in investment sales, Howard Raber who does also a tremendous amount of work in Manhattan below 96th Street. Hi guys, how are you doing?

Howard Raber, Esq.: Great, thanks.

Michael A. Tortorici: Doing great, Shimon. Good to be here.

Shimon Shkury: Awesome, thank you. So we are coming off 2022 that was pretty good. The first half was a lot stronger compared to the second, mostly because of interest rates. We see that. And let's focus a little bit about multifamily, office, and development. Let's start with the multifamily asset class and one of the things we like to say here at Ariel is that not multifamily was created equal. Howard, why don't you give us a quick overview, high level, what have we seen in the multifamily asset last in 2022?

Howard Raber, Esq.: It's probably the strongest year we've had since 2016, where you saw 419 transactions. So we're seeing investors come back to multifamily, want to be active where there's revenues to be had. We're seeing with office today. And the difference though is that instead of investors looking at these smaller assets that were perhaps tax protected and the 2A, 2B status, we saw a lot more institutions get involved in the larger transactions, whether it was Eight Spruce or with the solo portfolio buildings and you're seeing these types of dollars being spent on more free market buildings with a lot more scale.

Shimon Shkury: Got it. So mostly free market buildings, and one of the things I'll add here is that we've seen that institutions are investing more in multifamily for the first time in Manhattan below 96th Street than in office for the first time. And that's super interesting. Essentially institutional capital wants to be here regardless of the product type. We're going to find the right investment for themselves to stay in Manhattan. And Mike, you've done some deals here in multifamily arena, also predominantly free market I believe. I want to talk a little bit about that market, why people are investing.

Michael A. Tortorici: Sure. We're still kind of coming out of this Covid slog to some extent. We're still in the mid of a major recovery. We just saw that Manhattan rents hit a historic high this past month in the middle of January. So with that kind of momentum, I think any question that the Manhattan renter won't come back and pay a premium for living here is now out the window. And that's showing up in the bids that we're seeing on properties and it's showing up to some extent in the pricing. I think that some of the pricing you see is definitely reflective of the fact that these are mostly free market buildings that are trading. If there was more of rent-stabilized, these numbers would be a bit different, especially in terms of cap rate. But when you see our average for the year, the average cap rate coming in at 4.36. One thing to note on that is that investors are still underwriting to proformas. There's a lot of buildings that had one or two year leases that were put into place during Covid that are still turning over now and while they're going in maybe at a sub five cap, the plan on those is to raise rents through turnover, possibly through some renovation and get those cap rates stabilizing in a range of a high five or maybe even a six cap. And we've seen that in some pretty prime locations Downtown, Upper East, Upper West Side. It's a story that we see over and over again for buildings that are not at their max potential revenue wise.

Shimon Shkury: Beautiful. So that's really the rank growth, the fundamentals. And also one of the things I don't think we touched on is the perpetual low supply of housing, which keeps pushing free market rents up and keeps interest from investors on this. And let's shift to the office market before we touch on development. And Howard or Mike, do you wanna touch on that high level? Tell us what we've seen in the past year and in the office market in terms of trades and sales.

Howard Raber, Esq.: I'll get started here then Mike can jump right in. But with offices, there actually has been an increase in activity over the past year. We saw 52 transactions, which was a 63% increase. So you are seeing that as well as a dollar spent. I think what's happening though is that while there is that flight to quality from a renter perspective, the buyers investors are looking at the overall cash flows and I think there's a little bit more caution and that's why you're seeing the multifamily actually overtake the office. But you can't dismiss, I think the interest in office going forward.

Michael A. Tortorici: I think it's going to be a definitive year for office especially for class B assets. Again, I think it's going to come down to pricing, it's going to come down to possibly alternative uses. If the state and the city come around to some legislation that eases the pathway of converting these office buildings to different uses, particularly residential, it's going to result I think in a nice uptick in trades and some unique adaptations of some of the office stock that we have.

Shimon Shkury: Yes, so you are saying 2023 could be a defining moment for some of the assets. These are the businesses that are assets, what we call in transition, either with conversions to residential or otherwise. We don't exactly know how they'll transition, but some of them will have to transition. But the two things that both of you mentioned which I found interesting is the fly to quality is number one and number two, I don't know if we said anything about the Google trade that was 2 billion dollars of all transactions. That's a big chunk of the total transactions that happen in office and these are specialty users who are taking advantage of the office market in New York City and building their own offices for their employees.

Michael A. Tortorici: Just to build on that point, I think whether it's Google, whether it's medical users, educational users, we're still in a market where on occasion you'll see a nice trade with a significant owner user premium that separates the average run of the mill office trade from the pack. So it's something to keep in mind. Institutional, high-end owner users.

Shimon Shkury: Absolutely. Citadel's doing one of those and Park Avenue. JP Morgan is continuing to do what they're committed to do. It's two and a half million square feet on Park Avenue as well. So I completely agree with that. And I think, again, going back to the comments that both of you made is that the office market is in transition big time. So let's go to development real quick and see what happened there. A lot of transactions, little transactions. What about pricing, Mike?

Michael A. Tortorici: So development in terms of number of transactions was about even with last year, about 38 trades we recorded in 2022 versus 40 in 2021. But the dollar volume really went up quite a bit, hit about 2.7 billion this past year versus 1.35 billion. The caveat being that two trades that took place won the silver scene sale of ABC Studios and another one down at 532 Washington accounted for just a little bit less than 50% of the total dollar volume. So it still remained to be a fair number of small deals, a lot of which took place in the first half of the year. Howard, you sold one over on Lexington, a nice deal that at the time achieved about 475 of buildable foot. And I think all of us were feeling pretty optimistic in the first half of the year with people coming back and rents going up and condo sales taking place at higher levels that we were on the verge of a relatively robust recovery. And right now with rates having gone up, there's been a bit of a pullback in development site transactions as well as I think a pullback somewhat in pricing. The market wants to see what's gonna be shaking out over the next six months. I think that's gonna be pretty telling as far as the direction of this market. But for now you have developers that while there's a fate that the revenues will recover, it's the cost of capital and construction costs that's leading to a lot of developers being more cautious than the otherwise would be coming out of some of the depths of pricing that we've seen. But right now the average price for buildable for the year came in at 425. It's been a long while since it's been that level. We were seeing that kind of pricing in 2012, 2013, and we need to see some of the uncertainty taken out of the market before I think we see a real robust recovery. But what it happens, I think it's gonna happen quickly.

Howard Raber, Esq.: I think part of that rationale for the lack of activity at the moment is even though it affects Manhattan less than outer boroughs it is what's gonna happen with the regulatory. The 421-a program coming back and some duration is that developers say, listen, if there way to get creative with structure, whether JVs or land leases, et cetera. And I think they're kind of waiting to see what is the city going to offer from an incentive. Once that decision comes down the pike, then I think we'll start hearing more conversations again as well.

Shimon Shkury: Yeah, that's a good point. And the psyche about the 421-a, although it affects Manhattan below 96th Street less than the boroughs just because of, like you said, JVs, ground leases are affected mostly because their rentals, it definitely helps the psyche to know that you have the 421-a, the investor mindset. I also think that Mike and Howard, you're absolutely right, there has been a consistent inclining values, especially in the past six months just because interest rates have gone up a lot and condo sellouts slow down a lot. If you look at the charts and look at 2015-today, there has been consistent drop in volume and values of land. So I think that that this year and early next year could be great opportunities to pick up land at prices we haven't seen in many, many, many years, specifically in Manhattan. Let's wrap it up. It looks like we had a good year. It looks like money wants to be here, there are challenges ahead to solve still, but things are looking pretty good, at least from what we've seen in terms of following the money. Does that make sense?

Michael A. Tortorici: Yes, to your point, I think that the demand is there. The demand is there from institutions, from private offices. The market needs to adjust it's bid to ask. Right now there's a bit of a disconnect and I think that investors really wanna see what the inflation and interest rate outlook is over the next six months before they really start picking up on transaction volume.

Shimon Shkury: Excellent. Thank you both and look forward to doing some deals very soon.