Tuesday, June 5, 2007

Justifying New York Rents

Howard Michaels of The Carlton Group justifies the high prices being paid for commercial real estate in New York in Real Estate Finance and Investment: IRR-Driven Investments Bring Investors To New York.

While others in the market may wonder if they should be underwriting rents in excess of $100 per square foot, Mr. Michaels looks to other major global cities to compare.

He uses a CB Richard Ellis survey to see that the average occupancy cost in New York is $62, but in London's West End it is $212 and Tokyo's inner city is $145.

He also compares the cap rates in Tokyo, London, Madrid, Paris and New York. Tokyo is at a 3% cap rate. London, Madrid and Paris are at a 4% cap rate. With New York at a 6% cap rate it ranks cheaper than other major cities.

I previously pointed out stories about changes in the markets that impact real estate prices. Mr. Michaels thinks they are still comparatively cheap.

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