Real estate developer Louis Ceruzzi has grand plans for a sleek $1 billion Manhattan skyscraper, featuring luxury shops and condos that soar high above Fifth Avenue.
Two years after Ceruzzi and a partner bought the site, they have yet to break ground. For now, all he has to show for his trouble is an empty lot, an idle backhoe and scattered piles of rubble.
The delay suggests an irony: even with election of Donald Trump, the first developer as president, commercial real estate investment has slowed to a near standstill—especially in Trump’s hometown, the nation’s largest market.
In New York City, first-quarter property sales plummeted 58 percent, to $4.3 billion, compared with a year earlier, according to data from brokerage Cushman & Wakefield Inc. It marked the lowest quarterly sales volume in six years. Nationwide, the picture wasn’t much better. Sales dropped 18 percent, research firm Real Capital Analytics Inc. found.
“People are just not making decisions quickly at all,” said Robert Verrone, a principal at Iron Hound Management Co., a New York-based real estate advisory firm. “Everything in real estate is taking longer.”
Much of the slowdown has nothing to do with Trump. Concern is mounting that real estate prices have peaked following six years of record-shattering growth, and there are signs of overbuilding in large cities such as New York and San Francisco—the biggest beneficiaries of the recent boom.
Some of this hesitancy, however, can be traced to Trump’s gilded door. Real estate investors worry that Trump’s industry-friendly tax cuts will fail to pass. At the same time, others figure that lower taxes and higher spending could spark inflation and rising interest rates—a liability in the debt-driven business.
“If the rules of the game they have been playing for 30 years might change, that gives investors pause,” said Dave Bragg, an analyst at Green Street Advisors LLC., a Newport Beach, California-based real estate research firm.
It’s not just taxes. Uncertainty about the fate of Trump’s entire economic agenda is holding up deals across the country. Buyers and sellers “need to have shared expectations” before signing on the dotted line, said Jeff Friedman, a principal at Mesa West Capital, a Los Angeles-based real estate investment firm.
As sales of existing properties languish, developers are mired in a glut of hotels, condos and apartment complexes following a construction boom. Landlords are cutting rents and prices, and spooked lenders are holding back.