Investors are always enthusiastic about buying commercial property in New York City, especially in the Upper West Side. Foreign investors and foreign institutions are even more enthusiastic and are the most aggressive buyers of commercial property in New York City. The United States is one of the most secure countries in the world to trade your hard cash for a solid asset.
New York Citys’ commercial real estate market is one of the most secure markets in the United States to invest in. It was recently reported that Manhattan rents are the highest in the nation and yield greater average annual returns for landlords than any other state. MSNBC recently reported that Manhattans’ vacancy rate is about 1% which they say is “atoundingly low” and I agree. Foreigners know these facts and that is why they are eager to invest here.
This dynamic brings a false sense of certainty to the commercial real estate market. A great way to restore certainty in todays’ commercial real estate market is to cut taxes, namely the capital gains tax. The capital gains tax is the profit realized on the sale of a non-inventory asset like real estate. The top rate for capital gains tax is at 15% and is almost certain to increase anywhere between 20% to 33.8%. For example, if you sell your building in 2012 for $10,000,000(USD) you will most likely pay $1,500,000(USD) in capital gains tax. If you sell your building in 2013 for $10,000,000(USD) you might be obligated to pay as much as $3,380,000(USD) in capital gains tax.
For domestic investors it will be almost impossible to purchase a solid asset in these market conditions. These market conditions will also lead to even less inventory on the market. Taxes are a cancer in the commercial real estate market. Let’s hope the current Administration or whatever Administration takes office this November cures this ailment and restores real certainty for a healthy economy.