Jul 10, 2023
It’s been “a frightening time” to be in the Big Apple, according to New York’s ex-governor David Paterson.
Speaking with John Catsimatidis on his radio show, Paterson described how toxic smog from Canada, the ongoing migration crisis and the growing vacancy rate across the city’s shiny office towers are creating havoc for citizens.
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New York’s air quality was briefly the worst in the world in early June, as smoke from Canadian wildfires drifted over the city. Meanwhile, the office vacancy rate hit a record high of 22.7% earlier this year, raising alarm bells for commercial real estate investors and Wall Street.
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Despite these overlapping crises, Paterson remained hopeful about the city’s long-term future. He compared the current situation to the city’s fiscal crisis in the 1970s and the aftermath of the Sept. 11th attacks: “New York has always been a resilient city that’s always kind of bounced back,” he said. “We still have that resilience, that desire and that drive to bring the city back as one of the great cities, if not the greatest city, in this country,”
Investors who share this optimism could see the ongoing dip in sentiment as an opportunity to invest in New York’s most attractive assets.
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Iconic properties
The best way to make a contrarian bet on New York’s rebound is to own a piece of its iconic skyline. Empire State Realty Trust (NYSE:ESRT), as the name suggests, owns the Empire State building along with other commercial and residential properties spread across the city.
Altogether, the portfolio includes 8.9 million square feet of office space, 718,000 square feet of retail space and 721 residential units across three multifamily properties.
The stock is flat over the past year, but is down 58.4% over the past five years. However, it’s looking relatively cheap right now. The stock trades at a price-to-book ratio of 1.18, which means each unit of stock is worth 118% of the value of the underlying property.
The stock also offers a 2% dividend yield with a 42.4% dividend payout. That means there’s room for the dividend to expand if revenue or occupancy rebounds in the years ahead.
Commercial properties
American Strategic Investment Co.’s ticker symbol NYSE:NYC makes it clear that the stock is a proxy for the city’s economy. The company was formerly known as New York City REIT. The portfolio includes eight commercial properties with a total of 1.2 million square feet spread throughout Manhattan. As of the first quarter of 2023, the total occupancy rate of these properties was 84%, higher than the city’s average.
Also, the average lease term had seven years remaining — many of the company’s tenants won’t be leaving for a while. The tenant mix is also comforting, with 26% in the financial services sector and 13% in government agencies and services. Government tenants are somewhat immune to the business cycle while financial services are more tethered to the global economy than New York alone.
The stock trades at just 6% of book value per share, which makes it severely undervalued.
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Apartment properties
Legendary investor Sam Zell, who passed away earlier this year, was famous for his contrarian bets. In one of his last public appearances, Zell called remote work “bulls—” and was convinced employees would head back to the office. His company EquityResidential (NYSE:EQR) is certainly positioned for it with extensive exposure to America’s largest cities and over 36 properties in New York City.
The company’s portfolio consists of 301 properties with 79,351 apartment units across major cities like Boston, New York, Washington, D.C., Seattle, San Francisco and Southern California, Denver, Atlanta, Dallas/Ft. Worth and Austin. The stock offers a 3.9% dividend yield and trades at a price-to-book ratio of 2.23 — which makes it the most expensive REIT on this list.
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
