Ariel sees rise in borrower loan requests for Big Apple ground-floor retail loans

Multifamily borrowers in New York are looking at the market in a new way, feeling out lenders about the prospect of financing opportunities within the sector where there is the potential for a ground-floor retail component.

The trend is an emerging one, said Matthew Dzbanek Capital Services Professional at Ariel Property Advisors, a New York-based full-service brokerage firm, which began to start seeing the shift over the past few weeks.

“A lot of borrowers are seeing more value in mixed-use assets that they are not seeing in the multifamily space. You get better returns because there is perceived to be more risk and a lot of clients are now comfortable taking that ground floor retail risk,” Dzbanek said.

Ariel Property Partners, founded in 2011 by veteran broker Shimon Shkury, specializes in the New York City market. The firm has been seeing especially strong demand from potential buyers for residential buildings with a retail component in areas with strong foot traffic.

“After everything started reopening, retail in residential areas really started to boom, more so than it ever has in the past. Sponsors who own these buildings in some more of the residential neighborhoods have really seen their retail tenants doing exceptionally well and making more than they were making pre-lockdown,” Dzbanek said.

Additionally, sponsors are looking at adding a retail component to an existing property. “In much of New York you’re going to get more money on the ground floor for a retail building than you will for an equivalent residential unit,” Dzbanek added.

Location, location, location

Much of a mixed-use property’s success comes down to where it is and if its retail component is in an up-and-coming shopping area.

“We’re really seeing retail doing really well in areas of Upper Manhattan, Brooklyn, Queens, the Bronx with heavier residential density,” said Dzbanek. “We’re financing a fully vacant mixed-use building right now in Greenpoint. [The sponsor is] going to be able to put in a high-quality tenant who is going to do very well from day one.”

While Dzbanek has noted a drop off in acquisitions due to rising rates, much of the activity has switched to refinances, as borrowers race to lock in favorable terms and pay off existing debt.

“I would say it has definitely slowed down the acquisitions that we have seen. But there are still a lot of people who are racing to refinance,” Dzbanek said. “What we’ve seen is more of our deals are transitioning towards existing clients who either have loans coming due immediately or in the near future, who are looking to lock in rates where they continue to rise.”