The multifamily market in New York City picked up steam in 2011 and is continuing to thrive during the first quarter. Multifamily building sales citywide jumped 33 percent in 2011 compared to 2010 as institutional investors drove the year-over-year jump in dollar volume up by 43 percent.
Our company’s research report, the Multifamily Year in Review: New York City 2011, shows that citywide there were 436 multifamily transactions in 2011 consisting of 589 buildings totaling $4.23 billion in gross consideration, compared to 2010, which had 392 multifamily transactions with 442 buildings totaling $2.949 billion in gross consideration.
Manhattan south of 96th Street and Brooklyn posted the strongest gains in 2011 versus 2010. Each saw a 25 percent increase in multifamily transaction volume and around 50 percent increase in building sales. Year-over-year multifamily building sales in Northern Manhattan and the Bronx rose 25 percent and 23 percent, respectively, but declined 7 percent in Queens.
The pricing environment has shifted dramatically in favor of sellers and prices are ticking up as a result of several fundamental value drivers. Rents have now recovered to pre-financial crisis levels and tenant concessions have all but disappeared. Interest rates for cash-flowing multifamily assets have hit all-time lows, giving owners the ability to either sell at excellent cap rates or re-finance inexpensively.
Supply versus demand dynamics are also in favor of multifamily owners. Many owners are reluctant to sell today because re-financing and enjoying a continuous cash flow remain a more attractive option than alternative investments they would need to pursue with the proceeds from a sale. This has resulted in relatively few assets coming to market. Demand, on the other hand, is stronger than ever as high net worth individuals, REITs and international investors scour the market for transactions. Many view New York City as a premier global market that is a safe haven with upside compared to other real estate markets worldwide.
In 2011, multifamily sales were also distinguished by the return of institutional investors — REITs and private investors that stayed out of the market between 2004 and 2007 — and an increase in portfolio sales. Institutional sales grabbed a larger share of overall dollar volume, accounting for 57 percent of New York City’s total dollar volume in 2011, versus 40 percent in 2010. Also in 2011, there were 36 transactions that sold for $20 million or higher, which is more than double the number of similar, high-priced transactions in 2010.
The top institutional investors in 2011 based on number of transactions included East Coast Holdings, Metro Props LLC, Croman Realty, Benchmark Real Estate Group LLC, Chestnut Holdings of NY, Silverstone Property Group, Alma Realty Corp., Finkelstein-Timberger LLC, Fortress 31 LLC, and Minuit Partners. The top dollar transaction for the year was UDR’s acquisition of the Rivergate Complex with 709 units at 606 First Avenue in Manhattan for $443 million, while the top portfolio transaction was Chestnut Holdings’ $47 million purchase of the 11-building Sheridan Avenue Portfolio in the Bronx.
This year, Newark-based TreeTop Development partnered with New York City-based Latus Partners LLC to buy the West 116th portfolio consisting of four buildings in Harlem for $18.4 million, a deal that Ariel Property Advisors brokered, and also closed on an additional 350 units on the Upper West Side the following week.
With rents now rising even as state unemployment remains 8 percent and with interest rates expected to stay low through 2014, we believe there will continue to be opportunities for investors in the New York City multifamily market over the next 18 to 24 months. Investors should also keep an eye out for more properties coming to market towards the end of 2012 as property owners look to take advantage of today’s lower tax rates, which could rise significantly after the 2012 elections.
— Shimon Shkury, president of Ariel Property Advisors in New York City