As the second-largest city economy in the world, New York City continually retains its reputation as one of the most desirable locations for long-term real estate capital appreciation, both nationally and globally.
In turn, increasing rent growth and decreasing vacancies have characterized the New York City multifamily market as the influx of supply in 2018 quickly gets absorbed. In the next 24 months, the city will see a dramatic reduction in the new supply of rentals, with current projections for 2019 to 2020 estimating 12,000 units to come on line. This figure represents a substantial decrease from the 20,680 units that were delivered in 2018.
Of those 20,680 units, Queens and Brooklyn accounted for more than 50 percent of the new supply. Despite these deliveries, effective rent grew in 2018 by 2.9 percent in Manhattan, 2.2 percent in Brooklyn and 3 percent in Queens.
Total multifamily sales volume in Manhattan for 2018 was $6.8 billion, an 83 percent increase from 2017’s total transaction volume of $3.7 billion. With 181 total transactions, properties that traded for more than $50 million made up 65 percent of the volume in 2018 across 22 trades. Similarly, sales in Brooklyn hit a record volume of $2.8 billion, 32.5 percent above the prior peak in 2015. Transaction volume nearly tripled in Queens from $0.5 billion in 2017 to $1.5 billion in 2018.
Notable recent New York City transactions include the sale of The Corner, which represented the highest per-unit sale in Manhattan in 2018. The property was sold to Centurion Real Estate for $227.2 million ($1,159,439 per unit) in December at a 3.61 percent cap on abated NOI. The buyer plans to convert the 196 rental units into condominiums.
Another noteworthy transaction is the sale of the 800 Sixth Avenue to Greystar from Equity Residential. The 266-unit property sold for $240 million ($900,000 per unit) at a 4.4 percent cap on abated NOI and includes 62 rent stabilized apartments.
Rent Stabilization Update
Investors have become more conservative in their underwriting, pending the looming June 2019 vote surrounding the four-year cycle of approving and updating the state’s rent stabilization laws.
Owners of rent-stabilized properties are potentially going to be in a predicament and could face an inability to improve their assets, stifling of rent growth and growing operating expense budgets. The topic has been a political hot button among state and city officials in regard to its potential impact on existing rent stabilization laws.
Some major topics of reform include eliminating preferential rents, scrapping vacancy de-control and repealing the Urstadt law, which prevents the city from enacting rent laws more restrictive than those of the state. Some politicians are proposing that the rent laws be repealed/replaced upon renewal in 2019 (they expire every four years). Overall, we have seen many investors take a wait-and-see approach and, in the meantime, pivot toward more fair market investment opportunities.
Although a big blow to New York City’s job market, Amazon’s announcement to no longer move its second headquarters to Long Island City may not have as big of an impact on the real estate market as people initially thought. A 2017 study found that the neighborhood welcomed more new multifamily units (many of those market-rate rentals and condos) since 2010 than any other neighborhood in the county.
Notable developments include 5Pointz Apartments, a 1,115-unit multifamily development by G&M Realty. The project was completed in early 2019 and spans two towers, which together make up the largest new additions to Long Island City.
Additionally, Skyline Tower, which is expected to be delivered in the third quarter of 2020, will add 802 condominium units to the Long Island City market. The project is being developed as a partnership with Risland Holdings LLC, FSA Capital and United Construction & Development Group..
L-Train Shutdown Reversal
One important observation of the past few months was the immediate effect the reversal of the L-train shutdown had on Williamsburg rents, which increased vacancy by 1.49 percent in the neighborhood.
Before the reversal was announced, Williamsburg was the only neighborhood in the city to see a decline in rental demand, with a 1 percent drop since October 2017. As we approach a busier cycle in the rental market, it will be interesting to see how this sudden change of plans continues to influence the greater Brooklyn rental market.
— By Rob Hinckley, Managing Director, HFF. This article originally appeared in the May 2019 issue of Northeast Real Estate Business magazine.