Capital found its way back into the New York multifamily market, particularly in buildings at market prices as rents reached all-time highs, marking a shift in strategy for many investors and the beginning of a shift in the real estate property landscape of the city.
New York City
New York City saw $4.7 billion in multifamily sales in the second quarter, up 80% from the first quarter and 270% from the second quarter of 2021, according to data from Ariel Property Advisors, which cover all boroughs except Staten Island and buildings with 10 or more units.
Three-quarters of that $4.7 billion was spent on open market buildings, up from 67% the previous quarter. A handful of huge deals have caught the eye, but multifamily players say investors up and down the market have a strong preference for unstabilized stocks.
“Regulation, coupled with rising spending and rising interest rates, has made the rent-stabilized asset class more difficult to capture in today’s market,” said Victor Sozio, founding partner of Ariel. bisnow. “Investors are attracted to the idea that they can ride the market and not have to worry about annual increases…It’s just a lot easier to present a business plan.”
There has certainly been no shortage of expensive offers to indicate buyer interest in this type of asset class. This year, Blackstone paid $930 million for the luxury rental at 8 Spruce St. in the Financial District, and JDS Development Group and Baupost Group sold the American Copper Buildings for $850 million. black spruce management.
A pandemic-era city record was set in June when Black Spruce and Orbach Affordable Housing Solutions agreed to buy six of the residential buildings that were developed by the late Sheldon Solow. The agreement was for 1,700 units, of which only 15% are rent-stabilized, and amounted to $1.75 billion.
Sozio said a strong desire to operate without regulation is fueling interest in these types of assets, as well as attempts to benefit from unprecedented rent hikes. The average rent in Manhattan reached $5,113 a month in July, a price never seen before.
Although rent growth is expected to start to slow, there is confidence in the predictability of housing, he said, especially as potential buyers cannot invest in them because of rate hikes.
“In a world that is so hard to speculate, what the next few years will bring, [buyers can have] a little more comfort and confidence in the assumptions they make about these types of transactions,” he said.
8 Spruce St., developed by Forest City Ratner
State rent reforms in 2019 reduced the ability of landlords to move regulated units from the regulated market to the free market, and critics of the measures claimed they would ultimately make the city more expensive, not less. Amid fears in the real estate industry that a “just cause eviction” rule would cap rent increases on all units and reduce the appeal of open-market assets, the proposal failed to pass the test. state legislative session.
While this relieved the industry and gave more confidence to buy, Sozio said there was no guarantee the proposal would ever be scrapped.
“I think they should at least be on investors’ radar,” he said. “I’m not saying it should necessarily prevent transactions from happening. But I think it’s something to watch out for.
Bob Knakal, president of JLL’s investment sales in New York, said most buyers are looking for assets with at least 75% to 80% units on the open market due to rising rents. Buyers who want rent-stabilized stocks are in the minority, but they are still in the market, assuming the “political pendulum” will swing back, he said.
“[They see the] low price per square foot and think, ‘How can I not buy this building for less than the land alone is worth?’ said Knakal.
But as investment in the city’s rental market has picked up from the depths of the pandemic, the type of buyer has changed, he said.
“New York’s old-school capital is moving and new capitals are coming,” he said. “This new capital is not as emotionally invested as the old capital.”
Courtesy of Alix Curtin
B6 Investment Sales Associate Alix Curtin also expects there will be more long-term family owners choosing to sell in the medium term. His team specializes in upper Manhattan, where many buildings are antebellum properties held for generations.
“These next few years are going to be very busy for us,” she said. “We are already feeling the business of owners coming to us for appraisals and seeing what their plan should be.”
She is currently marketing a 66-unit multi-family building in Hudson Heights at 186 Pinehurst Avenue that is mostly rent-stabilized and is asking for $15 million.
She said investors are still interested in regulated buildings that are fully leased and likely to remain leased for the long term, she is more interested in apartment buildings with fewer than six units, and therefore not stabilized. Curtin is also marketing a three-unit multi-family building on the open market near Yeshiva University with an asking price of $1.2M.
Buildings of this size usually have a designation that means property taxes do not exceed 8% per year. These types of assets have caught the eye of private equity giants like the Carlyle Group, which reportedly spent half a billion dollars acquiring small properties in residential areas of Brooklyn.
“We’re definitely going to see a lot of interaction between generational families who have owned these pre-war assets for many years and real estate professionals who can come and are well aware of what’s going on in the city,” Curtin said.