NYC Multifamily Pricing Today: What’s Up, What’s Down, And What’s Unchanged
The multifamily market has been all over the place, with eye popping trades on both ends of the spectrum – some trades for $1,000 a foot, and some trades for $50/foot! Let’s dive in to see what assets are thriving, what’s struggling and what’s holding their own.
100% Free Market
Free market rents continue to go up and that likely continues under the next administration. Equity groups that previously purchased buildings with a rent stabilized component are now all concentrated on the free market asset class. Twice the buyers, half the inventory. This asset class continues to attract the widest net of buyers – locally as well as internationally. There have been several Japanese and German funds that have paid low 5% cap rates to buy these buildings.
Conclusion:
As long as we don’t have a significant economic downturn (think 2009 and 2020) and just modest cooling, you’re looking at rising rents in a declining rate environment – good stories for buyers to tell which means great results for sellers.
100% Rent Stabilized – Average Or Worse Condition, Low Average Rents
$1,200 average rents with expenses rising faster than income is a tough pill to swallow. There are more and more buildings with asking prices at $75,000 a door – a shocking decline of 75% since the 2016 highs. Interest rates will not save this asset class, but it will help slow the valuation decline. These deals get done when greed outweighs fear and the price just feels right. We’ve sold a bunch of these buildings at negative leverage to buyers acting on a hunch.
Conclusion:
Prices have come down for this asset every day since June 2019. There is no path to profitability on these buildings until there is meaningful rent reform – which WILL EVENTUALLY HAPPEN OUT OF NECESSITY. Plan on holding on for 10 years with multiple capital calls or sell yesterday.
100% Rent Stabilized – High Average Rents, Great Condition, Great Location
This asset class continues to do fairly well considering it plays by the same rules as every other rent stabilized building. There’s a big difference when you look at compounding RGB increases on $1,600 rents versus $1,200 rents. These buildings make enough money to pay the bills with a little left over for a rainy day compliance fund. The buyers for these buildings won’t have to worry about meaningful capital expenditure until we’re closer to rent reform that will inevitably have to happen.
Conclusion:
Although prices have come down because they are rent stabilized, we are still seeing trades for over 100K/unit – a substantial premium above similar low rent buildings. Owners of the buildings should consider holding on until rent reform happens or sell before their new renovations need upgrading. We’ve seen buyers do 1031 exchanges from other asset classes and other states INTO these assets.
Hybrid Buildings – Partially Free Market, Partially Rent Stabilized
These assets are typically owned by syndicators who have added value but have no more juice left to squeeze and are facing a refinance at a much higher interest rate. They are a good hedge for buyers wanting cash flow, moderate rental increases and eventually huge upside when HSTPA gets amended to allow for some type of vacancy reset.
Conclusion:
These are good buildings to buy but likely frustrating to own because you see one unit paying $5,000 and the identical unit paying $1,000 – a daily reminder of how much juice is left. Asking prices and bids have remained fairly constant for this asset class throughout the year. Cap rates are hovering in the low to mid 6% range for these assets. Buyers for this are picky and sellers of this should be prepared to be patient and take a reasonable bid when it comes in. Diligence for these buildings is usually challenging because many of the units have been destabilized for years, maybe even a decade plus.
Looking Forward
The best part of my job is that every deal is different, and each building has its own share of challenges and opportunities. Aside from address, condition, and NOI, factors that have been impacting valuations include:
- Taxes as a percentage of gross income (tax class 2 buildings should be projected around 20% for RS and 25% for FM)
- Rents: At or above market, slightly below market, or well below market
- Concession schedule for free market units
- Capital ex: what’s needed immediately, within 5 years, or a problem for another day
- Percentage of stabilized units
- Percentage of retail income
- Collections/active legal challenges
- Legality of the rents (even for RS units)
- Lead remediation
- Violation count
- LL31 (lead paint), LL97 (energy), LL11 (façade every 5 years), LL152 (gas piping)
- Is there an active foreclosure, receiver in place, lien, or publicly available financial hardship?
The big theme for the end of 2025 will be portfolio valuations. We’ve noticed a big uptick in clients asking not for one BOV, but for 10! We make great teammates, and we encourage everyone to think of us as advisors first and salespeople second. We expect more clients to make decisions on which buildings are worth keeping, and which buildings are best to let go.
Best Of Luck And Don’t Be A Stranger!
Seth
