Why Multifamily Will Out-Perform In 2016

APRIL 2016

After an uncertain start to 2016, distinct investment trends are taking shape as we enter the second quarter. The performance of different real estate is varying depending on the asset type. For example, price cuts on development sites are commonplace today, as land prices are in transition. Retail spending has also been negatively impacted by the strong dollar and stock market volatility, possibly impacting those valuations.

That said, with its diversified cash flow, strong fundamentals, and long term upside, multifamily pricing will be stable this year, outperforming other asset classes. As a result we are seeing multifamily sales activity pick up significantly, and we predict it will be very active for the remainder of 2016.

NEW CONSTRUCTION

For a change, we are witnessing the impact of new construction on rental rates. There are 26,000 units scheduled to be delivered across the city this year, with most of them in Manhattan and Brooklyn (for reference, 15,000 units were delivered last year). In certain submarkets, where high concentrations of new development have occurred, rental concessions remain and there is limited rental growth. This is particularly evident in certain Brooklyn markets and the Hudson Yards.

So where to go for rental growth? Larger wage increases are needed for a significant upswing in rental rates. While the steadiness of the New York City job market continues, (last year 70,000 jobs were created and this year we project 80,000), it will be a while before the next phase of wage growth begins. This leaves rental demand consistent, but rental growth flat to slightly higher this year.

THE VALUE-ADD

Undoubtedly, on the top of investors’ lists is “value added” assets. These come in two categories: 1) Free market buildings, with below market rents, where investors can realize upside through light renovations unhindered by rent stabilization. 2) Investors continue to favor assets in secondary and tertiary markets with large stabilized renter populations whose rents are significantly below market. Both of these business plans underscore the high levels of demand for NYC Multifamily.

I look forward to your comments and hopefully we can be helpful to you in your investment choices this year.

Regards,

Peter

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Peter Von Der Ahe