With 40% Lower Sales Volume, NYC Multifamily Investors Question Next Move

With 40% Lower Sales Volume, NYC Multifamily Investors Question Next Move

10/18/2017

 

With sales numbers in for the first three quarters of 2017, it has given us an opportunity to look back over the year to make and share some insights into the market.

Overall, across all of New York City, 2017 multifamily sales volume is down approximately 40%. However, for property valued over $25 million, the number of transactions has declined approximately 50%. In addition to the decline in transactions, in properties above $25 million, we’ve seen the biggest adjustment in values with the average price per foot of property sold in that category down almost 10% (the average is $619 a foot across all boroughs). Below $25 million, in contrast, multifamily sales volume is down only 30% compared to last year, and prices are down approximately 6%.  

Although there has been a slowdown in the number of sales and a softening somewhat in prices, by historical standards, values are still very high. The average cap rate for multifamily sales citywide is 4.1%, and the average price per unit in Manhattan is over $1 million! Even still, I expect the current pricing paradigm to persist into the future. Let me explain why.

Supply

Between 2017 and 2018, there will be approximately 50,000 new rental apartments delivered into the New York City marketplace. Primarily, those units will be delivered on Manhattan’s west side, downtown Brooklyn, and Long Island City. With the exception of these three areas, there are no neighborhoods which will be delivering significant amounts of new rental apartments. However, there will continue to be rehabilitated and repositioned buildings which offer “like new” units throughout the city. It’s hard to quantify accurately how many repositioned units are coming to market at any given time. Often, this repositioned rental product competes with new construction.

     

 

Demand

As shown on the graphs below, we are still in the middle of a demographic bubble of “renter age” population. This influx of renters will continue for several years. Further, homeownership rates continue to decline as millennials are more apt to rent than buy.  

Overall, before pricing begins to rebound, rents must move up. From our numbers, it looks like that will occur around 2019 when the majority of the new supply and construction pipeline is absorbed. The good news is that after 2018, the pipeline of new construction drops off significantly.

    

   

Despite the market trends, our team has been extremely active this year, and we are on pace to sell almost 100 buildings in 2017. This is down about 9% from the number of buildings we sold last year.

We have found abundant capital searching for opportunities for well-located New York City multifamily properties. I look forward to your feedback, questions, and comments and wish you the best of luck for the remainder of 2017.

Keep up-to-date with market commentary by following here!

CLICK HERE

0 Comments

Submit a Comment

Your email address will not be published. Required fields are marked *

Buy Peter's Book Today! Available on Amazon.

Catch up on our most recent posts here:

5 Reasons to Purchase Repositioned Assets

The secret to long term investing is figuring out how to be active in every market. It’s all about having a “line in the water.” Today, most NYC multifamily investors have been pushed to seek higher yield, and sometimes more risk, in their investments.

This has kept pricing very competitive in the value-add segment of the NYC multifamily market, while pricing on repositioned and finished assets have softend since 2015. Some observers call this a “mispricing of risk.”

read more

$104,135,000 in NYC Sales to Close Out Summer

While transaction numbers have generally been in NYC, the New York Multifamily team at Marcus & Millichap closed more than $100 million in sales in the back half of summer 2018.

With 18 closed sales this summer across Manhattan and the boroughs and another 22 in contract, it was an active summer.

read more

The History & Workings of NYC Regulation

Home to some of most coveted real estate in the world, it is no surprise that living in New York City comes with a hefty price tag.

What if I were to tell you that there was a way to legally avoid paying market rent for an apartment in the Big Apple, would that be something you might be interested in?

read more