1H16 sees big bets in Northern Manhattan; East Harlem and Washington Heights take lead roles - by Josh Berkowitz

Josh Berkowitz, Ariel Property Advisors

Northern Manhattan saw investment property sales activity continue its upward trajectory from 2015 levels, while pricing and dollar volume across most asset types showed strong appreciation in the first half of 2016 (1H16). Several institutional-caliber transactions that took place played a prominent role in driving sale figures higher while also signaling strong confidence in the submarkets near-term growth prospects.

Northern Manhattan saw 154 transactions consisting of 208 properties totaling approximately $2.03 billion in gross consideration for the first half of 2016. This represents a 60% increase in dollar volume despite a 4% decrease in transaction volume and 15% decrease in property sales volume compared to 2H15, which saw 161 transactions consisting of 246 properties totaling $1.27 billion in gross consideration.

With $1.476 billion in sales taking place, multifamily transactions accounted for 72% of the submarkets dollar volume.

Anticipating rising rents and capitalizing on low interest rates, properties continue to trade at record pricing metrics. Notable sales include Clipper Equity’s purchase of The Aspen – 1955 First Ave., a 236-unit mixed-use elevator building in East Harlem that sold for $103 million.

Washington Heights saw a package of nine mixed-use elevatored buildings trade for $165 million. The buildings are located on St Nicholas Ave. from West 164^th St. to West 192^nd St. and contain 466 units.

Additionally, new entrants to Northern Manhattan continued to expand their portfolios. Thor Equities also expanded their presence uptown with two multifamily buys during the 1H16, including 556-566 West 126^th St. for $34.4 million, which represents over $700 per square foot, and 215-219 West 116^th St. for $23.35 million, or $584 per s/f.      

Northern Manhattan multifamily properties saw increases across several pricing metrics in 1H16. Compared to 2015 figures, the average price per square foot rose 11.5% to $376, the average price per unit rose 28% to $349,442, and the average gross rent multiple (GRM) increased to 15.84 from 14.66. As the rental market continues to remain strong and interest rates remain low, the average cap rate for 1H16 dropped to 4.16% from 4.28%.  

Northern Manhattan saw 20 development sites trade hands in 1H 2016, a slight decline considering 22 sales took place in both 1H15 and 2H15. The average price per buildable s/f for the 1H16 came in at $225, up 13% from 2015 figures. An example of the development market’s continued strength can be seen in DelShah Capital and its $111.5 million purchase of 30 Morningside Dr. from Mount Sinai St. Luke’s Hospital in Morningside Heights. The price translates to approximately $420 per s/f for 260,000 s/f and the firm plans to convert the former hospital campus into 200 high-end rental units. Development sites prices are facing some headwinds heading into the second half of the year, notably the lack of 421A and a more challenging lending environment.

Of note, East Harlem and Washington Heights are the two neighborhoods to watch in 2016. East Harlem has continued to ascend with multifamily building sales now averaging $412 per s/f, up from $395 per s/f in the 1Q16, and development sites are regularly trading above $200 per buildable s/f. In the first half of 2016, East Harlem saw the highest amount of sale volume in Northern Manhattan, accounting for a 27% share of total dollar volume.

Notwithstanding this activity, many believe East Harlem is still in its infancy with a potential rezoning on the table and the eventual opening of the Second Ave. Subway. Investors are noticing this area’s potential as it has all the ingredients necessary to become a live/work, 24/7 destination in the not too distant future.

Despite the market-wide decrease in transaction volume, a consistency in the first half of 2016, Washington Heights investment property sales activity saw another strong first half as prices continue to trend upward.

For 1H16, Washington Heights saw 18 transactions consisting of 35 properties totaling approximately $454 million in gross consideration – which accounted for 22% of Northern Manhattan’s total dollar volume for 1H16. This represents a 63% increase in dollar volume, a 40% decrease in transaction volume and a 29% decrease in property sales volume compared to 1H15, which saw 30 transactions consisting of 49 properties totaling $278 million in gross consideration. In this time period, multifamily pricing in Washington Heights continued to increase, ticking up 22% from $276 to $337 on a price per s/f basis.

One of the half’s biggest sales was the $165 million Washington Heights package mentioned earlier. Additionally, 554-558 and 561-569 West 181^st St., two buildings containing 62 units in Washington Heights, sold for $31.15 million, or $411 per s/f which is a value well above both the Washington Heights average and Upper Manhattan’s average of $376.

With several high-profile institutional sales set to close by year end, we expect sales volume and pricing to hold at current levels over the balance of the year. Local and national economic growth prospects remain strong, New York continues to be a safe-haven for capital from around the world and interest rate increases are expected to be slow and modest. The Northern Manhattan market will be further supported by the first buildings of the Columbia University expansion that are expected to open soon.

Josh Berkowitz is an associate vice president, Michael Tortorici is an executive vice president, and  Spencer Kiely is an analyst at Ariel Property Advisors, New York, N.Y.