2013 was a record year for Northern Manhattan investment property sales

A multitude of large multifamily portfolio transactions, big development deals and high-end townhouse trades led to a record year for investment property sales in Northern Manhattan in 2013, and prices exceeding levels set before the financial crisis. For the year, Northern Manhattan saw 310 transactions consisting of 534 properties totaling approximately $2.12 billion in gross consideration, according to Ariel Property Advisors' Northern Manhattan 2013 Year-end Sales Report. This translates to a 16% increase in transaction volume, a 44% increase in property volume and a tremendous 83% increase in dollar volume compared to 2012, which saw 268 transactions comprised of 371 properties totaling $1.166 billion in gross consideration. The multifamily sector accounted for more than three quarters of Northern Manhattan's investment property sales and nearly half of its transaction volume. The area saw 147 multifamily transactions comprised of 344 properties totaling $1.656 billion in gross consideration, a 57%increase in the number of properties sold and a 100% jump in dollar volume compared to 2012. Much of this activity was the result of large portfolio transactions as institutional sellers were incentivized by strong pricing and the prospect of achieving well above their projected returns in shorter than anticipated time-frames. Sellers were also able to capitalize on the large amounts of available capital looking to enter or become further entrenched in the highly competitive multifamily market, while investors remained attracted by historically low interest rates and looked ahead to major public-private initiatives that will further strengthen the area's rental market. Consequently, multifamily pricing is the strongest it's been since the 2007 peak as average capitalization rates and the average price per unit hit record levels. For the year, the average cap rate came in at 5.04%, which is 148 basis points lower than 2012 and includes a multitude of deals that took place in the low 4% cap rate range. The average gross rent multiples also climbed steeply to 11.04, which is 1.71 multiples higher than it was in 2012. Strong rents, scarce new condo product, more neighborhood amenities, and the prospect of achieving higher yield also lent tremendous momentum to Northern Manhattan development site sales, which showed 43 transactions comprised of 59 properties valued at $227 million. Increased confidence from developers, coupled with increased liquidity from lenders, were other factors which led to developers broadening their search parameters to areas such as East Harlem, Washington Heights, and Inwood. The year ended with the average price per buildable s/f for vacant land coming in at $119, a figure that surpasses the average price of $115 seen in 2007. We expect the market to build on this momentum as condos reach new pricing highs, with many developments now averaging $700 per s/f and an increasing number of full service condominium offerings in prime locations seeing values approaching or surpassing $1,000 per s/f. In fact, several of our firm's current land assignments in both East Harlem and Washington Heights have achieved levels exceeding $120 or even $130 per buildable s/f. While the sample size of vacant buildings is not large, strength in the market can also been seen in the average price per s/f for vacant buildings of $291, the highest level seen since 2008 and more than 50% higher than 2012. End-user townhouse sales are also a strong indicator for Northern Manhattan and the fact that prices once considered outliers in 2007 are increasingly the norm, speaks volumes. High-end user properties in Northern Manhattan saw significant appreciation throughout 2013 with the sales volume of townhouses reaching 2007 levels and pricing even higher. The average price per s/f reached $443, which is a 37% increase from 2012 and higher than the previous record level of $395 per s/f in 2007. Owners clearly took note as the number of properties sold increased in 2013 to 105 from 66 seen in 2012. At the start of 2014, it appears that a combination of strong fundamentals and further progress on game-changing developments uptown will lead to a great year for Northern Manhattan. GDP growth accelerated towards the end of 2013 and the jobs picture improved, which should continue to drive rental growth, consumer spending and condominium sales. Columbia University's expansion is marching ahead and construction has begun on a new Whole Foods supermarket at Lenox Ave. The development sites sold in 2013 constitute 1 million buildable s/f, meaning a significant number of new projects are in the pipeline that will have a positive effect on the market for years to come. How the Federal Reserve conducts monetary policy vis-à-vis stronger economic growth and how the new de Blasio administration approaches housing policy are essential to the future outlook of Northern Manhattan real estate. Nonetheless, favorable supply/demand dynamics and stronger economic growth lead us to hold a bullish outlook for 2014. A copy of Ariel Property Advisors' Northern Manhattan 2013 Year-end Sales Report is available at http://arielpa.com/research/reports/. Victor Sozio is the vice president of Ariel Property Advisors, New York, N.Y.