As investors attempt to adapt to an evolving New York City multifamily market in 2017, it is prudent to take a look back at what happened in 2016. Last year, transaction volume fell to a five-year low, while prices registered robust gains in the outer boroughs, with Queens leading the way and the Bronx not far behind. Manhattan, contrary to prior years, underperformed, with prices nearly unchanged.
For the year, the New York City multifamily market saw 656 transactions comprised of 1,120 buildings totaling $14.05 billion. 2016’s transaction and building volume were down 18% and 21%, respectively, according to Ariel Property Advisors’ newly released “Multifamily Year In Review New York City: 2016.” But, while dollar volume dropped 26% on an annual basis, it would have increased 4% when the largest deal of 2015, Blackstone’s $5.5 billion purchase of Stuyvesant Town/Peter Cooper Village, is omitted.
The lower volume highlights the underlying storyline for 2016; many sellers expected to attain record breaking pricing and were reluctant to sell unless they achieved those levels. The transactions that did take place were able to command frothy prices, with average capitalization rates throughout New York City compressing to 4.28% from 4.54% the year prior.
Institutional-level transactions dominated the landscape as offerings with scale attracted highly motivated capital willing to pay the price. Purchases of The Kips Bay Portfolio by Blackstone, the 63-67 Wall Street properties by Rockpoint, and The East Side 47 Portfolio by Emerald Equities, exemplified this trend.
Banner Year for Outer-Boroughs
Sub-markets where investors believe the rental market has room to grow fared better than those perceived to have more limited upside, such as Manhattan. Indeed, Queens was a standout performer, making big strides in terms of pricing. For the first time, the borough broke $1 billion and surpassed the Bronx in dollar volume. While the sub-market saw the least amount of transactions, it saw the largest jump in dollar volume, skyrocketing nearly 60% to $1.55 billion.
Large-scale transactions in Queens drove much of the gain in dollar volume, but activity was spread broadly across the region, a signal of the borough’s strength. The sub-market also saw 15% price growth overall, the highest out of all the boroughs, with price per s/f leaping 23% to $346.
The Bronx also fared relatively well last year, with overall pricing up 13%. Price gains were the highest of any sub-market aside from Queens. Volume in the borough, however, fell last year as 145 transactions consisting of 253 buildings sold for an aggregate consideration of $1.4 billion, down 17% from 2015.
Also noteworthy was a shift in transaction size in The Bronx, with scant institutional-sized transactions versus previous years. In fact, there was only one sale above $100 million in 2016, and only three above $50 million, down from six the prior year.
Northern Manhattan was the destination for some of New York City’s largest multifamily deals last year, with dollar volume surging 55% to $2.72 billion. In fact, six institutional-level transactions over $100 million accounted for $1.27 billion, nearly half the borough’s dollar volume.
Leading the way was the East Side 47 Portfolio, a 47-building portfolio concentrated in East Harlem that sold for $357.5 million, or $501 per s/f. Other noteworthy transactions were Savoy Park and Riverton Houses, which sold for $340 million and $200.85 million, respectively. Many institutional caliber deals transacted at high pricing metrics, causing valuations for the sub-market to increase across the board, with the price per unit alone climbing 16%.
Meanwhile, Manhattan showed tell-tale signs of a matured market. The borough experienced a sluggish 2016, with dollar, transaction and building volume falling significantly versus 2015. Transaction volume dropped 18% to 146, while building volume slid 30% to 224. Pricing indicators were up on average 1% year-over-year, with a 6% decline in price per unit offset by increases in other metrics.
Brooklyn’s multifamily market also saw double-digit drops in volume metrics, with dollar volume dropping 28% to $2.64 billion. Transaction volume slid 22% to 186, while building volume sank 33% to 287. However, pricing metrics continued an ongoing trend, rising 9% overall. Both price per s/f and price per unit rose an impressive 15% on the year.
As interest rates begin their upward trajectory, political headwinds begin to accumulate, and rents in mature neighborhoods begin to plateau or drop, a general sense of uncertainty has pervaded investor consciousness. Indeed, 2017 may be the year where we begin to see prices soften, bucking the appreciation trend we’ve seen since 2011. While some of the well-capitalized organizations have shifted to a more opportunistic and selective strategy, others remain fixated on what is perceived to be a relatively safer asset class in arguably the world’s most desirable and sought-after destination for investment.
Victor Sozio is executive vice president and founding member and Spencer Kiely is an analyst at Ariel Property Advisors, New York, N.Y.
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