One of the main drivers is the competition amongst investors to snag a piece of the action before their neighbor does, and the desire to do so will push owners to sell their current holdings. Cap-rates in Manhattan for market-rate assets are 5%, while rent-stabilized buildings or assets with upside have traded closer to 3%. For the risk-to-reward type investors, there are plays in secondary and tertiary markets in the Bronx and Brooklyn that will yield 7% unleveraged returns, but require far more tolerance to the market and demand relentless building and tenant management. As the service industry in New York continues its boom, those risk tolerant investors will find comfort in the belief that employees in such industries will keep up the demand for low-tier apartments, especially those close to transit.
All in all, most agree that the trend should continue for at least the foreseeable future, of course that is, if interest rates don't escalate too much, but we can save that topic for another time.
Lee Silpe is the senior analyst at Berko & Associates, New York, N.Y.
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