Demand for multifamily property is on the rise

In our present economy, we are seeing mixed signals about where the market is heading. We see corporate earnings increasing, as well as national banks getting stronger and there is an obvious and encouraging sign that there is a recovery happening in the business of multifamily properties. As a specialist in multifamily sales, I have recently observed a growing appetite for these types of investments. The first half of 2010 had a significant increase in both volume and transaction size, when compared with the same period of 2009. In my opinion, this trend will certainly continue for the rest of this year, and into 2011. Apartment buildings seem to be the preferred investment these days, perhaps because interest rates are low and it is easy to finance a purchase with a cash flow. Fannie Mae and Freddie Mac greatly support financing multifamily programs, and we think it will stay this way for the foreseeable future. Moreover, net operating income is increasing for these properties. An improving employment picture gives the reason for tenants to start renting again or to relocate. There are still some concerns that exist due to several proposed bills which are before the Senate now, and might change the landscape in a negative way. Because of this uncertainty many investors are afraid to go into the apartment marketplace, pending the November elections. These individuals and groups could be the major contributors to the multifamily market in the coming months. Although buyers remained cautious due to the challenging macroeconomic environment, they do take advantage of the wide available range of choices. We notice a growing difference in demand of buildings with elevators compared to walk ups. Logically, people would think that buildings with an elevator should be more expensive, but walk up properties usually have a higher turnover of tenants, including rent stabilized residents. The reason is simple - renters quickly get tired of running up and down stairs, which mean that walk up apartment buildings provide owners with more chances to substitute lower paying renters for better deals, and in reality this can be considered more valuable. Of course, location is an unchangeable key ingredient for a deal. And to no surprise, most buyers are searching for properties that are at a discount to appraised value, or will generate cash flow as a rental. Another thought among investors that are buying today is that rents have bottomed out and will definitely experience a significant increase in the next year or two. This is the basis for the rationale that cap rates and demands are so strong. If interest rates increase, the premium property owners are getting today may be diluted somewhat, this is why owners are seriously considering selling in this environment. In conclusion, the Manhattan multifamily market is in an early recovery stage. The outlook is good, and I project that it will continue to get stronger. This is the perfect time to either increase your investments in this product-type, or enter into the market if you have been waiting on the sidelines. Moses Sioni is a managing director at Sioni & Partners, New York, N.Y.