Northern Manhattan making strides in first half of 2014 - Surpassing highs last seen in 2007

During the first half of 2014, pricing metrics for all product types in Northern Manhattan surpassed highs last seen in 2007, according to Ariel Property Advisors' Northern Manhattan 2014 Mid-Year Sales Report. Multifamily assets, which are experiencing tremendous demand throughout the city, are at the forefront of such pricing advances. First half 2014 figures show average capitalization rates at 4.58%, which is more than 100 basis points below the peak 2007 level of 5.65%. The average price per unit also is significantly higher, with the first half of 2014 seeing $221,318 compared to $194,038 in 2007. Gross rent multiples and the average price per square foot are also up but to a lesser extent, the former coming in at 12.4 in the first half of 2014 compared to 12.2 in 2007, and the latter at $257 compared to $239 in 2007. We're witnessing this strong pricing first hand in our dealings uptown in both long- and short-term outlooks. Last month we sold for Treetop Development a two building, mixed-use portfolio with 59 units at 220 West 116th St. and 449 West 125th St. for $15.45 million. Not only did this deal reflect the impressive metrics cited above, but it also represented a 75% increase from the $8.8 million price Two Trees paid back in November 2012. This deal presented a unique opportunity for both buyer and seller. The seller was able to capitalize on the market's continued growth since purchasing the buildings and generate a significant return for investors in less than two years. The buyer can look forward to significant rental upside on two continually strengthening retail corridors. The building at 449 West 125th St. will benefit from its close proximity to Columbia University's 17-acre expansion and the large-scale commercial projects planned or under construction along 125th St., and 220 West 116th St. is located in the midst of the new residential developments and retail revival around Frederick Douglass Blvd. "Value added multi-family buildings in Upper Manhattan are in high demand and this transaction and the high internal rate of return illustrates the strength of this market," said Adam Mermelstein, principal of Treetop Development, adding that his firm has sold more than 200 units in 14 buildings in the Upper West Side in the past three months in order to pursue several new acquisition opportunities in this market in the second half of 2014. Ariel Property Advisors also recently put into contract another portfolio of buildings uptown for a price that is 75% higher than the buildings traded for in 2007. Despite higher prices, multifamily sales volume was relatively stable in the first half of 2014 compared to the first half of 2013—an 8% increase in multifamily transactions to 79, but a 5% decline in the dollar volume of those trades to $630 million, according to the Northern Manhattan 2014 Mid-Year Sales Report, which tracks commercial property sales over $850,000 north of E. 96th St. and north of W. 110th St. We theorize that some owners are holding onto their multifamily properties in spite of the demand and solid pricing because they are unable to find attractive 1031 exchange investment options that they believe can offer the returns and upside their Northern Manhattan assets possess. Development site sales also are benefitting from Northern Manhattan's enhanced perception as a destination for capital. Since relatively little new construction has taken place since the recession, the record prices now being achieved at the few new construction projects coming online are driving land prices to higher levels. An example of this trend is the Uptown 58, a seven-floor condominium building at 56-58 West 129th St. that sold 80% of its units within three weeks at prices north of $900 per s/f. Ariel Property Advisors sold this 52.58-foot-wide development site in early 2012 for $1.57 million. In addition, condos at the Adeline at 23 West 116th St., between Lenox and 5th Aves., are trading at prices north of $1,200 per s/f, and in the condo developments along Frederick Douglass Blvd., we're continuing to see prices of $1,000 per s/f and even higher for resales. These high condo prices are resulting in a corresponding hike in prices for development sites. Our Northern Manhattan 2014 Mid-Year Sales Report shows that the average price per buildable s/f for vacant land uptown was $117 in the first half of the year, surpassing the price of $115 per buildable s/f in 2007. In the first half of 2014, 20 development sites traded compared to 26 in the first half of 2013, but a strong showing by large scale institutional sites resulted in the dollar volume of those trades jumping 31% to more than $121.6 million. Not only are several ambitious projects in the works along 125th Street, but developers are now laying the ground work for large scale developments in other locations. A great example of this is Blumenfeld Development Group's recent announcement that it is pursuing a 1,000-unit housing complex above the East River Plaza shopping center at 116th St. and the FDR Dr. in East Harlem. Projects of such scale were unimaginable only a few years ago, yet the progress that Northern Manhattan has made has left investors and developers even more convinced of the region's bright future. Michael Tortorici is a vice president at Ariel Property Advisors, New York, N.Y.