Upper Manhattan investment sales are picking up steam; sales and contract activity increased the first half of 2010

As activity during Q4 2009 suggested, sales and contract activity increased significantly in the first half of 2010. Data is still coming in from the first half, but with modest projections for the final weeks of Q2 Northern Manhattan saw 98 total transactions representing $453 million in aggregate consideration. Compared to the dismal first half of 2009, this activity represents a 96% increase in trading volume and a 226% increase in dollar volume (it is worth noting that nearly 28% of the dollar volume came from the $126 million auction sale of The Riverton complex). Projecting out to the rest of the year, it looks like 2010's sales and dollar volume will come close to 2008 figures. While we are confident the bottom has passed in terms of trading volume, we are hesitant to call a pricing bottom. Several reasons for this quickly come to mind, including record low interest rates, volatile international markets, and the shaky economic fundamentals that typically accompany a trend towards prolonged unemployment. Yet our most significant concern to pricing is the fact that the supply of available product is so limited compared to the demand. If this dynamic changes with significant numbers of discretionary sellers re-entering the market or if banks start unloading troubled loans from their balance sheets, another price adjustment is probable. Below is a brief synopsis of two major product types in Upper Manhattan, multifamily buildings and development sites: Multifamily Focus Cash flowing multifamily assets remain the preferred asset class and banks remain eager to provide financing. Demand is so strong, in fact, that in some cases buyers have exceeded our asking prices to purchase buildings. In other cases, some sellers have taken properties off the market despite seeing offers 5-10% above 2009 prices. Multifamily sales data from the first half reveals several trends. First, while the number of transactions is up 75% from 2009, it still remains very low compared to other years. Second, the vast majority of Northern Manhattan's recent multifamily sales have taken place in Washington Heights and Inwood while sales remain practically non-existent in East Harlem and Central Harlem, areas that receive relatively more demand from investors. Building owners in East and Central Harlem are well aware of the ongoing local development and, so long as they can afford it, appear willing to tough it out until pricing gets better. Continued price declines are evident across every metric, but the pace of decline has slowed dramatically. Development Sites Starting to Sell Again Limited sales activity continues to occur but there are signs of life in development! Our team has sold or put in contract four development sites this year, all of which are trading at about 50% of their peak value. Two sites we recently put in contract, 341 Pleasant Ave. and 145 West 123rd St., experienced a boom of activity in the spring-clearly the market for sites below $1 million is alive and well. Another positive sign is the recent off-market sale of 32 West 125th St., which was purchased by the NYC School Construction Authority from Con-Ed. Trading for approximately $139 per buildable s/f, the site will eventually house a charter school and ground floor retail. In marketing 1824 Park Ave. and 5122 Broadway, we noticed strong demand from schools, non-profits, and other types of users looking to purchase development sites uptown. Several new and ongoing projects will continue to provide jobs to the area. Frederick Douglass Blvd.'s remarkable transformation is being recognized by the media nearly every month and with Starwood's Aloft Hotel scheduled to open this summer, this is sure to continue. Ground recently broke on Hunter College's School of Social Work in East Harlem and new buildings continue to sprout up on Third Ave. Finally, the city recently gave the go for a major development backed by former Dallas Cowboy Emmitt Smith on Lenox Ave. and 125th St. Time will tell whether recent multifamily and development site sales are signaling a bottom or whether they represent a seller skewed supply/demand dynamic operating in conjunction with historically low interest rates. Shimon Shkury's Investment Sales & Research Team was founded in 2002 and, to date, has handled nearly 250 transactions consisting of over 2 million s/f and totaling over $800 million in gross consideration. The team consists of Michael Tortorici, sales team manager; Victor Sozio, director of sales; Christopher Lefferts, senior sales associate, and Ivan Petrovic, director of research. Shimon Shkury is a partner at Massey Knakal Realty Services, New York, N.Y.