Shimon Shkury - Manhattan multifamily properties: The stars are aligning for some real estate sellers

While trading activity remains relatively light for Manhattan multifamily assets, the pricing environment is becoming increasingly healthy for landlords. At Ariel Property Advisors, we've identified four key trends that suggest a positive near term outlook for Manhattan multifamily owners. Rents Are Up To the delight of landlords throughout the city (and to the frustration of renters in our office), rental rates are going up at a modest pace. Landlords are raising rates on top of foregoing previously generous perks of one to two free months' rent and covering brokerage fees. With that in mind, collections are up significantly from 2009 and 2010 periods. This is bolstered by recent Citi-Habitat's rental reports that show a steady decline in vacancy rates, which are now at their lowest levels since 2006. Currently, Manhattan is the primary beneficiary of this trend. As history has shown us time and time again, however, rising rents will spill over into the outer boroughs soon enough. This should produce favorable results for asset pricing as many investors are starting to project higher rents when underwriting. Product Is Scarce Finding available Manhattan properties to buy remains very difficult and many investors complain regularly that while more listings are coming to market, pricing expectations of most sellers are higher than the market. Put simply, demand is much higher than supply and every multifamily asset we market is receiving a tremendous amount of interest. This is a major advantage for property owners looking to sell. Financing Remains Plentiful Cash flowing multifamily assets continue to be a preferred asset class by lenders. Interest rates rose rather significantly in the first four months of the year but have recently fallen off sharply amidst renewed concerns about the economy and the stability of the euro. Owners and buyers can see rates as low as 4.5% on purchases or when refinancing. The Fed appears to be in no rush to raise rates as unemployment remains stubborn and investors continue to push down treasuries whenever confronted with economic adversity. QE2 may be wrapping up, but most analysts expect rates to remain low in the near term. Conversion Comeback New construction apartments froze with this recession and only now are developers considering starting up projects again. With Manhattan's economy slowly recovering, demand has caught up to supply and residential prices have firmed up. With that, investors are taking another look at converting multifamily rentals with spacious layouts to condominiums and co-ops. This could result in another wave of properties trading at remarkably low cap rates as investors focus on other metrics like price per square foot and price per unit. It should be noted that several challenges remain. Notably, New York City property taxes have increased significantly in recent years and are not showing any signs of abating. Fuel prices are also rising and recent legislation will forbid the use of No. 6 oil burners, adding significant pressure to the bottom line. Unemployment continues to be high throughout the country, which could negatively affect the regional economy. Finally, thin profit margins at financial companies are leading to some talk of layoffs on Wall Street, an essential Manhattan industry. At the moment, however, the positives are clearly outshining the negatives for Manhattan multifamily prices and we expect the second half of the year to show significant growth across several pricing metrics. Barring some drastic change in rents, financing or available inventory, the buyer's market for Manhattan multifamily assets is over and the stars have aligned for landlords looking to sell. Shimon Shkury is founder and president of Ariel Property Advisors, New York, N.Y.