Quarterly Market Report: Exclusive interview with Shimon Shkury, president of Ariel Property Advisors

The NYREJ recently sat down with Shimon Shkury, president of Ariel Property Advisors, a N.Y.C. investment property sales firm, for a question and answer session. Q: How is the investment sales market performing this summer? A: The energy in the market has picked up and we've had a very active summer. Based on the first half of the year, we expect we will double our sales volume in 2013, even though the first quarter was slow. Our pipeline is filled with new assignments and we're receiving a steady and aggressive flow of requests from both institutional and private clients for asset evaluations. Recognizing today's pricing, many owners are considering selling either this year or next. Q: What submarkets should we be watching in the second half of the year? A: Queens and Upper Manhattan. Everyone knows that Brooklyn is hot, but we're finding investors are actively searching for Queens multifamily buildings in good condition that are located in neighborhoods near public transportation. Although many of these areas have been a lesser priority before, investors see renters considering areas like Elmhurst, Sunnyside and Flushing after being priced out of Manhattan and Brooklyn. We experienced this enthusiasm from investors first hand while marketing a five-building portfolio with 311 units in Elmhurst, which we sold in July for $38 million. In Northern Manhattan, investment sales volume increased across the board in the first half of the year compared to the same six-month period last year. Construction on the Columbia University Expansion is underway and the first building will be ready for students in 2015. Harlem's main retail corridor, 125th St., is experiencing a renaissance with development projects that fell dormant during the downturn moving forward. We're marketing several development sites on and around 125th St. and also several individual and portfolio multifamily assets next to the new Columbia campus that are generating a great deal of interest. But inventory uptown is slim, so when properties are listed, they move into contract very quickly. Q: What do you expect in the second half of the year? A: We believe the fundamentals will stay strong. Therefore we expect prices to keep rising and transactions to remain robust. Q: What are the fundamentals showing? A: The metrics for multifamily assets have improved dramatically since last year. Inventories remain tight, rents continue to rise, and investors are willing to pay a premium for the upside. In Manhattan below 96th St., the average cap rate fell to 4.82% in the six months ended June 30, but in some cases we're seeing cap rates below 4% and even below 3%. Although the average 30-year fixed-rate mortgage spiked more than a full percentage point since early May, interest rates still remain very low, which makes buying attractive. Q: You released your mid-year research reports in July. Can you share some of the takeaways from those reports? A: Of course. Here are some of the highlights: * Multifamily Quarter in Review for Q2 2013. Overall the multifamily market in the first quarter suffered from a lack of inventory due to a surge in transactions in December as investors sought to close deals before the Bush tax cuts expired at the end of the year. Pent-up demand, strong fundamentals, and low interest rates led to a rebound citywide in the second quarter compared to the first quarter with transactions increasing 50% to 156 and the dollar volume of those trades jumping 71% to $1.65 billion. * Manhattan 2013 Mid-Year Sales Report. Razor thin vacancy levels are driving up rents and condominium prices are rising sharply as buyer demand meets scarce product. Both trends are fueling a tremendous appetite for development site sales throughout Manhattan and are causing prices per buildable s/f to surpass heights achieved during the last cycle. In fact, some sites in prime locations are seeing values north of $600 per buildable s/f with one site in West Chelsea selling for as high as $800 per buildable s/f. We also saw more $1 billion sales of major office towers in the first half of 2013 than in the years 2010 through 2012 combined. * Brooklyn 2013 Mid-Year Sales Report. High rents in Manhattan and a greater desire to live in the borough are pushing up rents throughout Brooklyn and the developers of residential buildings have taken notice. The borough saw significant year-over-year increases in development site activity, with figures from the first half of 2013 representing a 65% increase in dollar volume and a 36% increase in transaction volume compared to the first half of 2012. At $657 million, the dollar volume of Brooklyn's development site transactions in the first half of the year surpassed the dollar volume of multifamily transactions for a second consecutive six-month period. * Queens 2013 Mid-Year Sales Report. Northwest Queens was a hotbed of investment sales activity in the first half of 2013, becoming one of the most active areas in the entire city this year. The area saw 130 total transactions totaling more than $581 million in gross consideration and included everything from small mixed-use properties to industrial sites, in addition to development sites and core multifamily assets. Transactions here accounted for approximately two-thirds of all transactions and dollar volume in Queens, with prices in the area reaching close to $250 per s/f for multifamily assets. * The Bronx 2013 Mid-Year Sales Report. While investment sales in the Bronx slowed in the first half of 2013 compared to record levels set in the second half of 2012, year-over-year figures suggest a stable market. Small scale industrial and development site transactions also appear to be ticking up; for while dollar volume is down compared to both the first half and second half of 2012, the number of such transactions is rising. In addition several major private and public projects are in the works bolstering the outlook for both short- and long-term economic development throughout the borough. * Northern Manhattan 2013 Mid-Year Sales Report. The biggest news from the first half of 2013 is the strength of the recovery in the market for development sites in Northern Manhattan. The first half saw 26 development site transactions totaling a gross consideration in excess of $69 million. This represents a 54% increase in transaction volume and translates to about 500,000 s/f of potential new construction in the next few years. The first half's average price per buildable foot came in at $107, the first time since 2008 for the market to see a price per buildable foot above $100. Q: How can our readers order your mid-year reports? A: All of our research reports are available on our website at http://arielpa.com/research/reports/. Shimon Shkury is founder and president of Ariel Property Advisors, New York, N.Y.