Jesse Deutch, Ariel Property Advisors

N.Y.’s real estate press has been understandably jittery to start off 2016. Though U.S. job growth remains strong, several macro-factors like volatility in China and low global oil prices threaten foreign capital flows to NYC. Local factors like ambiguity on the continued existence of the 421-A program, mandated affordable housing in rezoned areas, and the stagnation of the high-end luxury condo market are adding a level of uncertainty the market hasn’t felt in years. Add in looming interest rate hikes and it’s no wonder many investors are expressing a lot more caution.

Early 2016 trades and the activity we’re experiencing for properties on the market, however, suggest many active investors still have great confidence in the potential of N.Y. investment properties. This is especially the case in Lower Manhattan, an area achieving significant premiums despite its ongoing transition.

Manhattan multifamily sales are showing particular resilience. Early data from Ariel Property Advisors research department shows the multifamily market is holding up to start 2016, and the current consensus is that it will continue to do so throughout the year. Since January there have been 37 multifamily transactions in Manhattan totaling over $1.8 billion in total consideration. Nine of these multifamily transactions took place south of 14^th St. for a combined gross consideration of just over $173 million in gross consideration. Several transactions taking place with pricing metrics around 2015 averages speak to the market’s continued strength. These include the sale of 194 West 10^th St. and 50-58 East 3^rd St., which respectively sold for $1,364 and $1,105 per s/f—neither of which had a retail component which buoys higher prices per s/f.

Despite growing concerns with the state of the high-end luxury condominium market, development site sales large and small continue to take place at the elevated prices seen last year. Our firm recently closed 251 West 14^th St., a 24,000 buildable s/f site that included a cantilever for $23 million, or an impressive $960 per buildable s/f. Conversion opportunities remain in great demand since they are perceived to offer less risk, speedier timetables and less cost exposure when compared to ground up construction. An example is the recent $116 million sale of 41-49 Rivington St., a 150,065 s/f nursing home that will be converted to condos by a partnership that includes Slate Property Group, China Vanke, and Adam America Real Estate. The sale price translates to $773 per s/f.

Residential developers and converters can take comfort in the success of several recent projects. Magnum Real Estate’s 100 Ave. A has already put in contract half of its units for a blended average of $2,250 per s/f.  Two of the four penthouse units are reportedly in contract for over $2,500 per s/f, and a non-penthouse unit in contract for over $2,600 per ft. Further, Ryan Serhant of Nestseekers, who is the project’s exclusive broker, noted that purchasers are confident in the area the same way purchasers in West Chelsea were back in the early 2000’s. With views and access to the newly renovated Tompkins Sq. Park, great floorplates, a top of the line gym in Blink Fitness on the ground and second floor, 24-hour doorman, concierge service, low common charges, and a landscaped common rooftop garden, purchasers have similar amenities for less than the average $2 million gross price point. From a rental perspective, the demand 100 Ave. A is receiving from prospective renters indicates the building could achieve north of $90 per s/f when units become available for rent—an encouraging sign for developers looking for rental-fall-back scenarios. This is buoyed by rental rates being achieved in prime East Village rental properties. Avalon Bay’s 11 E 1^st St. and The Nathaniel at 138 East 12^th St. are respectively seeing rents above $90 and $110 per s/f, Alphabet City’s The Robyn on East 3^rd between Ave. C and D is seeing rents break $75 per s/f, while 139 Wooster St. in SoHo is renting out units for over $100 s/f.

Our team is also seeing interest in a 21,400 s/f elevatored garage that we recently took to market at 107 West 13th St. Given its central downtown location, prospects see it as a viable conversion to office space that could generate upwards of $100 per s/f as a commercial rental or as a condo conversion that could see sell-outs top $2,500 per ft.

Financing for new development has become more challenging but creative sources of funding projects is another reason for optimism. A great example is Extell’s recent sale of a 50% equity stake in three of its projects, including 252 South St. and 500 East 14^th St., to RXR for $463 million.

Residential properties aren’t the only property type that is strengthening. 123 Lafayette St. in Chinatown traded for $1,529 per s/f.  Historically, Chinatown has seldom had strength in office product. However, with strong developments in surrounding locations, convenient transportation options and sprouting amenities, the Chinatown office market has continued it’s positive trend from last year.  Demand for NoLita, Chinatown and Lower East Side land outpaces that of northern neighborhoods, helping office rents from tech tenants, software, and communication companies rise past $65 per ft. This can be attributed to the same reasons residential values are increasing: the improvement of amenities, the improvement of building stock in each neighborhood, and renovation and improvements of the parks south of 14^th St.  

In light of our recent market activity and the fact that phase one of the Essex Crossing opens at the end of the year, we continue to see many reasons for market optimism in 2016. Growth may not occur at the same pace as recent years, but active investors and developers should refrain from accepting doom and gloom predictions at face value—NYC and Lower Manhattan’s remain an outstanding destination for long-term capital.

Jesse Deutch is a vice president at Ariel Property Advisors, New York, N.Y.