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New York, NY—New York's multifamily market has seen an overall lag in investment sales since the passage of the Housing Stability and Tenant Protection Act of 2019. However, a recent uptick in activity in the Northern Manhattan area suggests that investors are becoming active again, according to Ariel Property Advisors.
"The Housing Stability and Tenant Protection Act of 2019 eliminated or altered many different legal mechanisms to increase rents. We're still seeing how the market will adjust, but it is clear that investors are basing values much more off of in-place cash-flow versus future upside," says Victor Sozio, executive vice president and founding member of Ariel Property Advisors, tells GlobeSt.com. "While this new legislation has presented its challenges, investors have begun to reassess pricing and strategies. We anticipate higher transaction volume in the upcoming months to end the year."
The Bright Lights of Northern Manhattan
Northern Manhattan has been a particularly bright spot lately with two large transactions skewing the overall dollar volume figure. In East Harlem, for example, L + M Development Partners purchased a portfolio of buildings from Brookfield Properties for $1.16 billion. The six properties consist of 2,654 residential units and 40 non-residential units. Two-thirds of the units will be converted into affordable apartments, with L+M purchasing the properties through its Workforce Housing Fund.
Another example is in Central Harlem where Fairstead Capital bought two properties from Harlen Housing for $75.5 million. The two affordable buildings, located at 50 West 139th Street and 560 Lenox Avenue, contain 214 residential units.
"Activity in 2020 Q1 this year is trending to be more active than the same time last year," Sozio says. "The market has had time to adjust to legislation and so we're seeing larger amounts of valuations and listings. While the market is still hungry for post-legislation multifamily data points, we're starting to see a clearer picture of the new normal."
For instance, he continues, in December 2019, the company led the sale of a 31-building affordable portfolio for $120.6 million.
"The market is getting active again."
Multifamily's 2020 Outlook
In 2019, multifamily transaction volume was down in New York City approximately 36%, from 450 multifamily transactions in 2018 to 290 in 2019, with the dollar value of multifamily transactions down 40% from $11.5 billion to $6.9 billion.
Now with time to digest the market realities of the property cycle and potential for new legislation, such as the good cause eviction bill, sellers are becoming increasingly realistic about their decisions. For owners that know that they will have to exit within the next few years, it makes sense to sell now, so the first half of 2020 should be more active than last year, Sozio says.
Another factor is that people have been keeping an eye on loan maturities from an active period between 2015 and 2016. Owners that need funds will be forced to refinance or sell.
"You also can't ignore politics and the market is watching for new legislation and the 2020 elections. Everything from the presidential race to local offices can affect markets, so that is something to keep in mind as we monitor market activity," says Sozio.
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