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Lack of Financing Causes Multifamily Property Sales to Decline in NYC, Los Angeles, San Francisco
Published: August 25, 2008
By Anuradha Kher, Online News Editor
New York--Compared to second quarter 2007, Los Angeles, New York and San Francisco saw major setbacks in the number of sales, according to Investment Properties Report, Q2 2008, a quarterly analysis of multifamily homes in the three regions conducted by PropertyShark.com, based in New York.
“The biggest problem causing the setbacks in the number of sales is the lack of financing for properties, which means there are fewer buyers in the market,” Bill Staniford, CEO, PropertyShark.com, tells MHN. “It is the basic malaise in the economy right now and people are holding onto their properties because they know they will not get the right value.”
Experiencing the steepest decline among the three regions, New York City was down 29.4 percent. In Q2 2008, New York City saw the lowest value for closed multifamily building transactions over a two-year time period while Los Angeles and San Francisco saw a slight increase from Q1 2008, when both regions experienced two-year lows.
New York City prices have reverted back to 2006 levels and all price indicators continued their downward trend with the median sale price down 7.7 percent, and the median price per sq. ft. down 4.7 percent, compared to Q2 2007.
In Manhattan, though prices stayed up with the median price per sq. ft. reaching a two-year high in this quarter, sales transaction volume was down considerably. There were 86 closed transactions in Manhattan during the second quarter of 2008, down 13.1 percent from Q1 2008, and down 51.1 percent in comparison to Q2 2007. The number of sales dropped dramatically hitting a two-year low for all three groups studied in this report (two- to four-family buildings, five plus family buildings, mixed-use buildings).
“The two-year median high is slightly misleading because the sales transaction volume is down and the properties that were bought are the most desirable ones and therefore the most expensive,” says Staniford. “The Bronx and Staten Island are the least desirable boroughs in NYC, which is why there’s a big drop there.”
Meanwhile, as price per sq. ft. declined in Queens, that figure remained stable in Brooklyn with 45 percent of five- or more family buildings sold in Brooklyn located in the neighborhoods of Williamsburg, Bedford-Stuyvesant and Bushwick. “This shows that these areas continue their appeal as real estate investments," says Staniford.
The Los Angeles multifamily market experienced three consecutive quarters of declines in the number of closed transactions until this quarter, when sales transactions increased by 32 percent compared to the first quarter of 2008. However, in comparison to Q2 2007, the number of sales declined by 16 percent.
“The rebound in the number of sales can be partially explained by dynamics in the foreclosure sector, with distressed properties in Q1 and Q2 2008 accounting for more than 45 percent of the total number of sales (29 percent trustee sales and 16 percent notices of default),” says Staniford.
Median price per sq. ft. (down 22 percent), median price per unit (down 25 percent) and median sale price (down 30 percent) all decreased by a large rate compared to the same quarter last year, reaching a two-year low. “The median prices have come down fast in Los Angeles and I think this needed to happen in order for the recovery to take place. When we see a huge uptick in the number of sales, we’ll know we have reached rock bottom,” Staniford explains.
The number of closed transactions in San Francisco in the multifamily sector was down 16.4 percent compared to Q2 2007. The median price per square foot in San Francisco was down 3.6 percent from Q1 2008, and down 11.9 percent from Q2 2007.
“I believe these drops are all part of the correction and not a bad thing,” Staniford says. “Prices were inflated.”
Staniford also believes that the worst is yet to come in Manhattan. “If there is a significant softening of the economy in Europe, the New York market will dry up. Also, when the Wall Street bonuses come out, and everyone expects them to be bad, the real estate market in the city could go down significantly. I do, however, anticipate the rental market to remain stable,” he says.
