MARKET SNAPSHOT: Manhattan Accounts for 80 Percent of New York City’s Transaction Volume

New York—Apartment transactions in New York totaled 115 during the third quarter of 2011, according to Ariel Property Advisors’ most recent Multifamily Quarter in Review: New York City.

Citywide, 147 buildings traded for $1.6 billion, with activity in Manhattan below 96th Street accounting for 80 percent of this volume, or $1.35 billion—though only 44 transactions took place here.

In the second quarter, the city saw just 88 transactions for a total dollar volume of $1 billion.

“More foreign money wants to come here and place capital because it is considered relatively safe,” observes Shimon Shkury, president, Ariel Property Advisors.

As opposed to the beginning of the downturn, where most transactions were much smaller, “we’ve seen that in 2011 the institutional capital is back in the market in a bigger way, and the result of that is much larger transactions that take place at lower yields and cap rates,” Shkury tells MHN.

“What we also have seen is banks and financial institutions are willing to lend on stabilized residential assets and willing to take transactions lower than 4 percent interest rates, so that drives pricing as well,” he adds. “What we have seen in Manhattan is not just higher quality, but higher certainty.”

In the past 18 months, he points out, the city has seen an increase in rents of approximately 20 percent, which he notes, may in some cases result in rents exceeding 2007 levels.  And below 96 St., he reports that vacancy is between 2.5 percent and 4 percent for core assets.

However, because “pricing is still not at 2007 levels, that’s where institutional capital feels the opportunity is,” points out Shkury.

As far as potential future challenges, Shkury points to taxes and rent regulations. In terms of the former, “every landlord we speak with says the improvements they’ve made have taken a toll on assessments below 96 St.,” he notes. “I haven’t seen it as a major trend to affect pricing, but it could.”

As far as rent regulation concerns, some minor changes were made to the law earlier this year, which, Shkury believes won’t drastically affect pricing, but it will impact how much must be invested into an apartment before it’s deregulated.

Additionally, Shkury notes, “the rental market is catching up to the level where it almost makes sense to build on rentals. … If you did an analysis on a vacant lot, you’d see that the value of the land would be higher because people are willing to pay more. The rental market is so strong that the gap has changed a bit. … The condo market is still at a level where the land will be more valuable, but that gap has narrowed. The banks might be more aggressive on construction loans in the coming year or two. The minute that happens we’ll see rent values go up more and a certain amount of new construction that might be good for the city.”