Multifamily Investment Sales Surge in LA as Distressed Properties Flood Market; NYC Sees Two-Year Low

By Anuradha Kher, Online News EditorNew York–As prices for multifamily properties in Los Angeles potentially reached their bottom in the third quarter, San Francisco came close to bottoming out, while New York City remained far from it, according to the Investment Properties Q3 2008 report, released by PropertyShark.com this week. The report looks at multifamily investment sales in these three markets only.“The findings are positive for the Los Angeles market; and very soon, investors are going to come here and start buying up the inventory,” Bill Staniford, CEO of PropertyShark.com, tells MHN. In New York City, even as the number of closed transactions and the median sale price hit a two-year low, some boroughs did better than others. Manhattan experienced a substantial quarterly increase in dollar volume, passing $1.1 billion, even with the number of closed deals dropping.The Bronx had its largest multifamily sale ($67.7 million) in at least five years, despite two-year lows in both the number of sales and in the price indicators, while Staten Island had more sales than in the previous two quarters despite a major drop in median prices. Queens and Brooklyn both had a significant decrease in the number of sales, while median prices in Brooklyn declined by two percent and median prices in Queens fell 12 percent compared to Q3 2007.The high number of co-ops in NYC is one of the reasons that the multifamily for-sale market here has been insulated from what is going on the residential sector. “The requirements to get into a co-op are much stricter,” says Staniford. These findings, however, predate the September Wall Street meltdown and the next few quarters will likely not see much positive news coming from the multifamily for-sale market in New York City. “The situation is not good for NYC. The financial meltdown has meant layoffs and smaller upcoming bonuses and this is going to have a huge impact on the multifamily market. The dollar is strengthening and the Euro Zone is in a recession, which means there will not be as many foreign buyers in the city. So in every which way I look at it, there will be a downward pressure on the residential multifamily market in NYC,” says Staniford.He predicts there will be a 20 to 25 percent drop in property prices in NYC. The new luxury condo projects, which Staniford believes are way too over-priced, will have to come down in price significantly. “The sooner we reach this point the better, because this would present a bargain for investors,” he says. Los Angeles, on the other hand, was the only city among the three in this report that had an increase in the number of sales compared to both Q3 2007 and Q2 2008. This was driven by the large number of distressed property sales (trustee sales, notices of default or REO’s) in this market. Fifty-four percent of all sold properties in the third quarter of 2008 were in distress this year.Los Angeles, as well as San Francisco, experienced significant median price declines, well below their previous two-year record lows. Compared to the third quarter of 2007, the median sale price fell 35.1 percent in Los Angeles and 4.6 percent in San Francisco. The median sale price per unit fell 25.4 percent in Los Angeles and 8.5 percent in San Francisco, when compared to Q3 2007. In San Francisco, the number of closed transactions for multi-unit investment properties was down 3.2 percent compared to Q2 2008, and down 9 percent compared to Q3 2007. “San Francisco is looking pretty attractive now—prices are not quite at the bottom—but getting there. There is cash on the sidelines, so as soon as prices drop, transactions will start rolling in,” says Staniford.He notes today’s announcement by Sun Microsystems, stating that the company may layoff up to 6,000 employees. “The tech sector will not be spared from what is going on in the economy, so we will see prices in Silicon Valley come down further,” concludes Staniford.