Upbeat Assessment in Ariel Property Advisors’ Q2 Report

Ariel Property Advisors’ second quarter multifamily report indicates New York City multifamily transactions increased 48 percent in the second quarter of 2012, vis-à-vis the same period one year earlier.

New York—Ariel Property Advisors’ second quarter multifamily report indicates New York City multifamily transactions increased 48 percent in the second quarter of 2012, vis-à-vis the same period one year earlier. That was just one of a number of indicators pointing upward in Q2, as reported in Ariel Property Advisors’ Multifamily Quarter in Review: New York City.

“What we’re really seeing is the result of very strong fundamentals in the residential market,” Shimon Shkury, president of Ariel Property Advisors, tells MHN. “They’re among the strongest drivers of transactions we’re seeing today.”

Rents have risen consistently in the past 24 months, and particularly so in the first months of 2012. Moreover, inventory constraints and preference for renting over buying are helping fundamentals. “There is still economic uncertainty, so people would rather keep cash in the bank than own,” Shkury says.

Also driving transaction volume are interest rates of approximately 3 percent. “That’s a key inducement to investors,” he notes.

Opportunity cost presents yet another factor. Manhattan, for instance, is seen as a place for very safe investment and safe cash flows. REITs are investing in Manhattan because they can’t find this risk profile and return elsewhere.

“And we’re seeing the premium for value-add opportunities is back,” Shkury says. “Projections and anticipation hold that the residential rental market will stay strong due to lack of new product, positively affecting prices and transaction volume in the market.”

The key takeaways from the report by submarket are as follows:

In Manhattan south of 96th St., a vacancy rate below 1 percent is indication not only of the strength of the rental market, but also that REITs are interested in scale and value-add opportunities.

“Although the large transactions play a big role, we’re seeing small to mid-size transaction volume increase as well,” Shkury says. “That means private capital and private syndicators are a lot more active. And there’s a flow of both domestic and international capital getting into the multifamily market.”

Brooklyn is one of the more transactional areas of New York City, and is something of a city unto itself these days, Shkury says. “It’s an area developing on its own and growing, and we’re foreseeing more institutional capital going into Brooklyn in the next few years,” he adds. “In terms of buildings sold, Brooklyn was the most active submarket in the first half of 2012.”

The Bronx had a very active second quarter, and is witnessing a greater number of transactions than in previous years. “The Bronx today shows positive and relatively high cash-on-cash returns, in our opinion,” Shkury says.

“Investors in the Bronx are looking for yield as opposed to just upside potential, and are seeking larger buildings of more than 50 to 100 units in elevator structures. There’s a premium attached to those buildings.”

Summing up, he says all indications suggest a continuation of strength in the New York City multifamily market, both in transaction volume and pricing.