What’s Next for NYC’s Multifamily Market
- Jul 06, 2021
As investors begin to look beyond the pandemic, there is strong confidence in the New York City multifamily market’s recovery. Robert Morgenstern, principal of Canvas Property Group and Morgenstern Capital, shared his outlook and predictions for the next six to 18 months.
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Did you see an exodus of renters in the past few months, and if so, where did they go?
Morgenstern: We saw a permanent and temporary exodus. The permanent exodus was from people who were planning to leave New York City anyway—generally headed to the suburbs—but decided to do so a year or two before they originally planned.
The larger exodus was the temporary one when the city shut down and the largest firms gave ultimate flexibility to work from home. Many residents saw it as an opportunity to take on a new experience and try out a new city in the Sun Belt or save money and move back to their parents’ house.
The NYC multifamily market is heavily dependent on the return of office workers. When do you expect that to be in full swing?
Morgenstern: Many commercial real estate professionals—including myself—have been in our offices since the summer of 2020. I believe company culture thrives on human interaction and has never bought into a permanent fundamental shift in the workforce. I think people will be back at work this summer and fall.
It is the leadership’s job to tweak the requirements of work based on each employee, their team’s role and the value of collaborating in-person. There is no single answer that works for every organization. That said, any hybrid model that brings employees to their office two to three days a week is plenty to drive the demand needed for a strong multifamily recovery over the next six to 18 months.
Many analysts say that the pandemic permanently changed attitudes toward crowded urban areas. What are your thoughts on this?
Morgenstern: Analysts that feel the shift in lifestyle that occurred during the pandemic and believe this will permanently change the way people live may have a short-term perspective. Anyone that saw game one or two of the Knicks vs. Hawks series, with MSG at full throat, might agree that people thrive for community and human interaction. Maybe Times Square on New Year’s Eve or that cattle-car feeling of the 9 a.m. 6 train will create some welcome change.
However, if New York City can cure its issues outside of COVID-19, we will see the city get younger and more vibrant. There is no better city in the world than New York. If we can get leadership in office that will keep attention on the safety and well-being of every citizen in New York City, that will not change.
How are rents performing considering the lower demand?
Morgenstern: Demand and rents are very different in this market. We are seeing tremendous demand in certain submarkets for specific unit types. We recently listed a one-bedroom at Prime Williamsburg and had 86 inquiries and 17 requests for a tour in two days.
Net rents, accounting for concessions, and demand for shared apartments in certain dense submarkets will take much longer to recover. Anyone looking for a one-size-fits-all answer to the recovery is going to miss the mark. Understanding granular data is the key to any real insight into the recovery.
Yardi Matrix data shows that almost half of the multifamily properties in Manhattan saw occupancy rates decline by 5 percent or more in the year following the stay-at-home order, while Brooklyn and Queens were impacted far less. How do you see the relative performance of the boroughs going forward?
Morgenstern: Five percent is quite light for any data set I saw during the last year. Vacancy in many parts of Manhattan hovered in the 15 percent to 20 percent range for quite a while. We saw a much stronger performance in areas of Brooklyn and Queens, where neighborhoods are more residential and a tenant’s individual space is not at such a high premium.
The share market, particularly near NYU and Columbia was particularly hurt. Before the pandemic, your apartment was where you slept. Overnight, the apartment became the office, gym, restaurant and more. Getting back to a more traditional social schedule, with restaurants and offices opening will help shift us back to a more normal market. That said, I expect there will be an element of hybrid work for years.
So many tenants will continue to put a higher premium on space and its utility than they did before COVID-19. For example, home offices will be in large demand for the foreseeable future, and areas that have more community amenities, like a river, parks or retail, should outperform.
What can you tell us about rent payments across your portfolio? Have payments returned to pre-pandemic levels?
Morgenstern: With 1,500 units under management, we own and manage with partners ranging from family offices to global institutions. In those early days of April and May 2020, we were creating custom reports for owners, investors and lenders we had not previously considered.
At the time, we were asked to analyze collections for a three-day period of 2018 and 2019 and compare it to the first few days of each month trying to tease out who would actually pay and quickly identify anything outside of expectations. It turned out collections were better than we feared. We had a significant number of early termination issues, which created an occupancy problem.
Once fall 2020 came, most of our current tenants were able to pay their rent with some unique exceptions, particularly those who contracted COVID-19 and did not have a great health-care solution. We worked with empathy and reason to work with all our tenants through this unprecedented time. For all of 2021, our collections have been at pre-COVID-19 levels.Are New York City renters still seeking concessions?
Morgenstern: Tenant concessions have been slowing over the last several weeks. Tenants that are coming back should sign leases in the next few weeks, while concessions in the best neighborhoods still exist. While the market is strengthening, certain submarkets and unit types will continue to struggle to absorb their vacancy.
What can owners and landlords do to navigate this still unpredictable market?
Morgenstern: Reporting on a granular level to understand revenue, occupancy and operating expenses is the key to operations in a challenging market. Data and business intelligence can provide color and insight, which can change how an owner makes decisions.
If you have the capabilities, looking at a portfolio more holistically is key to navigating this market. Looking at a rent roll is too myopic these days. Rents across a portfolio, comparatively by bed count or on per-square-foot can be telling. The ability to compare operating expenses by a building can provide color and details unforeseen by a traditional financial statement.