With the multi-family market continuing to sizzle, a rental building on the Upper East Side, listed for $22 million by Robert Khodadadian of Skyline Properties, has a lot going for it.
The eight-story midrise at 334 East 79th Street has an elevator, a relatively rare amenity for rental buildings of its kind, according to Khodadadian. And most importantly, the 46-unit property’s 36 one-bedrooms can be converted to legal two-bedrooms, with windows in each bedroom.
“It’s more of a family-oriented neighborhood, so people will want two-bedroom apartments,” Khodadadian said of the property’s location on 79th Street between Second and First Avenue, a thriving retail corridor near schools, public transportation, and supermarkets. “With two bedrooms, you’ll get more quality tenants.”
According to the brokerage firm MNS, the average rent for a two-bedroom apartment in Manhattan was $4,275 last month, up by nearly 19 percent since last November.
Thanks to this upward trend, the buyer of Khodadadian’s 79th Street listing would see an increase in cash flow.“It’s more of a long-term play, not for someone to buy it, fix it, sell it,” Khodadadian explained.
Though well-maintained, the property, which was constructed in the 1970s, needs some work, he said. In addition to increasing the size of apartments, Khodadadian added, “there’s an opportunity to turn it into condos.”
Whether condo or rental, of course, multi-family and mixed-use assets are in high demand among investors looking for stable cash flow. Sales in the multi-housing sector soared over the last few years, climbing from $1.3 billion in 2009 to $2.2 billion as of last quarter.
“Vacancy at large market-rate rental properties in New York City will decline in 2011 as tenant demand intensifies and construction activity subsides,” according to Marcus and Millichap’s 2011 national apartment report. “Stronger job growth will accelerate the stabilization of new properties this year, contributing to a decrease in vacancy in each borough.”
Over the next five years, according to a CBRE report on Manhattan’s multi-family and office markets, rents are expected to rise by 3.6 percent annually.
Large apartments are especially coveted by house hunters and investors alike. “Everybody wants a bigger apartment, and landlords want to buy a building where they have upside,” Khodadadian said.
At condo developments across Manhattan, buyers ave been snapping up adjacent units to create larger spaces. Doctors, hedge fund managers, and other buyers at the Azure, a luxury tower on 91st Street and First Avenue, have sought to combine apartments, which range from studios listed at $499,000 to five-bedrooms at $4 million.
“We’re doing so many customizations,” Doug MacLaury of the Mattone Group, which co-developed the tower along with the DeMatteis Organization, told Real Estate Weekly over the summer. Combinations are also popular at 400 Fifth Avenue, a collection of one- through three-bedroom residences in a 60-story tower that’s also home to the Setai Fifth Avenue Hotel.
To meet demand for larger units, Henry Justin of HJ Development offers flexible floor plans at one of his latest condo projects, 211 East 51st Street, and helps buyers combine adjacent one-bedroom apartments.
Before renovations began on the mid-century tower, which boasts 73 units, building smaller apartments seemed the least risky maneuver. Still, Justin thought out the potential for combinations.
“The market itself is not a one-bedroom market right now,” he said, adding that the typical buyer of a smaller unit is now a foreign investor.
Indeed, the few buyers who purchased single one-bedrooms at 211 East 51st Street were Brazilian investors. But even some of them changed their minds and sought larger apartments.
“It’s not uncommon for them to buy a one-bedroom and then later on buy another one-bedroom, either renting them out or affording themselves a combination,” Justin said.