By Peter Vanderpool
The multi-family segment of New York City’s commercial real estate market may have gotten a boost as a result of the recession.
The number of renters seeking apartments is at its highest level in more than a decade as more families opt for apartment life rather than home ownership as a means of containing living costs.
A recent article in the New York Times focused on the growing rental market due to the poor state of the economy.
The article noted that on the one hand there are so many people who are “blocked from the market” because of personal financial difficulties. But then it went on to say that “even those who are solvent are opting out” of home ownership.
This trend has helped stabilize and even reduce vacancy rates in some cases. It also means that rents are holding their own and beginning to tick up. And, the statistics show that the multi-family sector is, indeed, out in front of the overall recovery.
In 2007, 478 multi-family properties were sold in New York City. The total value of these deals was nearly $7.5 billion and the average price was more than $15.5 million. By 2009, the market for apartment buildings had deteriorated to the point that only 136 transactions were recorded with a total value of slightly more than $800 million and an average price per deal just shy of $6 million. In just the first five months of this year 82 properties changed hands with a total value of nearly $1 Billion and an average sale price per building of nearly $12 million. An obvious trend is emerging indicating that the market is reinvigorated.
It is important to note that we’re not out of the woods yet as far as the economy is concerned. But, although it may be too soon to celebrate a full recovery, the signs point to a rebounding commercial real estate market, led by apartment building deals in all five boroughs.
In New York City, we’ve seen a definite increase in the levels of interest among sellers, buyers and investors seeking apartment buildings throughout the City.
But, perhaps, the most important indicator is the fact that “liquidity has returned to the market place,” as Dan Fasulo, managing director of Real Capital Analytics [RCA] put it.
RCA also points out that competition among lenders has increased and that new funding is coming not only from U.S. banks but also from foreign banks, insurance companies and investment funds, as well. This is driving the market because after the collapse, the banks instituted restrictive lending practices and deals are harder to negotiate when money is tight.
But the National Multi Housing Council’s (NMHC) latest Quarterly Survey of Apartment Market Conditions, covering the first quarter of 2011, shows that “strong fundamentals are bringing investors off the sidelines.”
And, its Equity Financing Index set another record in the quarter, with more respondents than ever before saying that they had greater access to equity capital. This bodes well for a quicker recovery.
As we have reported in the past, stabilized buildings held their own throughout the recession, principally because they are an important basic ingredient of any real estate portfolio.
They provide consistent, bankable returns, and lenders like the fact that, provided the borrower is an experienced owner and reputable manager, the risk is low and such deals generally offer significant upside potential.
But whether it is a stabilized building or a market-rate building, the apartment market in New York City has an unparalleled resilience because in good times or in bad, the housing stock is hard pressed to keep up with demand.
The situation is particularly acute now. The City is adding new jobs at a quickened pace and the housing stock — particularly rentals — is not able to keep up with the demand, thus making multi-family properties that much more attractive to deal makers.
It will be a while before we see the kind of frenetic market activity prevalent in the first eight years of the last decade. But if the past is any indication of the future, new records may well be set as the market takes a turn for the better. And, things are definitely getting better than they have been these past couple of years.
We believe that if the new cycle of growth for the commercial real estate industry, particularly in New York, is deliberate and based on sound basics, the market will expand steadily and the expansion will last longer.
Peter Vanderpool is president of Cignature Realty Associates
