The New York City multifamily market experienced across-the-board weakness in the third quarter as investors took time out to weigh the implications of Albany’s mid-June passage of new rent regulation laws.
All three volume metrics recorded double-digit declines on a quarterly and year-over-year basis, according to Ariel Property Advisors’ Multifamily Quarter In Review
The Housing Stability and Tenant Protection Act of 2019 (HSTPA) took a toll on activity because the new laws severely limit the upside potential of multifamily buildings that are dominated by stabilized units.
The new regulation hinders a landlords’ ability to increase rent over time, even upon vacancy, with no ability to destabilize the units.
From July through September, New York City saw 61 multifamily transactions comprised of 88 buildings totaling $1.1 billion in gross consideration. Compared to the same quarter in 2018, transaction volume declined 45 percent, building volume dropped 57 percent and dollar volume slid 51 percent. Compared to the second quarter, transaction and building volume both fell 42 percent, while dollar volume slipped 38 percent.
Dollar volume was weighed down by fewer institutional-calibre deals. There were two sales in the third quarter that exceeded $75 million, below 2018’s third quarter tally of five sales at this price point.
“New capital from high net worth individuals, family offices and overseas investors have become increasingly intrigued by the possibility of higher current yield offered by the multifamily asset class,” said Shimon Shkury, president and founder of Ariel Property Advisors.
“We anticipate higher transaction volume in the fourth quarter based on more multifamily closings, in addition to transactions in contract that are expected to close before the end of the year.”
Northern Manhattan’s biggest multifamily sale of the year closed in October. Fairstead Affordable acquired Harlen Housing, a two-building, 214-unit affordable housing portfolio in Central Harlem for $75.5 million. Ariel Property Advisors arranged the sale.
Broken down by sub-market, Manhattan recorded the highest dollar volume in the third quarter, with sales worth $657.8 million, with Brooklyn a distant second at $258.2 million. Northern Manhattan and Queens saw scant gross consideration, with $25.5 million and $30.4 million, respectively.
Brooklyn was the most transactional from July through September, with 22 sales, followed by Manhattan’s 19 sales. Northern and Manhattan and Queens saw just two sales each.
The more expensive transaction in the third quarter was 221 East 71st Street, sold by Spitzer Enterprises to The Dermot Company for $159.5 million in July.
Another notable sale was 60 East 12th Street in August for $107.5 million, which Slate Property Group purchased from Heller Realty.