NEW YORK, NY – April 28, 2017 – The New York City multifamily market continued to cool off in the first quarter of 2017 as caution surrounding last year’s presidential election suppressed the number of properties entering contract late last year. Dollar volume dropped to its lowest level in four years as large institutional-level transactions all but vanished. Transaction volume, however, remained on pace with the previous quarter’s.
Pricing in the first quarter was mixed, with properties in The Bronx firming the most, while those in Manhattan and Brooklyn softened. Indeed, The Bronx reigned supreme, with 1Q17’s price per square foot leaping 10% year-over-year.
In the first quarter of 2017, New York City dollar volume dropped 60% year-over-year to $1.6 billion in gross consideration, its lowest since the first quarter of 2013. Not one transaction exceeded $100 million in the first quarter, paling in comparison to the 11 registered in the fourth quarter of 2016. Moreover, just 16 sales were above $20 million in the period versus 29 in the previous quarter.
New York City saw 117 transactions comprised of 176 buildings in the first quarter, representing annual declines of 35% and 39%, respectively. Transaction volume nearly mirrored the fourth quarter of 2016, which saw 118 deals.
“Hesitation around the election last year had many investors hitting the pause button, which ultimately impacted first quarter volume,” said Shimon Shkury, President and Founder of Ariel Property Advisors. “Now that the uncertainty has subsided and 10-year yields have come down, we expect to see a sharp pickup in activity.”
From a macroeconomic perspective, a robust labor market and firming inflation had the Fed, following years of lackluster growth, confident that the economy is strong enough to withstand the impact of higher rates. The Fed’s policy-making arm raised short-term interest rates in March, its second increase in three months and only its third since last decade’s financial crisis.
Manhattan experienced a tepid first quarter, with just 27 transactions comprised of 32 buildings, totaling $512.63 million in gross consideration, representing declines of 16%, 29%, and 69%, respectively, versus the same quarter a year earlier. Based on six-month trailing averages, Manhattan cap rates rose for a third straight quarter, hitting an average of 3.87%, 22 basis points higher than one year earlier.
The largest trade in Manhattan during the quarter occurred in Kips Bay as A.D. Real Estate Investors snapped up a 67-unit elevator building located at 312 East 30th Street for $52 million from the Blackstone Group and Fairstead Capital. The transaction represented pricing metrics of $1,087 per square foot and $776,119 per unit.
Manhattan’s trailing 6-month average pricing metrics in the first quarter stood as follows (year-over-year changes): price per square foot at $966 (+1.0%), price per unit at $690,150 (-2.4%), capitalization rate at 3.87% (-6.0%), and gross rent multiple at 19.20 (-0.4%).
Northern Manhattan, one of the most active areas in 2016, saw the most significant decline of any sub-market, with all volume metrics down considerably versus the fourth quarter as well as one year earlier.
The region’s transaction-less February played a large role in the quarter’s underperformance.
For the first quarter of 2017, Northern Manhattan saw just $194.82 million in dollar volume from 13 trades, down 66% and 52%, respectively, from the same quarter one year earlier. A five-building portfolio in Central Harlem located at 265-273 West 146th Street was the sub-market’s only transaction to surpass $20 million for the quarter. The 100-unit mixed-use walk-up buildings sold for $23 million, or $484 per square foot with a reported capitalization rate of 4.54% and gross rent multiple of 13.06.
Northern Manhattan’s trailing 6-month average pricing metrics in the first quarter stood as follows (year-over-year changes): price per square foot at $380 (+11.0%), price per unit at $298,205 (+5.1%), capitalization rate at 3.74% (+6.0%), and gross rent multiple at 15.91 (+2.5%).
For the first quarter of 2017, Brooklyn saw 32 sales comprised of 53 buildings totaling $397.58 million in gross consideration. These numbers represent an improvement over the previous quarter, but a year-over-year decrease of 35% in transaction volume and a 52% decline in dollar volume.
One of the most intriguing trades of the quarter was a 103-unit elevator building located at 485 Kent Avenue in South Williamsburg where the 11-story loft building was purchased for $55.68 million, representing $370 per square foot and $540,534 per unit
Brooklyn’s trailing 6-month average pricing metrics in the first quarter stood as follows (year-over-year changes): price per square foot at $340 (-14.1%), price per unit at $293,539 (-12.6%), capitalization rate at 4.40% (-2.6%), and gross rent multiple at 16.16 (-5.3%).
The Bronx fared modestly well in the first quarter of 2017, with 33 transactions totaling $275.07 million in gross consideration. These figures represent a 27% increase in transactions and 47% jump in dollar volume quarter-over-quarter despite year-over-year declines of 33% and 52%, respectively.
In Mount Hope, a 222-unit elevator building located at 1511 Sheridan Avenue transacted for $38 million, or $188 per square foot, with a reported capitalization rate and gross rent multiple of 3.77% and 12.73.
The Bronx’s trailing 6-month average pricing metrics in the first quarter stood as follows (year-over-year changes): price per square foot at $190 (+9.6%), price per unit at $166,977 (+10.2%), capitalization rate at 4.99% (+2.5%), and gross rent multiple at 11.99 (+12.1%).
Queens epitomized a mixed-bag this quarter as the borough saw an increase in transaction volume quarter-over-quarter, but a lack of portfolio trades drove dollar volume lower. For the first quarter of 2017, Queens saw just 12 transactions consisting of 17 buildings trading for $220.02 million in gross consideration. These numbers are in stark contrast to first quarter of 2016’s 23 trades involving 30 buildings that amounted to $411.65 million in dollar volume.
In Flushing, Pinnacle Group purchased two elevator buildings located at 132-40 & 133-21 Sanford Avenue for $57.6 million, or $366 per square foot, from Treetop Development.
Queens’ trailing 6-month average pricing metrics in the first quarter stood as follows (year-over-year changes): price per square foot at $358 (+21.1%), price per unit at $289,941 (+12.3%), capitalization rate at 3.85% (+10.9%), and gross rent multiple at 16.33 (+14.4%).
To view the full report, please click here: http://arielpa.nyc/research/report-MFQIR-Q1-2017
Ariel Property Advisors is a commercial real estate services and advisory company located in New York City. The company covers all major commercial asset types throughout the NY metropolitan area, while maintaining a very sharp focus on multifamily, mixed-use and development properties. Ariel’s Research Division produces a variety of market reports that are referenced throughout the industry.
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