Washington Heights is among the foremost neighborhoods for real estate investment today, and with good reason. Whether it be its plethora of buildings with unrealized potential, significant rental upside, or its attractive capitalization rates, it is no surprise that multifamily properties are being acquired in this popular Northern Manhattan neighborhood.

Matthew L. Gillis,
Director - Investment Sales

Northern Manhattan opened 2018 on soft footing, with the sub-market experiencing the most significant across-the-board declines in January. Transaction, building, and dollar volume have decreased 40%, 76%, and 68%, respectively, according to Ariel Property Advisors recently released “Multifamily Month in Review.” To view, click on: http://arielpa.com/report/report-MFMIR-Jan-2018

The steep decline in January, however, can mostly be attributed to one large institutional-level sale in December. In fact, on a year-over-year basis, January’s transaction and building volume were unchanged, while dollar volume surged by 134%.

Investors seeking value-add opportunities have set their sights on Washington Heights in recent years. Large transaction sizes are the footprint of smart money and over the period 2017 to 2018, there were 6 institutional transactions over $25 million totaling $421,026,310, according to proprietary data compiled by Ariel Property Advisors’ Investment Research Division.

Washington Heights is an ideal market for value-add investment which typically targets properties with in-place rents, and the opportunity to increase cash flow over time by making improvements or repositioning the property. This phenomenon arises from an abundance of underworked buildings, many with opportunities to reduce costs by changing boilers, or raising rents through major capital improvements and other increases. In many cases, properties can be improved to generate more income per foot through these strategies.

The presence of higher capitalization rates and low prices, averaging 4% and $326 per square foot, respectively, compared to an average of 3.57% and $575 for Manhattan as a whole, also make the market very attractive from a current income perspective.

Meanwhile, while building improvements are a significant source of profit potential, rents in the vicinity are mostly below market. Investors, therefore, face significant upside by acquiring these buildings by bringing their rents to market value over time.

One excellent example of this was 517 and 570 West 180th and 182nd Streets, two multifamily buildings that were recently sold by Ariel Property Advisors. The portfolio had significant rental upside, preferential rents, and traded at a 4.65% capitalization rate.

High population density is also a boon to ground floor retail space as it translates into more patrons above each store. In a time where the future of retail has never been more uncertain, Washington Heights promises a steady stream of local consumers in need of fresh and localized goods. Today, the neighborhood is a thriving, safe neighborhood, which buzzes with culture and university life, housing venerable institutions including Columbia University’s Medical Center and Yeshiva University.

Ultimately, Washington Heights is among the foremost up-and-coming sub-markets in the City due to the prevalence of below-market rents and potential to achieve higher and better usage of buildings. Strong current income, strengthening demographics, and one of the most favorable gentrification trends in the United States also benefit this popular Northern Manhattan destination.