According to Ariel Property Advisors research, there was a significant increase in metrics in the second quarter of 2021, with the city recording 74 deals comprising 118 properties for a total volume of $ 1.24 billion. Compared to the first quarter of 2021, these increases represent increases of 23%, 44% and 158% respectively. Much of this increase in dollar volume is due to 16 multi-family deals over $ 20 million in the second quarter, while the first quarter only had two of those deals.
Based on my own company’s contract portfolio and from what I have heard anecdotally from other companies, I foresee transactional growth in the second half of 2021. All of this is a source of optimism as the city New York City continues to recover from the major market headwinds of the Covid-19 pandemic and the Housing Stabilization and Tenant Protection Act of 2019.
The second quarter of 2021 was in many ways a continuation of the encouraging signs of market fundamentals during the first quarter, especially considering that the majority of affordable housing contract inventories have yet to be reflected in the market. city statistics. These transactions will further increase the numbers in 2021.
In Manhattan, May’s new leases reached 9,491, according to a report of Douglas Elliman, the most of every month since 2008 and quadruple the amount as of May 2020. According to one report According to Corcoran, Manhattan’s luxury rental market saw a similar peak in June, where new lease signatures increased 184% year-on-year. Additionally, 60% of May’s new lease signings in Manhattan were for two-year terms, as tenants sought to lock in favorable Covid concessions, signifying a long-term commitment among many to stay in the city.
In Brooklyn, new lease signatures rose 125% during that same period, an indication that many who left the city at the start of the pandemic could return as offices reopen and schools resume classes. in person.
Pricing measures are tricky because they include free market, affordable, and rent-stabilized multi-family sub-segments in a single bucket. Primarily open market buildings trade at a higher price per square foot and lower cap rates compared to affordable or rent stabilized buildings, where investors expect higher current cap rates instead of ‘a limited rental increase in the post-HSTPA landscape.
New York’s submarkets in numbers
Manhattan (south of East 96th Street and south of West 110th Street)
Manhattan generated 71% of the total multi-family dollar volume in the second quarter of 2021. The borough recorded $ 752.7 million in transaction dollars, an impressive 230% increase from the second quarter of 2020. The transaction volume of 27 sales comprising 34 properties was also encouraging, representing increases of 69% and 42% year-over-year, respectively.
Manhattan’s particularly high dollar volume was fueled by several successful institutional transactions, such as Stonehenge Partners’ $ 134 million acquisition of 920 Park Avenue, a 68-unit luxury rental property on the Upper East Side. . This dollar volume was supported by prices per square foot increasing 11% quarter over quarter from $ 647 to $ 717, as well as the dominance of open market properties. Only 21% of homes exchanged during the first half of 2021 were in stabilized rents compared to 38% for the whole of 2020.
North Manhattan (North of 96th Street East and North of 110th Street West)
North Manhattan, which is viewed by much of the brokerage community as a borough itself, is the smallest submarket, but is also a microcosm of the entire city when looking at rent-stabilized assets. . Due to HSTPA, many sellers are still reluctant and choose to hold until selling prices improve.
The submarket had the lowest year-over-year totals in terms of deal volume, property volume and dollar volume in the city. Still, there was an increase in activity by two metrics: dollar volume increased 86% to $ 45.7 million from Q2 2020, and transaction volume increased 75%. to reach seven sales. Property volume fell to seven, a decrease of 42%, reflecting a lack of portfolio sales during the quarter.
During this period, the price per square foot declined 24% quarter over quarter, largely due to an increase in the number of rent stabilized units that traded; 76% of units sold were at stabilized rent, against 44% the previous year. This change can be attributed to the relative stability of many rent-regulated assets.
The Bronx multi-family market showed a slight increase in activity compared to the previous year. At $ 224.6 million, dollar volume in the borough increased 369%, while transaction volume improved 129% to 16 sales at 35 properties, an increase of 289% from report for the second quarter of 2020.
However, business in the Bronx was significantly boosted by the sale of the Blackshore real estate portfolio, which involved 15 properties and 791 units in total in the borough. New York’s Neighborhood Restore Housing Development Fund purchased the portfolio for $ 122 million. By removing this, the Bronx’s transaction and property volume would have remained relatively unchanged year-over-year, but still saw a 61% increase in dollar volume.
This decrease in dollar volume is due in part to the lower price per square foot in the second quarter of 2021 compared to the same period the previous year. 86% of units sold in the second quarter of 2021 were rent-regulated, signaling a significant increase from the 57% negotiated in the second quarter of 2020.
The Bronx is well positioned for activity over the next six to 12 months. Looking at the listings and contracted properties there are a lot of affordable housing products on the market and I expect that to increase sales volume by the end of the year.
Brooklyn’s transaction volume in the 16 second quarter of 2021 did not change year-over-year, while property volume increased 33% to 32 in the same period. Due to a lack of institutional sales, dollar volume actually declined 43% to $ 179.1 million.
The largest multi-family transaction was 88 Linden Boulevard in Flatbush which sold for $ 29.5 million, a fairly modest favorite in the popular Borough. However, the price metrics on the sale translate to $ 490 per square foot and $ 434,720 per unit, beating the borough’s averages of $ 351 and $ 281,915, respectively, an indication of optimism for the residential outlook. from Brooklyn.
The second quarter price per square foot for Brooklyn was relatively stable at $ 315, down 4% year-over-year. It should be noted that Brooklyn is such a large market and most of the sales in Q2 2021 were in secondary markets. Typically, primary markets such as Williamsburg, Downtown Brooklyn, Park Slope and others lead the charge, but this was not the case in the second quarter of 2021. This may be due to low inventory levels and prices. record medians of homes in the Brooklyn neighborhood. working-class neighborhoods, according to a report by Corcoran. Investors may see more upside potential in less established rounding markets.
Queens, with predominantly rent stabilized buildings constituting a multi-family business and long-term ownership culture, shows stability but a lack of sellers. While dollar volume was up slightly (5% yoy) to $ 42.9 million, deal volume fell 100% to 8 deals and property volume fell 67% to 10 properties negotiated.
Queens’ largest transaction in the second quarter of 2021 was a 40-unit elevator building at 35-25 and 35-35 95th Street in Jackson Heights, sold for $ 12 million and accounting for 28% of the total dollar volume of the ‘arrondissement.
Comparing the pricing measures, the price per square foot in the first half of 2021 was $ 258, down 7% from the first half of 2020. Similar to Brooklyn where secondary markets dictated prices, Queens had the same story.
The overall performance of the New York City multi-family market for the second quarter of 2021 saw a significant rebound in the second quarter. Open market buildings are now trading at lower cap rates and higher prices as investors anticipate continued improvement in rents in the future. In addition, and for the first time, buildings with stabilized rents have found their place post-HSTPA, taking advantage of long-term debt, the low interest rate environment and the availability of high equity / family office funds.
While the Delta variant could potentially slow the recovery, I believe market conditions are robust enough to be resilient and continue the long-term trajectory of investment sales growth. Price clarity and strong fundamentals could cause much of the capital that is still on the fence to launch, invest, and contribute to transaction and price growth in the future.
Paul McCormick and David Baruch contributed to the research of this article.