Multifamily sector braces for a new era
New York City’s slow multifamily market continued into spring with just 75 deals during the first quarter, the smallest number since the third quarter of 2010, according to Ariel Property Advisors. The firm found that transactional volume remained slow going into the second quarter with just 28 deals across 35 buildings worth $636 million in April — a 6 percent drop in transaction volume, a 42 percent dip in building volume and a 34 percent plunge in dollar volume when compared to the trailing six-month averages from October through March.
New rent regulations reforms will likely continue to stifle trades as market participants try to figure out a new paradigm for penciling out deals. “There’s going to be a period where buyers and sellers pause and re-evaluate where these things are and see how it impacts their long-term cash flow,” Ariel executive vice president Michael Tortorici said. “I think we may be in for a period of slower transactional volume while the market digests it and sees how to interpret it.”
JLL’s Robert Knakal told The Real Deal that prices will likely be driven down as multifamily investors have fewer reasons to buy rent-controlled buildings. “Nobody buys real estate wanting to get a 3 percent return on your money… [The new laws] reduce the incentives for the private sector to invest in properties,” he said. Added Daniel Parker of Hodges Ward Elliott, “You’re going to have a lot of apartments that are being rented in poor condition because $15,000 every 10 years will not maintain a typical prewar apartment.”
Ariel’s Tortorici said the pro-tenant nature of the new laws could lead companies to scale back on renovation plans if they determine that the math no longer adds up with some neighborhoods more affected than others. “An area of the Bronx where the disparity between the rent-stabilized and free-market rents isn’t as extreme as somewhere like Manhattan may be more insulated,” he said.
Some brokers said the city’s need for housing and a strong economy should offset any dramatic multifamily downturn, believing that much of the previous slowdown was due to uncertainty about the new laws. With those regulations for the most part now clear, the multifamily cloud should lift.
“It’s like being in a fender bender,” Meridian Capital’s David Schechtman said. “You get out of your car. You look at it. There’s some damage, but it’s not as bad as you thought it was, and you keep driving.”
— Eddie Small
City hotel execs prepare for change
At New York University’s annual hospitality conference in June, investors and executives were abuzz about deals, despite a slowing economy, rising costs and an uncertain political outlook. But at an exclusive, invite-only rooftop bar gathering of attendees at the Pod Times Square Hotel, there was a sense that the good times could soon be over. “If you’ve been in the game, you’ve been doing quite well and congratulations,” said Stephen Rushmore Jr., CEO of hotel consulting firm HVS. “But at some point… the cycle is going to end. Probably, it’s going to be less than a year.” On the political front, trade wars and immigration policy remain “a big concern,” said Apollo’s Tracey Gamble during an NYU panel discussion. Another form of change — the climate — also looms over the industry, whose best assets are often in waterfront locales. Starwood Capital’s Akshay Goyal said getting insurance for extreme weather is now a “huge problem.” Blackstone Group managing director Scott Trebilco cited the growing presence and power of unions, a tight employment market and changes in real estate taxes as being on his “long list” of concerns going forward. Still, Trebilco and Goyal agreed that they’re ready to do riskier deals if they find them to be good investments.
— Erin Hudson
NYC’s top 10 projects touch all 5 boroughs
For a second month in a row, each of the city’s five boroughs were represented on a list of its 10 largest projects. An office tower planned by Savanna at 141 Willoughby Street in Downtown Brooklyn took the top spot by a margin of 100,000 square feet, beating out a luxury condo development from Naftali Group and Rockefeller Group at 200 East 83rd Street in Manhattan. Manhattan had four of the top projects in May, followed by two each in Brooklyn and the Bronx with Queens and Staten Island rounding out the list with one apiece. A controversial 115,00-square-foot homeless shelter on Staten Island backed by a nonprofit led by former City Council Speaker Christine Quinn came in at No. 4. In the Bronx, Camber Property Group took the No. 9 spot with its plans for an 11-story, mixed-use building that will span about 67,000 square feet. Mayflower Business Group closed out the list with its plans for a 25-story Garment District hotel that will have 166 rooms across its 59,000 square feet.
— Eddie Small