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New York

Multifamily market still struggles with political risk

Despite lower prices for buildings, investors are still wary of Albany

(Credit: iStock)
(iStock)

Multifamily investment sales have yet to recover from the impact of last year’s momentous rent-law reform, continuing the slump through the first quarter of 2020. 

First quarter investment sales of multifamily properties over $2.5 million have reached about $741 million so far in 2020, compared to $1 billion in the first quarter of 2019 — which already reflected a slowdown in multifamily sales in anticipation of the Housing Stability and Tenant Protection Act of 2019 that upended the business model of many landlords, according to Real Capital Analytics. The first quarter of 2018 saw $1.5 billion in such sales.

“Even though the law went into effect in June, last year, in the aggregate, the sales volume dropped off by almost a third,” said James Nelson, principal and head of tri-state investment sales at Avison Young. “Once we knew the rules, we had an immediate impact on pricing, especially on the regulated properties that you can’t decontrol.”

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The new rent regulation ran speculators out of the market and drove down prices of regulated multifamily buildings for bargain hunters with longer-term strategies, but overall sales haven’t picked up because of continued political uncertainty during the current legislative session, according to Nelson.

“The fair market had concern about good cause eviction,” said Nelson, referring to the bill championed by state Sen. Julia Salazar that bans the eviction of tenants in any building who refuse to pay “unreasonable” rent hikes — which landlord groups say is tantamount to universal rent control.

“We have not seen an uptick in the investment sales market because, notwithstanding the slowdown in the last six months of last year, the market is still trying to deal with what’s going to happen regarding rent stabilization, control and the political environment, whether friendly or not,” said Arthur Mirante, principal and tri-state president at Avison Young. 

The continuing political uncertainty is driving investors to look to places that don’t have the same rent regulation as New York City – cities like Atlanta, Dallas, Nashville, and the state of Florida, said Mirante.