July is almost always a sluggish month for real estate deals in New York, but even by those standards, this was an extremely slow July. And many brokers and analysts believe the new rent law in New York is the main culprit.
The city saw about $357 million worth of apartment building deals across 31 properties last month, according to data from Real Capital Analytics. Last July, the market saw about $771 million worth of activity across 50 deals, and in July 2017, it saw about $671 million across 57 deals.
“July is always a weak month anyway in terms of dollar volume because it’s July. People are starting to go out on vacation,” said RCA vice president Jim Costello. “But it fell relative to the previous July and relative to the 2017 July. It fell quite a lot.”
Dollar and sales volume in July also plummeted compared to June, when the city saw about $806 million worth of deals across 51 properties, according to the data.
Overall, July’s dollar volume is the lowest New York has seen since at least January 2017, according to RCA. The lowest it had gone before then was April 2017, when it hit about $392 million.
And property volume was also low, although not record-setting. It had previously been lower in March and February of this year, when 17 and 23 properties were traded, respectively, and in October and March of 2017, which both saw 29 properties traded, according to the data.
Multiple brokers pointed to the strict new rent laws the state passed in June as the main reason for the slowdown, with Costello saying they are “beginning to shut down investment” in the city. Investors are still trying to figure out what moves make economic sense under the new regulations, and until they do that, the multifamily market will continue to be slow, he said.
“How do I work with this law to achieve profitability?” he said. “And only then will people come to a sense of what the value of the asset class is.”
New York’s multifamily market had been moribund leading into July as well. The city saw about $3.4 billion worth of sales across 238 buildings and 169 deals from January through June, marking the slowest first half of the year since 2011, according to data from Ariel Property Advisors.
Brokers described July’s low numbers as a largely predictable and inevitable consequence of the state’s new rent law, which greatly limits the profits multifamily investors can reap on stabilized properties.
“I’m not surprised,” Rosewood Realty’s Aaron Jungreis said. “I think for August, it might even be a little lower.”
However, he did not see the slowdown continuing forever, as he said sellers are starting to lower their prices, which should help activity pick back up.
JLL’s Bob Knakal said he expects to see low number at least through the end of the year thanks to the new rent law. He was not surprised by July’s statistics either and suggested it might still be too soon to assess the true impact of the new laws.
“If anything, I think it’s probably a bit overstated,” he said, “because a number of those contracts were probably signed before the new rent regulations were initiated.”