NY multifamily sales plummeted in ’23. ’24 might give a snapback

Rate cuts, fresh lenders and maturities could drive big deals

NY Multifamily Sales Plummet in 2023
(Illustration by The Real Deal with Getty)

The New York City multifamily market in 2023 posted its worst year since the pandemic.

Investors did a little over $7 billion in apartment deals last year, 52 percent below the dollar volume traded in 2022, according to a report by brokerage Ariel Property Advisors. 

In the past decade, only 2020 had less investment.

A turbulent year marked by higher interest rates and the collapse of a top multifamily lender, Signature Bank, accounted for the sharp decline in sales. Investors’ distaste for rent-stabilized buildings — a growing trend since the 2019 rent law effectively capped building revenues — continued to put a damper on dollar volume.

The bad news is that the downturn in demand for rent-regulated buildings is likely to last, said Ariel president and founder Shimon Shkury. The good: Forecasted rate cuts, plus the possibility that private lenders will fill Signature’s shoes, should drive more deals overall in 2024.

Rising rates weighed heavily on deal volume through last year, pushing more would-be buyers to the sidelines and creating a gulf between what sellers were asking and buyers would pay. Banks, reacting to higher rates and an uncertain economic outlook, tightened lending standards.

Signature’s failure in March made new debt even tougher to come by.

The dearth of deals above $100 million signals a hit to all larger trades: Just nine transactions exceeded that threshold, the lowest number in 10 years, according to Ariel’s report.

Declining sales volume swept Brooklyn, Queens and Manhattan below 96th Street. Dollar volume in the Manhattan submarket slipped by the most annually, falling 64 percent.

But the struggle to find find financing may shake out as short-term setbacks.

Rates have likely peaked, Shkury said, and institutional investors such as Blackstone, KKR and Brookfield are busy raising funds — debt that could fill the void left by Signature.

Meanwhile, Signature’s $33 billion loan book, which was sold in December, will likely be sold again in smaller bundles. A Blackstone venture started shopping around $1.8 billion in loans largely backed by apartment buildings just one month after it secured the winning bid.

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The discount at which the debt trades for will offer a data point to gauge building values — price discovery that could encourage more trades. 

Mortgage maturities could do the same, Shkury said. Over $9 billion in New York City multifamily loans are set to mature in the next 15 months, 30 percent of which are “at-risk,” according to Trepp data reported by BisNow.

“Let’s say there’s a big portfolio of buildings with a maturity in 2025,” Shkury said. “That might push that group to sell if they still have equity in the deal.”

Of the few larger deals done last year, the majority were affordable housing portfolios.

This was to be expected: Regulated buildings attract buyers for their reliable rent rolls, and affordable housing investors are also less affected by rate hikes than are their free-market counterparts.

Affordable housing investor Nuveen did the most dollar volume last year, with its $892 million partial-interest purchase of a 12,000-unit affordable housing portfolio from Mo Vaughn’s Omni Holding Company. 

No rent-stabilized sales topped $100 million. All told, sales of majority rent-stabilized buildings made up 18 percent of the total dollar volume last year. The low-ball figure doesn’t represent an annualized decline but rather the protraction of a trend that kicked off in 2019.

“When you look at the total pie of multifamily, what you see is rent-stabilized is consistently below 20 percent,” Shkury said of rent-stabilized deals. “It used to be at least 25 to 30 percent.”

The rent-stabilized deals that were done traded at hefty discounts, signaling the asset class still has appeal if the basis is low enough, Shkury said.

Northern Manhattan, where rent-stabilized values have dropped 51 percent since 2018, actually posted an uptick in deal volume — the only sub-market to achieve an increase. Two rent-stabilized deals helped drive the increase. 

One was Cignature Realty’s purchase of a rent-stabilized portfolio in Washington Heights and Inwood for $47 million, a 44 percent discount to what seller Barberry Rose Management paid in 2016.

Barberry Rose sold the portfolio to salvage what equity was left in the 16 properties before their debt came due.