When interest rates topped out last year, the rise drove a wedge between what sellers were asking and buyers would pay.
The gap dragged New York City investment sales activity to around a decade low, according to Ariel Property Advisors.
Now, higher rates are fueling its comeback — at least for multifamily.
The dollar volume of multifamily transactions in the second quarter jumped 108 percent over the first quarter to $2.83 billion, according to a report by Ariel Property Advisors. That’s the most paper to trade hands since the second quarter of 2023, just before the Federal Reserve would greenlight the last rate hike this cycle.
The boom was largely driven by maturing loans that positioned sponsors to be saddled with higher interest rates. Some owners were facing two options: sell or default.
“More sellers were forced to capitulate,” Ariel head Shimon Shkury said.
Pricing for free-market properties in Manhattan declined drastically in the past year from an average of $971,849 per unit in the second quarter of 2023 to $532,207 per unit during the same period of 2024, according to Ariel’s report.
“Free-market is doing really well from a fundamentals perspective,” Shkury said. “The only issue could be interest rates.”
Michael Stern’s 9 Dekalb Avenue is one example of a maturity-driven trade, according to the report.
Stern’s lender, Silverstein Capital Partners, foreclosed on the building after the developer defaulted on a $240 million mezzanine loan. Larry Silverstein’s lending firm had also picked up the property’s $424 million senior mortgage, giving it full control of the capital stack.
Stern ultimately transferred 100 percent of his ownership interest to Silverstein Capital to avoid the auction block.
Similarly, Carlyle Group and Gotham Organization bought 200 West 67th Street or The Aire for $265 million after Albert Kalimian defaulted on the building’s $194 million mortgage at maturity in November, according to Morningstar Credit.
When it comes to maturity pains, though, the “rent-stabilized multifamily [is] suffering the most,” Ariel’s report details.
Unlike free-market assets, rent-stabilized property values have been decimated since the restrictions of the 2019 rent law ate away at net operating incomes. Several landlords in the past year have told The Real Deal they now cannot find new financing due to the surge in interest rates and the retreat of the market’s top lenders.
Other owners up against the wall have slashed prices, inviting private firms seeking opportunities to buy and hold to swoop in.
Seven rent-stabilized deals highlighted in the Ariel report sold at an average discount of 37 percent. Though, some have ceded as much as 60 percent.
For example, 826 Crown Street sold for $4.8 million during the quarter, which is 58 percent below its 2018 price, according to Ariel. Shkury said the deal was most likely driven by a maturity.
Other operators, exhausted by the rent laws restrictions, are working to unwind themselves from the asset class altogether at any price they can get.
Just last week, a third-generation owner ready for retirement unloaded a fully rent-stabilized building for $79,000 per unit, according to Marco Lala, the broker on the deal.
The flurry of dollar volume this quarter shows that no matter the asset class, there is a buyer at the ready.
Free-market properties are drawing institutional capital, international buyers and private firms; and rent-stabilized buildings have founder suitors in family firms and private investors willing to sit and wait for a legislative change that will turn the money-losing investments into a worthy bet.
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