Midterm elections (and real estate summits) are good excuses to do a gut check and see where the market stands. And, as of now, the gut check has been positive.
A good level of optimism has been felt in the New York City multifamily market so far this year. Even with Manhattan lagging in sales, the city is on pace to set records in 2014 in many of the historical categories. Those include dollar volume of sales, number of properties sold, number of units sold, average price per unit, average capitalization rate, average gross rent multiplier and average price per square foot.
With the annual Massey Knakal Multifamily Summit taking place later this week, it is a good time to check in on this sector to see how it is performing thus far this year. The multifamily market has historically been the one in which investors and lenders focus the most and in which there are more market participants than any other in the city. In addition, there are more multifamily apartment buildings in the city than any other type of property.
Through the first three quarters of 2014, there has been $7.96 billion in sales volume in the multifamily sector (this includes walk-up and elevatored properties, which are considered two different asset classes in the New York City market). If annualized, we are on pace for about $10.6 billion for the year. This total would be 40 percent above 2013’s $7.6 billion and about 8 percent above the previous record of $9.83 billion set in 2012.
Dollar volumes are down in the Queens and northern Manhattan submarkets by 6 percent and 18 percent, respectively. In Manhattan, dollar volume is running at $4.3 billion, up 50 percent from last year. The two biggest surprises are the Bronx and Brooklyn in which volumes are up 79 percent in the former and 105 percent in the latter. In the Bronx, the market is looking at more than $1.5 billion in sales, shattering the $874 million previous high in 2012. Brooklyn should see about $2.4 billion this year, also way ahead of its prior record of $1.5 billion in 2012.
With regard to sales, there were 1,369 multifamily assets traded between January and September. This puts the market on pace for 1,825 sales this year, breaking last year’s record of 1,446 sales by 26 percent. All submarkets are showing healthy increases in properties sold with the biggest surprise again in the Bronx with 352 sales, a 59 percent increase over last year.
In each of the city’s submarkets, the pace of sales this year will, if continued, set cyclical records, except in one submarket, that is. In what is perhaps a bigger surprise, sales are lagging in the Manhattan submarket. There, the market is on pace for 175 sales, which is 11 percent below last year’s total and 34 percent below the 267 sold in 2012. It appears that the threat of capital gains tax increases impacted potential sellers in Manhattan more so than it did in the other submarkets.
Not surprisingly, the number of apartment units sold within multifamily assets is also on pace for a cyclical peak, and the average price per unit sold is headed toward an all-time record with the citywide average at $245,000 per unit, 15 percent above the $214,000 average last year.
Two other value metrics are also performing at cyclical peak levels. The average cap rate in the city has been 5.47 percent this year with the high at 7.16 in the Bronx and the low at 3.81 percent in Manhattan. Gross rent multipliers have also hit a cyclical peak at an average of 12.47 percent citywide.
These positive results in the multifamily market are tangible. With optimism abounding, we expect these good trends to continue into 2015.
Bob Knakal is Chairman of Massey Knakal Realty Services and has brokered the sale of nearly 1,600 properties with a market value of approximately $11.5 billion.