Manhattan Multifamily Sales Volume Continues to Increase as Possible Inflation Hedge

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Sales of multifamily buildings in New York City might be reaching their vertical limit — if there is one — Commercial Observer has learned.

The dollar volume of multifamily transactions was up 37 percent annually in the third quarter, according to investment sales firm Ariel Property Advisors. The average dollar volume was also 71 percent above the five-year quarterly average of $2.085 billion.

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In the third quarter, Ariel recorded up to $3.57 billion in sales with 89 percent of those transactions both in Manhattan below 96th Street and of market-rate properties, Shimon Shkury, president and founder of Ariel Property Advisors, said.

“That tells you that the investors are looking at free market somewhat as an inflation hedge, believing that rents will increase over time because of inflation,” Shkury told Commercial Observer. “I think one of the things we anticipate is that interest rates will affect the subsegment of rent-stabilized. We anticipate increasing volatility and activity there in the next 12 to 18 months.”

With rent prices in this sector capped, many landlords will need to bring equity to the table to refinance and shore up costs as the dollar is worth less and less, according to Shkury. But they won’t get the same kind of leverage as they did in previous months or years.

The option for rent-stabilized landlords then will be to either sell or recapitalize their portfolio.

“In fact, equity capital providers are already discussing this among themselves because there has to be a solution for these refinances that are coming due for rent-stabilized buildings,” Shkury said. 

With 128 transactions across 212 buildings, the third quarter would appear to have less momentum than the previous quarters. But Shkury believes that this decline is nothing to worry about. Interest rates in the coming quarters could affect these types of deals, but when the averages across six months are examined, it’s really a continuation of high volume.

In Brooklyn there were $1.046 billion in multifamily sales, with the top sale KKR’s purchase of 80 Dekalb Avenue in Fort Greene for $190 million.

A&E Real Estate’s acquisition of 160 Riverside Boulevard on the Upper West Side for $415 million and Ponte Gadea Group’s $487.5 million deal for 114 Fulton Street in the Financial District defined the more than $2.1 billion in sales for Manhattan.

The report covers only Manhattan, Brooklyn, Queens and the Bronx, with the latter two boroughs not breaking above $140 million in average dollar volume.

Mark Hallum can be reached at mhallum@commercialobserver.com.