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Manhattan Development Sales Decline, Prices Rise

Raber: "While the market saw a decline in activity, overall pricing remained relatively constant." Raber: “While the market saw a decline in activity, overall pricing remained relatively constant.”

NEW YORK CITY—Manhattan’s investment property sales slipped in 2016, with activity slowing down from a record-breaking 2015, while prices across asset types either held steady or improved, according to Ariel Property Advisors’ newly released Manhattan 2016 year-end sales report.

A number of events posed unique challenges to the marketplace last year, the report notes, including geopolitical developments like the Brexit vote, the Federal Reserve’s first rate hike in a nearly a decade, and the election of a new US president. Meanwhile, dollar volume and transactions decreased in 2016 compared with the previous year. The declines reflected a pull-back from 2015’s record year, which was driven by several sizeable outliers.

For 2016, Manhattan registered 589 transactions consisting of 706 properties, totaling about $29.3 billion in gross consideration. The figures represent double-digit declines across the board on a year-over-year basis, with transaction, property and dollar volume down 23%, 31% and 39%, respectively. Midtown East and Midtown West dominated activity, accounting for 63% of the submarket’s dollar volume, or roughly $18 billion.

“While the market saw a decline in activity, overall pricing remained relatively constant, showing investor confidence in the Manhattan market,” says Howard Raber, director at Ariel Property Advisors.

Manhattan developers were cautiously optimistic throughout 2016, despite the expiration of the 421-a tax break, a weaker condominium market and constricted lending activity. The number of properties, transactions, and total dollars spent on development decreased versus the previous year yet the average price per buildable square foot for development sites rose 5% to $640.

Developers showed interest in the residential-heavy Upper East Side and commercial-heavy Midtown East, but large-scale projects also were in demand. A notable transaction last year was Tishman-Speyer’s acquisition of the assemblage at 434-444 11th Ave. and 550 W. 37th St. for just over $207 million.

“Foreign investors continued to drive the development market last year,” notes Andre Sigourney, a director who specializes in Manhattan.

For example, 2016’s largest development transaction at 80 South St. and 163 Front St.—an 820,000 buildable square foot site—was purchased by China Oceanwide Holdings, a Chinese firm, for $390 million.

Manhattan’s multifamily asset class was the most active product type in 2016, with 245 transactions involving 323 properties for an aggregate dollar volume of $6.9 billion. While transaction and property volume fell by 16% and 32%, respectively, when the $5.5 billion sale of Stuyvesant Town/Peter Cooper Village is removed from 2015’s totals, dollar volume remained stable, with only a 3% annual decrease.

Investors’ displayed confidence in pricing, as the average price per square foot in multifamily properties edged 3% higher to $958. Some of the most notable multifamily transactions in 2016 included State Property Group’s purchase of 320-423 East 54th Street for $390 million and the sale of the 894-unit Kips Bay Court complex to the Blackstone Group for $620 million.

Meanwhile, despite a drop in activity, institutional investors remained interested in Manhattan’s office market, with $13.03 billion spent on 40 transactions consisting of 42 properties. Nevertheless, on a year-over-year basis, dollar, transaction, and property volume fell 25%, 37%, and 43%, respectively. For example, CalPERS purchased 787 Seventh Ave., a 51-story office tower for $1.9 billion, and RXR Realty bought 1285 Ave. of the Americas, a 39-story office tower, for $1.649 billion.

Looking ahead, the outlook for 2017 is more uncertain than it has been in recent years, with higher interest rates on the horizon, a lofty supply of residential units and a stronger dollar, which could suppress demand from overseas investors.

Nevertheless, interest rates remain historically low and the US economy continues to strengthen, which bodes well for the Manhattan real estate market. Additionally, with a reinstatement of the 421-a tax abatement in the pipeline, and the Midtown East rezoning project underway, investors will likely continue to favor assets throughout the borough. Additionally, near-term growth may emerge in areas benefiting from major infrastructure projects or new demand coming from the 18-month shutdown of the L-train.

Ariel Property Advisors’ Manhattan 2016 year-end sales report is available here.

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