Shkury: “Now that uncertainty around the election has subsided, we expect to see a sharp pickup in activity.”
NEW YORK CITY—The multifamily market here continued to cool down in the first quarter as caution surrounding last year’s presidential election suppressed the number of properties that entered contract late last year, according to Ariel Property Advisors’ Q1 multifamily report.
Dollar volume dropped to its lowest level in four years as large institutional-level transactions nearly vanished. Transaction volume remained on pace however with the previous quarter’s level of activity.
Pricing in the first quarter was mixed, with properties in The Bronx firming the most, while those in Manhattan and Brooklyn softened. Ultimately, The Bronx reigned supreme, with Q1 17’s price per square foot leaping 10% year-over-year.
Dollar volume across the city dropped 60% year-over-year to $1.6 billion, its lowest since the first quarter of 2013. No first quarter transaction exceeded $100 million, paling in comparison to the 11 registered in the fourth quarter of 2016. Further, just 16 sales were above $20 million in the period versus 29 in the previous quarter.
The city saw 117 transactions comprised of 176 buildings in the first quarter, representing annual declines of 35% and 39%, respectively. Transaction volume nearly mirrored the fourth quarter of 2016, which saw 118 deals.
“Hesitation around the election last year had many investors hitting the pause button, which ultimately impacted first quarter volume,” says Shimon Shkury, president and founder of Ariel. “Now that the uncertainty has subsided and 10-year yields have come down, we expect to see a sharp pickup in activity.”
Manhattan’s first quarter was particularly weak, with just 27 transactions comprised of 32 buildings, totaling $512.63 million. Based on six-month trailing averages, Manhattan cap rates rose for a third straight quarter, hitting an average of 3.87%, 22 basis points higher than one year earlier.
The borough’s largest trade occurred in Kips Bay, as A.D. Real Estate Investors snapped up a 67-unit elevator building, at 312 E. 30th St., for $52 million from the Blackstone Group and Fairstead Capital. The transaction was done for $1,087 per square foot and $776,119 per unit.
Northern Manhattan—one of the most active areas in 2016—saw the most significant decline of any sub-market, with all volume metrics down considerably from the fourth quarter and year-over-year. In this year’s first quarter, the area saw just $194.82 million in dollar volume from 13 trades, down 66% and 52%, respectively, from the same quarter one year earlier. A five-building portfolio in Central Harlem located at 265-273 W. 146th St. was the sub-market’s only transaction to surpass $20 million for the quarter. The 100-unit mixed-use walk-up buildings sold for $23 million, or $484 per square foot, with a reported capitalization rate of 4.54% and gross rent multiple of 13.06.
During the same time period, Brooklyn saw 32 sales comprised of 53 buildings totaling $397.58 million. These numbers represent a year-over-year decrease of 35% in transaction volume and a 52% decline in dollar volume.
One of the area’s most notable trades in Q1 was a 103-unit elevator building at 485 Kent Ave. in South Williamsburg. The 11-story loft building was purchased for $55.68 million, representing $370 per square foot and $540,534 per unit.
The Bronx fared modestly well in the first quarter, with 33 transactions totaling $275.07 million. These figures represent a 27% increase in transactions and 47% jump in dollar volume quarter-over-quarter despite year-over-year declines of 33% and 52%, respectively.
In Mount Hope, a 222-unit elevator building located at 1511 Sheridan Avenue transacted for $38 million, or $188 per square foot, with a reported capitalization rate and gross rent multiple of 3.77% and 12.73.
Queens was a mixed-bag, posting an increase in transaction volume quarter-over-quarter but a lack of portfolio trades drove dollar volume lower. For Q1 2017, Queens saw just 12 transactions consisting of 17 buildings trading for $220.02 million. These numbers are in stark contrast to first quarter of 2016’s 23 trades involving 30 buildings that amounted to $411.65 million in dollar volume.
In Flushing, Pinnacle Group purchased two elevator buildings located at 132-40 & 133-21 Sanford Ave. for $57.6 million, or $366 per square foot, from Treetop Development.