Why NYC’s multifamily market just keeps getting hotter


Multifamily investors are facing stiff competition for a slice of the city’s nearly 2 million market rate units.

“Multifamily offers a safe haven, particularly compared to other asset types such as office, retail and hotel,” said Douglas Harmon, chairman of capital markets at Cushman & Wakefield. “[But] investors are struggling to find deals, there is a dearth of product.”

Even so, a number of apartment buildings have recently traded — although most were already in contract prior to the spike in interest rates.

At the end of September, Black Spruce Management paid Solow $387 million for the luxury rental building at 685 First Ave. which was marketed by a JLL team. The 408 units went for $949,754 each and $1,053 per square foot.

Black Spruce and Orbach Affordable Housing Solutions are also buying another six luxury residential rentals from Solow later this year, also marketed by JLL. And in the spring, the same buyers paid $837 million for the American Copper Buildings, also on First Avenue. It was marketed by C&W.

Stock photo of a man looking up at a skyscraper.
Sky-high rents and limited supply have turned unregulated residential buildings into NYC’s
hottest buy.
Getty Images

Ofer Yardeni’s Stonehenge Partners paid $80 million to Heller Realty for 780 Greenwich St. in the West Village in August.

The 88-unit building sold for $1,148 per foot or $913,636 per unit.

Meanwhile, the 140-unit building at 15 Bridge Park Drive in Brooklyn was sold by RAL and Vanke for $90 million last month to Goldman Sachs and Dermot for a price equating to $642,856 per unit and $65 per foot also through C&W.

“The fair market rentals are the strongest category,” said Darcy Stacom, chairman of capital markets for CBRE who sold both 140 and 160 Riverside Blvd. on behalf of Equity Residential this summer. They were purchased by A&E Real Estate for $265.65 million and $415 million respectively.

Exterior of 15 Bridge Park.
Goldman Sachs snagged 15 Bridge Park Drive in Brooklyn for $90 million.
RAL & Vanke

Still, some buildings remain up for grabs. Eric Michael Anton, director, Global Capital Group for Marcus & Millichap, is marketing the fairly new project, at 515 Ninth Ave., The Life, with 108 rentals.

“These are big units with condo finishes,” he said, adding that pricing is expected to be above $90 million.

“People are buying multifamily … because everyone thinks there will be continued rent growth,” said Ran Eliasaf, managing partner of the private equity group Northwind Group. “But if they grow, who can afford to rent?”

Tenants in luxury buildings may get hit with a 30 percent rent bump from their leases signed a year or two ago — especially where they received rent concessions early in the pandemic, he said.

“People are buying multifamily … because everyone thinks there will be continued rent growth. But if they grow, who can afford to rent?”

Ran Eliasaf, managing partner of the private equity group Northwind Group

“Everybody who is getting a rent renewal is going out of their minds,” agreed Jay Neveloff, partner and head of real estate at the law firm Kramer Levin.

Even seasoned brokers are surprised by the new lease payments.

“I am blown away by the rents these landlords are achieving,” said James Nelson, head of investment sales at Avison Young . “We think we are aggressive in our [calculations] and then the [owners] say they have already rented them for more and are not giving concessions.”

The contrast in rents and investor interest in free-market buildings versus stabilized properties is entirely due to rent laws that cause the free market payors, retail stores, building owners and all taxpayers to subsidize regulated apartments.

Exterior of 780 Greenwich St.
In August, the 88-unit apartment building at 780 Greenwich St. sold for $80 million.
Stefano Giovannini

For apartments with stabilized leases, the 2019 rent laws permit a rent boost of just $83 per month after renovating a vacant apartment — with a $15,000 spend cap per decade. But the real cost can range from $75,000 to $200,000, and with borrowed money, that tiny boost doesn’t even cover the debt payments so the units are being left vacant and “frozen in time,” Nelson says.

Condominiums are now the only new development projects that make economic sense, they argue.

“The dearth of supply is one that we cannot tackle without some tax incentives,” Harmon said. “New multifamily will not work without it for the most part.”

The same factors are also plaguing market rate land deals.

“Even if you gave it away it is not feasible to build a rental building without an abatement,” said Bob Knakal, chairman of capital markets at JLL. “The supply of units is not going up and it is exacerbating the upward pressure on rents.”

Exterior of the American Copper Buildings.
The American Copper Buildings sold for $837 million this year.
Stefano Giovannini

That means the number of new units coming on the market is set to plummet, forcing rents up further — and that has investors drooling.

In Long Island City, Knakal is marketing the 186-unit newly built Dutch House at 37-05 30th St. for Slate Property Group. “It has a 35-year tax abatement so we are getting really good traction on that,” Knakal said.

A 71-unit pre-war building at 2568 Broadway on the corner of W. 96th St. that is 56% free market units is getting a “remarkable” level of demand.

But Knakal says the bidders are no longer New Yorkers. Now, buyers tend to be from out of state.

“The legislation has worn out the New York family buyer,” Knakal said. “They are giving up on trying to run the buildings.”



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