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Monthly Archive for October, 2011

Real GDP Increases 2.5 Percent

The Commerce Department released an “advance” estimate showing that real Gross Domestic Product –the output of goods and services produced by labor and property located in the United States—increased at an annual rate of 2.5 percent in the third quarter from the second quarter. In the second quarter, real GDP increased 1.3 percent.

Standard & Poor’s S&P/Case-Shiller Home Price Indices show that half of the country’s largest cities posted an increase in home prices in August compared to July, which gives hope that some real estate markets have bottomed out. The New York metro area posted an increase of 0.4 percent. In a separate report, the Conference Board said its index of consumer sentiment fell six points from September to 39.8, which is seven points lower than economists estimated. Two and a half years ago, consumer sentiment was recorded at 26.9, but 90 is the level needed to reflect a solid economy.

The New York Building Congress is forecasting a drop in construction funding in New York City in 2013 when the majority of work on the World Trade Center, rehab of Madison Square Garden, and construction of the Barclays Arena in Brooklyn is completed. Forecasts call for construction spending in the city to fall to $23 billion in 2013, which is15.7 percent below the estimated levels in 2012, and 26 percent below the 2007 peak. In 2013, construction industry payroll is expected to fall to 91,800, which is the lowest since 1996.

The New York City Council has approved rezoning 5-acres in the Crotona Park East and West Farms sections of the Bronx to make way for West Farms, a $350 million development consisting of 10 mixed-used buildings, 46,000 square feet of retail space, and 1,325 housing units, including 663 subsidized units. Signature Urban Properties is heading up the development with the majority of funding from GTIS Properties. Additional funding is being sought from the City’s Housing Preservation & Development Department and other city agencies.

Manhattan Accounts for 80% of Multifamily Dollar Volume in Q311

Multifamily Quarter In Review: NYC Q3’11

New York City multifamily transactions jumped significantly in the third quarter 2011, with Manhattan below 96th Street accounting for 80 percent of the multifamily dollar volume citywide, according to Ariel Property Advisors’ Multifamily Quarter in Review: New York City.

Citywide in the third quarter 2011, there were 115 multifamily transactions consisting of 147 buildings that traded for a total dollar volume of $1.6 billion, up from 88 transactions and 137 buildings traded for a total dollar volume of $1 billion in Q211, and up from 69 transactions and 82 multifamily properties that traded for a total dollar value of $457.8 million in Q311.

In Q311, Manhattan below 96th Street saw 44 transactions consisting of 68 multifamily buildings with a dollar value of more than $1.3 billion, compared to the Q211, which had 27 transactions consisting of 38 multifamily buildings with a dollar value of $651.7 million. Third quarter 2011 volume increased dramatically compared to the same period the previous year, which had 17 transactions consisting of 19 buildings and approximately $222.97 million in gross consideration.

“Institutional and international investors are seeking multifamily real estate in Manhattan below 96th Street because they see it as a safe haven,” according to Michael A. Tortorici, vice president of Ariel Property Advisors. “Several $100 million plus deals and a number of small multifamily portfolios are propelling the borough to heights not seen since 2008.”

Brooklyn: During Q311, there were 36 multifamily transactions in Brooklyn consisting of 39 buildings with a total dollar value of more than $116.9 million, compared to Q211, which had 21 transactions consisting of 42 buildings with a total dollar value of more than $135 million. Year-over-year transactions increased in the third quarter 2011 compared to with same period the previous year. There were 14 transactions consisting of 14 buildings traded with a total dollar volume of more than $44 million in Q310.

The Bronx: In Q311, there were 19 multifamily transactions with 19 buildings in The Bronx that traded for a gross consideration of $67 million, compared to Q211, which had 20 transactions consisting of 34 buildings with a total dollar volume of $100.8 million. The third quarter 2010 saw 20 transactions consisting of 27 buildings and approximately $107.8 million in gross consideration.

Northern Manhattan: In Q311, Northern Manhattan had nine multifamily transactions consisting of 14 buildings for a gross consideration of $67 million, compared to the Q211, which had 13 transactions consisting of 15 buildings for a gross consideration of $56.8 million. Q310 had eight transactions, 12 buildings traded, and total dollar volume of approximately $41 million.

Queens: The third quarter 2011 saw seven multifamily transactions in Queens consisting of seven buildings with a dollar volume of approximately $40 million, compared to Q211 which had seven transactions consisting of eight buildings valued at $74 million. The third quarter 2010 had 10 transactions consisting of 10 buildings valued at $41 million.

The multifamily transactions included in the quarterly analysis occurred at a minimum sale price of $1 million, with a minimum gross area of 5,000 square feet, and with a minimum of 10 units. Public records were used to compile the report figures, which were reported by ACRIS and other sources deemed reliable.

More information is available from Mr. Tortorici at 212.544.9500 ext.13 or mtortorici@arielpa.com. For a copy of the report, please visit www.arielpa.com/research/reports/.

Our Observations For the Week

The unemployment rate in September 2011 for New York City and State was 8.7 percent and 8.0 percent, respectively, unchanged from August 2011, according to the State Labor Department. Also in September 2011, the number of unemployed New Yorkers increased to 759,000 from 755,900 in August, and New York State’s private sector job count increased by 14,700. The U.S. unemployment rate remained unchanged in September at 9.1 percent.

With the Manhattan apartment vacancy rate around 1 percent and rents surpassing records set in 2007, tenants are getting sticker shock when their leases come up for renewal. The average rental price for a Manhattan apartment in September was $3,331. Last year at the same time it was $3,131, and in 2009 it was $3,013.

Prudential Douglas Elliman reported a year-over-year jump in Brooklyn’s home sales activity and gains in the borough’s median sales figures in the third quarter. Overall, there were 2,219 sales in Brooklyn during the third quarter, 18.1 percent greater than the number of sales in third quarter of 2010. Median sales prices in the third quarter rose 5 percent from the prior-year quarter to $510,000. Condo sales increased 52.8 percent from the third quarter 2010 to 839.

The Municipal Art Society has released a 72-page report-Fashioning the Future: NYC’s Garment District-highlighting the contributions the fashion industry makes to the economic and cultural vitality of New York City and outlining recommendations to ensure its survival. In 2010 the fashion industry accounted for 4.6 percent of the country’s total fashion employment, compared to finance, where NYC accounts for 5.6 percent of the nation’s financial services jobs; or media and entertainment, where 5.1 percent of the American jobs in that sector are located in NYC.

September Retail Sales Jump 1.1 Percent

U.S. retail and food services sales for September rose 1.1 percent from the previous month to an adjusted level of $395.5 billion, according to the Commerce Department. Retail sales in September 2011 increased 7.9 percent compared to September 2010, and total sales for the July through September 2011 period were up 8.0 percent from the same period a year ago. The July to August 2011 percent change was revised from virtually unchanged to an increase of 0.3 percent.

Changes in the economy are prompting investors to seek a safer haven in the multifamily market. Because the number of homeowners in the U.S. has declined to about 65 percent from 69 percent in 2004, vacancy rates for apartments are tight and the demand for rental property has increased. Other positive factors include a 36 percent increase of multifamily lending in 2010 compared to 2009, and the Fed’s plans to keep interest rates low for the next two years.

In an effort to speed up city construction projects, Mayor Bloomberg announced that digital construction plans for any new building or major alteration can now be electronically submitted to the newly created NYC Development Hub, where they will be filed and uploaded to a secure website and plan examiners, applicants, and representatives from city agencies can view them together, identify problem areas, and mark them up – digitally – in real time. Objections can be discussed by telephone, email and/or video conference, and applicants can submit the revised plans electronically instead of visiting the Department of Buildings.

According to Chris Ward, who will be stepping down as head of the Port Authority of New York & New Jersey at the end of October, the waterfront in Red Hook, Brooklyn, must be connected to Governor’s Island if the island is going to reach its full potential. To achieve that goal, he suggested moving Red Hook’s container terminal to the nearby marine terminal and possibly building a hotel or school and other projects that would complement the development of Governor’s Island.

Harlem is hot. In the third quarter, the number of apartments sold in Harlem reached September 2008 levels; a renovated “loft-like house” on West 122nd Street was the most expensive townhouse sale since 2007; and prices for three townhouses that recently sold for between $2.3 million and $2.85 million reached 2009 levels.

Jump in Multifamily 6 Month Average Dollar Volume

Multifamily Month In Review

After two consecutive months of increases, New York City multifamily sales activity took a slight dip in August, much of which can probably be explained by seasonal factors.

For the month, there were 25 transactions comprised of 36 buildings and approximately $441.45 million in gross consideration. Compared to the previous month, August activity represents a 27% decline in transaction volume and a 31% decline in dollar volume. Compared to August 2010, the month’s activity represents a miniscule 3% increase in total buildings sold but an enormous 271% gain in dollar volume. This discrepancy is primarily a result of a large number of eight and nine figure Manhattan multifamily sales.

In fact, August Manhattan multifamily sales (below 96th Street) accounted for 61% of transaction volume and 89% of dollar volume for all of New York City. Looking at the other sales districts, Northern Manhattan, The Bronx and Brooklyn all saw sales activity fall and Queens saw another month of light sales activity.

Again, this lighter activity is probably a reflection of August vacations that typically eat into sales and bidding activity. That said, it will be interesting to see what kind of rebound we see in September.

Trailing 6-Month Sales Averages: For the six months ended in August (page 12), average transaction volume remained relatively steady at 32 transactions per month, only one building higher than the July average. The 6-month average for dollar volume, however, posted another major gain, increasing $56 million more than July figures. The trend is consistent with what many have been observing: overall transaction volume remains level but the market is largely being driven by sales north of $100 million.

Manhattan (below 96th Street): August was a very productive for Manhattan multifamily sales, especially when compared to other sales districts. Leading the pack was Harry Macklowe’s acquisition of 737 Park Avenue for approximately $253 million, which represented $1,175 per square foot. Five other transactions north of $10 million took place as well, significantly driving up dollar volume for the month. These included the sale of 7 Cornelia Street and 100 Christopher Street for $32.6 million, which represented $675 per square foot and $362,000 per unit. On the lower end of the spectrum, notable sales include 67 Mott Street, a mixed-use walk-up building that sold for $422 per square foot and 335 East 81st Street, a 22 unit walk-up building that sold for $369 per square foot.

Northern Manhattan: Sales activity in Northern Manhattan remained relatively light in August as only 2 transactions totaling $10.075 million in gross consideration sold. One of these was 506-10 West 150th Street, a 61 unit residential building that sold for $6.35 million, or $147 per square foot and $104,000 per unit. The other was 512 West 151st Street, a 6 story elevatored building with rent restrictions that our team sold for $3.725 million.

The Bronx: Following an active July that showed 9 transactions totaling $26 million in gross consideration, August was more tepid with only 3 transactions totaling $6.89 million in gross consideration. 2020 Honeywell Avenue in East Tremont sold for $1.512 million, which represents an impressive $124 per square foot and $94,531 per unit. Also a 54 unit walk-up building at 2081 Morris Avenue sold for $3.4 million, which represents $82 per square foot and $62,963 per unit.

Brooklyn: Brooklyn multifamily transactions declined by roughly 60% between July and August, registering 5 transactions valued at $12.81 million for the month. Again, much of this can probably be explained by seasonal factors so September will be an interesting month to watch. Notable transactions for the month include 1114 Nostrand Avenue, a 33 unit mixed-use building that traded for $2.85 million, or $129 per square foot. Another is 437 Tompkins Avenue, a 40’ wide mixed-use walk-up building in Bed-Stuy, which sold for $1.35 million, translating to $154 per square foot.

Queens: Queens continues to lag behind other sub markets in terms of multifamily sales. August saw only 2 trades totaling $16.7 million. The bellweather for the month was the sale of 96-10 37th Avenue, an elelevatored mixed-use building containing 88 units located in Corona. The property sold for $14 million, which represents $176 per square foot and $159,000 per unit.

Please refer to our Comp-Trak application for a full list of transactions across the five boroughs.

Economic indicators
as captured by Ariel Property Advisors’ Landlord Dashboard show the following trends:

Unemployment: According to the NYS Labor Department, the New York State unemployment rate (seasonally adjusted) for August came in at 8%. This is the third consecutive month that the State unemployment rate has remained constant at the 8% level. The New York City unemployment rate (not seasonally adjusted) declined by 10 basis points from 8.8% in July to 8.7% in August.

Financing: The S&P’s downgrade of the US’s long-term sovereign credit rating from AAA to AA+ on August 5th has sparked a new surge of volatility in the financial markets. This turbulence, along with a revived fear of a double-dip recession and the continuing instability of the Euro has forced investors to make a flight for safety, ironically back into the treasury market. This increased demand has caused a sharp decline in rates across the board from August to September. For the month, the 30-year bond was down 56 basis points from 4.07% to 3.51%. The 10-year note showed the largest absolute move, falling 62 basis points to 2.15% from August’s 2.77% note, while the 5-year note declined 42 basis points to 1.32%. The 1-year T-bill fell 12 basis points to .22%. While this is the smallest absolute move, it represents over a 55% decline month over month.

Rental Market / Vacancy: Citi-Habitats’ monthly rental analysis reports the vacancy rate for Manhattan at 1% of the rental stock, 14 basis points higher than July’s rate. After having declined every month since November/December of last year, the vacancy rate has now increased significantly in consecutive months. August rents increased nearly 3% for Manhattan studios, and approximately 1% for 1 bedroom units. However, 3 bedroom and 2 bedroom units saw prices fall by 1% and 2% respectively.

Expenses: After declining for four consecutive months, home heating oil prices went up in September. The price per gallon of No. 2 oil increased slightly from 402.1 in July to 403.3 cents per gallon in August. Residential electricity rates for September decreased .31 cents/KWH to 16.78 cents/KWH.

Our Observations For the Week

The U.S. Economy added 103,000 jobs in September, due in part to about 45,000 telecommunications employees returning to work. New jobs were created in professional and business services, health care, and construction, while government continued to downsize. The unemployment rate remained at 9.1 percent for September.

New York City residential real estate firms are reporting a 15 percent increase in sales in the third quarter compared with the same time last year. Prices remained stable, however, with reports of median prices between $850,000 and $911,333.

Investment in commercial property in New York City jumped 165 percent in the third quarter, according to Cushman & Wakefield. Investors are continuing their “flight-to-quality” and are looking for safe opportunities in mature, regulated markets. For the first time since 2007, New York is attracting more investment in commercial property than any other city in the world.

Crain’s reported that city and state officials will announce a deal to allow the United Nations to buy part of the Robert Moses Playground on First Avenue between East 41st and East 42nd Streets for $73 million and build a new tower on the site. The city will use the money from the sale to help finance a 22-block gap in an esplanade on the East River between East 38th and East 60th Streets. The U.N. is required to vote on the terms of the deal.

Mortgage Rates Hit Record Lows

The Fed’s plan to reduce borrowing costs has resulted in the lowest U.S. mortgage rates in Freddie Mac’s records. The conventional 30-year fixed averaged an all-time record low at 4.01 percent, while the 15-year fixed averaged an all-time record low at 3.28 percent for the week. Last year at this time, the 30-year FRM averaged 4.32 percent, and the 15-year FRM averaged 3.75 percent.

The Commerce Department announced that real gross domestic product – the output of goods and services produced by labor and property located in the United States – increased at an annual rate of 1.3 percent in the second quarter from the first quarter. This revised second quarter growth estimate is up from the previous estimate of 1.0 percent. In the first quarter, real GDP increased 0.4 percent.

The Richman Group Development Corporation has unveiled two affordable housing projects it developed in Harlem. The Balton, a new 12-story, 156 unit affordable rental building at 311 W. 127th St., is named after the late Charles “Ibo” Balton, who worked as director of the Manhattan planning office at the city’s Department of Housing Preservation and Development. Douglas Park, an eight-story building with 70 one-, two-, and three-bedroom apartments, is located at 300 W. 128th St.

Crain’s reported that two residential developers in downtown Brooklyn have committed $2.5 million each toward the cost of constructing a one-acre public park at Willoughby Square that will sit atop a 694-space underground parking garage. Parking is required for the developers’ projects to meet zoning requirements. In addition, the City Council has restored $1 million in cuts made by the city’s Economic Development Corp., and Borough President Marty Markowitz and other downtown developers will contribute $2 million toward the project.