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Monthly Archive for December, 2011

Cornell Wins Bid for NYCTech Campus

The suspense is over. Cornell University and Technion-Israel Institute of Technology have been selected to build the two million square foot applied science and engineering campus on 11 acres of Roosevelt Island. Part of the New York City’s Applied Sciences NYC initiative, the institutions will receive $100 million for infrastructure, construction, and other costs. A temporary off-site campus will open in 2012, with the first phase of the permanent site scheduled for completion by 2017.

Sales of existing homes—single-family, townhomes, condos, and co-ops—nationwide increased 4.0 percent to a seasonally adjusted annual rate of 4.42 million in November from 4.25 million in October, and are 12.2 percent above November 2010 figures, according to the National Association of Realtors. November sales were 34 percent above the low recorded in mid-2010.

The Labor Department reported that initial jobless claims decreased by 4,000 to a seasonally adjusted 364,000 for the week ended Dec. 17, which is the lowest level since April 2008. The Commerce Department, however, revised its third quarter gross domestic product growth estimate to an inflation-adjusted annual rate of 1.8, down from the previously reported 2.0 percent.

The owner of a rent stabilized building on the Upper West Side, who has challenged New York City’s rent laws in the lower courts twice and lost, has taken his petition to the U.S. Supreme Court. He is arguing that the rent regulations violate his constitutional rights. The building has been in the owner’s family since 1949.

State Adds 34,400 Private Sector Jobs

New York State added 34,400 private sector jobs in November 2011, but the state unemployment rate rose to 8.0 percent in November 2011, up from 7.9 percent the previous month. New York City’s unemployment rate increased to 8.9 percent in November 2011, up from 8.8 percent in October 2011. The State Labor Department attributed the increase in the unemployment rate in part to “an increase in the size of the statewide labor force, which grew by 9,900 as more people re-entered the job market to look for work.” The national unemployment rate was 8.6 percent in November 2011.

In its U.S. Economic and Housing Market Outlook for December, Freddie Mac projected that in 2012 housing activity will be better than in 2011, but not robust; there will be fewer single-family originations, but more multifamily lending; mortgage rates will likely remain low, at least through mid-2012; the U.S. unemployment rate will decline, but likely remain above 8 percent; and economic growth will strengthen to about 2.5 percent.

A new, pre-K through 8th grade public school will be built in the first four floors of a high-rise building on West End Avenue between 60th and 61st Streets in the planned Riverside Center, a five-tower, development that will feature 2,500 apartments, a movie theater, auto showroom, and office space. It will be the first public school for the neighborhood in decades. Construction on Riverside Center is scheduled to begin in 2012 and the complex is expected to open in 2015.

Community Board 2’s land use committee will hear a petition for new townhouses on State Street between Hoyt and Bond Streets in Brooklyn. Two years ago the developers of State Renaissance Court on Schermerhorn had expressed interest in building six townhouses on the adjoining empty lot. One block over, Hamlin Ventures and Time Equities are planning nine townhouses on the corner of Hoyt Street in the second phase of the State Street townhouse development.

Bronx Leads City in Multifamily Sales in October

Multifamily Month In Review

A handful of portfolio sales in The Bronx led the number of buildings sold to be relatively consistent, but for the month of October multifamily transaction and dollar volume declined in New York City. October 2011 showed 28 transactions comprised of 50 buildings totaling $256.16 million in gross consideration.

Compared to September 2011’s 41 transactions comprised of 47 buildings totaling $402 million in gross consideration, this represents a slight 32% decline in transaction volume, a 36% decline in dollar volume but a slight increase in the number of buildings sold. Compared to October 2010, this shows a notable 33% decline in transaction volume and a 66% decline in dollar volume from October 2010, which saw 42 buildings trade with an aggregate consideration of approximately $750 million.

Somewhat surprisingly, The Bronx was October’s most active borough. Three portfolios traded in addition to several individual building sales, leading to 7 transactions comprised of 25 buildings totaling $96.64 million in gross consideration. This accounted for 37% of the month’s dollar volume.

Manhattan was the second most active borough with 8 transactions made up of 9 buildings totaling $62 million in gross consideration. One notable aspect of this activity was the fact that all of the trades that took place were under $20 million in gross consideration and the lack of institutional level sales significantly contributed to the month’s overall drop in activity.

Brooklyn also saw a slight month over month decline in sales for October, which had 7 transactions comprised of 8 buildings totaling $39.346 million in gross consideration.

Northern Manhattan saw an uptick in multifamily sales as 4 transactions took place covering 6 buildings totaling $52.276 million. The area’s activity was led by the sale of a 2 building package in Central Harlem for $32.5 million. Meanwhile, multifamily activity in Queens remained light and steady with 2 building sales totaling $5.9 million in gross consideration.

The drop in activity across most submarkets could be a result of lighter contract signings that typically take place in the later summer months or it could be a sign that some investors are acting more hesitant when faced with today’s higher asking prices by sellers. As the end of the year typically yields greater contract and closing activity, it will be interesting to observe whether October’s lag holds.

Trailing 6-Month Sales Averages: Trailing 6-Month Sales Averages: For the six months ended in October (page 8), average transaction volume remained relatively steady with 32 transactions per month, only one building lower than the September average. The 6-month average for dollar volume declined, breaking five consecutive months of increases. While the decline in average dollar volume was only by $28 million, it is again likely due to the lack of institutional sales that took place in October.

Manhattan (below 96th Street): Building sales activity for Manhattan took a dip in October. For the month there were only 8 transactions consisting of 9 buildings totaling $62 million in gross consideration. While these totals are well off recent activity levels, it could be a sign of lighter contract signings in later summer months. Alternatively, it could be a sign that investors are acting more cautious when purchasing Manhattan multifamily buildings as asking prices have been trending higher in recent months. That said, some trades did take place at relatively aggressive levels. 16 West 86th Street, a 9,910 square foot walk-up building with 10 free market units sold for $7.2 million or $726 per square foot. A 26,000 square foot mixed-use building located in the heart of Greenwich Village traded for $19.2 million, or $727 per square foot and $457,000 per unit. Downtown, two buildings traded in the East Village. One was at 39 East First Street, a 14-unit walk-up building that sold for $2.85 million, or $413 per square foot and $203,000 per unit. Another was 99 East 7th Street, a 9,800 square foot walk-up building that sold for $3.525 million, or $358 per square foot and $235,000 per unit.

Northern Manhattan: October transaction volume remained steady but dollar volume more than doubled to $52.276 million as a result of one large portfolio transfer. Cammeby’s International Group sold two former Mitchell- Lama apartment buildings with 355 units located at 2450 Frederick Douglass Boulevard and 410 St. Nicholas Avenue. The property was purchased by a partnership of a private operator and institutional capital provider for $32.5 million, which represents approximately $91,550 per unit. Another notable trade was the sale of 2013 Amsterdam Avenue, a 26-unit elevatored building that sold for $3.25 million, or $125 per square foot and $125,000 per unit.

The Bronx: A number of portfolio sales led The Bronx to have its most active month of sales so far this year. For October, there were 7 transactions consisting of 25 buildings totaling $96.64 million in gross consideration. The Sheridan Avenue Portfolio, a package of 11 buildings in the Melrose neighborhood, sold for $46.77 million, which translates to $88,580 per unit and $89 per square foot. Another major portfolio sale was the Carpenter Avenue Portfolio which consisted of 5 buildings containing 257 units in the Williamsbridge neighborhood that sold for $21.150 million, or $82,296 per unit and $89 per square foot. These prices are notably higher than one would have expected in 2009 or 2010, which bodes very well for Bronx landlords.

Brooklyn: Brooklyn saw lighter trading activity in October as 7 transactions consisting of 8 buildings totaling $39.346 million in gross consideration took place. Interestingly, most of this trading activity was concentrated in Crown Heights and the central Brooklyn neighborhoods of Flatbush, Midwood and Borough Park. One notable sale was that of a whole city block located at 3101-15 Avenue I, which consisted of 2 elevatored residential buildings housing 153 apartments. The package sold for $22.1 million, which represents $131 per square foot and $144,444 per unit. Another notable sale was that of 939 Sterling Place, a corner walk-up building containing 16 residential units, that sold for $1.81 million, or $158 per square foot and $114,375 per unit.

Queens: Queens saw another slow month with respect to multifamily activity. October saw only 2 trades totaling $5.9 million. The two trades consisted of 25-60 33rd Street in central Astoria, which is a 16-unit walk-up building that sold for $2.9 million, which translates to an impressive $286 per square foot and $181,000 per unit. The second sale was 131 Ocean Promenade, a 48-unit elevatored building in Rockaway Park that sold for $3 million, representing $85 per square foot and $62,500 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: The New York State unemployment rate (seasonally adjusted) showed a slight move to the downside declining 10 basis points this month, according to the NYS Labor Department. Coming in at 7.9% for October, the rate finally moved from the 8% level where it had held steady for the previous four months. Additionally, the Labor Department has reported that New York has now recovered 52% of the private sector jobs lost during the 2008-2009 recession. However, the New York City unemployment rate (not seasonally adjusted) rose 30 basis points to 9% and is now at its highest level since February of this year and exactly in line with the national average of 9%.

Financing: Relative to the sharp volatility we have seen in recent months, treasury rates exhibited very marginal moves across the board from October to November. Both the 30-year bond and 10-year note increased 9 basis point to 2.99% and 2.01% respectively. The 5-year note decreased 6 basis points to 0.9% from October’s 0.96% note while the 1-year T-bill was unchanged month over month at 0.13%.

Rental Market / Vacancy: Citi-Habitats’ monthly rental analysis reports the vacancy rate for Manhattan at 1.18% of the rental stock, 10 basis points higher than the September rate. After steadily declining for the first 6 months of the year, the vacancy rate seems to have hit its low point in June with a rate of 0.69% and has now increased significantly for four consecutive months. On average, October rents were up slightly as prices for Manhattan studios, one bedroom and two bedroom units increased nearly 1% while three bedroom units saw a slight 1% decline in prices for the month.

Expenses: Home heating oil prices showed a strong move upward this month, as the price per gallon of No. 2 oil rose 11.9 cents from 402.1 in October to 414 cents per gallon in November. Residential electricity rates for October decreased .80 cents/KWH to 16 cents/KWH.

Our Observations For the Week

A report by Trepp shows that that about $15.5 billion in Commercial Mortgage Backed Securities tied to five-year balloon loans that originated at the height of the real estate bubble in 2007 will mature in 2012. To date, 27 percent of the five-year loans originated in 2007 are in special servicing and 18.5 percent are 30 or more days delinquent. The report forecasts that the number of 2007 problem loans will increase. On a positive note, Trepp’s latest report showed that the CMBS delinquency rate dropped 26 basis points to 9.51 percent in November. The rate has now fallen in four of eleven months in 2011, according to the firm.

Steven Spinola, president of the Real Estate Board of New York, reacted positively to Gov. Andrew Cuomo’s proposal that will cut taxes for the middle class and invest in the state’s infrastructure, according to GlobeSt.com. “There’s an awful lot of jobs here that will be potentially created and saved,” Mr. Spinola said. “Although none of us like the idea that taxes weren’t rolled back more, I think it is a proposal that was thoughtful and one that will have a positive impact on the economy.” Under the plan, taxes would be reduced between 0.4 percent and 2.12 percent for residents making under $2 million, while tax rates for residents earning more would remain the same.

U.S. Unemployment Rate Falls

Six central banks, including the Federal Reserve, announced plans to ease strains in the world financial markets. The Fed will expand its program to provide dollars to other central banks, which will then lend dollars to banks in their countries enabling them to finance current obligations and make new loans. Under the central banks’ new plan, borrowing costs will be reduced by 50 percent and loans will be available for a longer period, until February 2013. Additionally, Mario Draghi, the new president of the European Central Bank, said if euro-zone governments enforce tougher deficit-cutting measures their credibility would be restored. The remarks led experts to speculate that such action would prompt the central bank to purchase bonds to bring down countries’ borrowing costs and make it easier for governments to refinance debt.

The U.S. unemployment rate fell to 8.6 percent in November from 9.0 percent in October. The Bureau of Labor Statistics reported that a total of 13.3 million individuals were unemployed in November, a drop of 594,000. Nonfarm payrolls rose by 120,000. The private sector added 140,000 jobs during the month in the retail trade, leisure and hospitality, professional services, and health care sectors, while the government sector continued to shed jobs. The change in total nonfarm payroll employment for September was revised from 158,000 to 210,000, and the change for October was revised from 80,000 to 100,000.

The Conference Board Consumer Confidence Index jumped to 56.0 in November from 40.9 in October. “Confidence has bounced back to levels last seen during the summer (July 2011, 59.2),” said Lynn Franco, director of The Conference Board Consumer Research Center. “Consumers’ assessment of current conditions finally improved, after six months of steady declines. Consumers’ apprehension regarding the short-term outlook for business conditions, jobs and income prospects eased considerably.”

The Federal Reserve’s Beige Book reported that the economy in the Second District “continued to grow slowly.” Small to medium-sized banks reported an increase in demand for commercial mortgages, tight lending standards for all loans except residential mortgages, and lower delinquency rates for commercial and industrial loans. In the residential real estate market, home sales and prices were steady and the rental market continued to strengthen with asking rents five to 10 percent above 2010 levels. Information in the Beige Book is based on comments from businesses and others outside the Federal Reserve System in the weeks prior to November 18.

The number of stalled New York City construction projects fell 8 percent to 638 in October 2011 down from 693 in October 2010, according to the New York Building Congress. The October 2011 figures, however, are 40 percent above the October 2009 level of 454 stalled construction sites. Brooklyn continues to have the most stalled construction sites, 299, down 6 percent from the same time last year, but 47 percent of the citywide total. Queens had 131 stalled sites, a 14 percent year-over-year decline; Manhattan 126, a 3 percent year-over-year decline; The Bronx, 30, no change; and Staten Island, 52, a year-over-year drop of 13 percent. Citywide, 62 percent of the stalled projects are residential, with the majority multifamily developments.

New software is taking the guess work out of setting rents. The largest landlords in the country have been using the technology for about 10 years, and now landlords with as few as 3,000 units are testing it. The software includes data from competitors and market and property information. Managers are seeing properties using the software outperforming others and some report an increase in revenues of 3 to 5 percent. The technology is similar to that used by the airline and hotel industries.