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Monthly Archive for January, 2012

Fed Plans to Keep Rates Near Zero Through 2014

The Federal Reserve’s Federal Open Market Committee voted at its December meeting to keep short-term rates near zero through at least late 2014. The Committee is forecasting modest economic growth and gradual job creation, but noted that growth in business fixed investment has slowed and the housing sector remains depressed. Strains in the global financial markets were cited as a risk to future growth, but inflation is expected to remain at or below the targeted level. The Atlantic provides an analysis of the Fed’s policies here.

The Commerce Department reported that real GDP—the output of goods and services produced by labor and property in the U.S.—increased at an estimated annual rate of 2.8 percent in the fourth quarter from a third quarter increase of 1.8 percent. Real GDP increased 1.7 percent in 2011 (from the 2010 annual level to the 2011 annual level), compared with an increase of 3.0 percent in 2010. A couple of highlights in the fourth quarter, real residential fixed investment increased 10.9 percent, compared with an increase of 1.3 percent in the third quarter, and real exports of goods and services increased 4.7, the same increase as in the third.

In New York City, $70 billion of commercial real estate loans that served as collateral for mortgaged backed securities will mature in 2012, according to Trepp LLC. Of those, $26 billion, or 37.4 percent, are five-year loans. Loans maturing include the Manhattan Mall, with $232 million maturing, and the Jumeirah Essex House, with a $180 million loan, according to a New York Times article about the Trepp data.

The Real Estate Board of New York reported that average condo sale prices in Brooklyn increased by 11 percent year over year in the fourth quarter to $596,000, while the average price of condos in Queens rose six percent to $450,000 for the same period. Manhattan year-over-year condo prices fell 11 percent, and citywide average condo prices declined 4 percent. Year-over-year condo sales numbers declined in the fourth quarter by 16 percent in Manhattan; 26 percent in the Bronx; 28 percent in Brooklyn; 23 percent in Queens; and 27 percent in Staten Island, for an average citywide decline of 21 percent.

City Councilman Steve Levin, whose district includes downtown Brooklyn, and fellow Brooklyn City Councilman Brad Lander announced that they would support a Landmarks Preservation Commission proposal to landmark a 21-building commercial district in downtown Brooklyn. The New York City Council is scheduled to vote on the measure Feb. 1. The real estate industry is opposed to the Borough Hall Skyscraper Historic District, which would cover Court, Montague, Livingston, and Joralemon Streets, claiming landlords will incur about $4.7 million, or $2.75 per square foot, in additional costs if the district is approved.

The NYC Planning Department has drafted zoning proposals for the Upper West Side that would limit the amount of street front space most new businesses could use along Amsterdam and Columbus avenues to 40 feet. On Broadway, Columbus and Amsterdam, banks would be limited to 25 feet wide of street front space. The proposal, which must be approved by the City Council, is designed to encourage a mix of local retail businesses rather than an influx of large national chains. The Real Estate Board of New York and New York Bankers Association oppose the proposal.

National Home Building Index Reaches 2007 Levels

The World Bank has lowered its projections for global growth in 2012 to 2.5 percent because of European debt problems and slower growth in large emerging economies. The Bank lowered its 2012 forecast for growth in developing countries to 5.4 percent from the June estimate of 6.2 percent, and lowered its 2012 forecast for high-income countries to 1.4 percent (-0.3 percent for the Euro Area) down from June estimates of 2.7 percent (1.8 percent for the Euro Area). The Bank reports that slower growth is already visible in weakening global trade and commodity prices.

The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) rose to 25 in January, which is the highest level since June 2007 and the fourth consecutive monthly increase. All four regions of the country posted gains in January, including a nine-point gain to 23 in the Northeast, a one-point gain to 24 in the Midwest, a two-point gain to 27 in the South and a five-point gain to 21 in the West. The index is derived from a monthly survey and measures builder perceptions of current single-family home sales and sales expectations for the next six months.

New York State’s unemployment rate remained unchanged at 8 percent in December 2011, while New York City’s unemployment rate rose slightly to 9 percent, up from 8.9 percent in November and 8.8 percent in October, the New York State Department of Labor reported. Nationally, the unemployment rate fell to 8.5 percent in December. New York State lost 16,800 private sector jobs in December, but overall in 2011, New York State gained 90,100 private sector jobs, of which 38,900 were in New York City.

Brooklyn developers are planning 14,000 new residential units, primarily in downtown Brooklyn and the Williamsburg waterfront, while only 5,000 residential units are planned for Manhattan, according to the report by consultant Nancy Packes. The average rent for studios and one- and two-bedrooms in full service buildings in Brooklyn is $2,776 a month, compared to Manhattan, at $3,888 a month. The report found that 34 percent of Brooklyn’s renters are in the tech or creative industries and are more likely to rent in tasteful but lower priced buildings rather than sleek modern high rises filled with amenities.

The New York City Council is scheduled to vote Feb. 1 on a proposal approved by the Landmarks Preservation Commission to landmark a 21-building commercial district in downtown Brooklyn. The Borough Hall Skyscraper Historic District covers Court, Montague, Livingston, and Joralemon Streets. REBNY is leading a campaign to oppose the designation and surveyed property owners and retail tenants in the district who claimed they would incur about $4.7 million, or $2.75 per square foot, in additional costs if the district is approved.

Mayor Announces Development Plans in All Five Boroughs

Multifamily Month In Review

November 2011’s multifamily sales activity remained steady from October’s modest levels. For the month, there were 40 transactions comprised of 51 buildings totaling just over $250 million in gross consideration. Compared to October 2011’s 28 transactions comprised of 50 buildings totaling $256.16 million in gross consideration, November’s figures reflect only a 2% increase in the number of buildings sold and a 2% decrease in dollar volume, but a lack of portfolio transactions led to a transaction volume increase of 43%. These figures also represent a steady 3% increase in transaction volume and a 47% decrease in dollar volume compared to November 2010, which saw 39 transactions totaling $475 million in gross consideration. It should be noted, however, that the vast majority of November 2010’s activity was a result of two major portfolios trading for approximately $300 million in total gross consideration.

Manhattan led the way with a strong rebound from a lackluster month of sales in October, posting 16 transactions comprised of 24 buildings worth $130.827 million in gross consideration. This is more than double the amount of sales that took place in October and makes up more than 50% of November’s total figures. This is the second month in a row where there were no sales in Manhattan valued north of $20 million.

Brooklyn was the second most active sub-market and improved significantly from light October numbers. For the month, the borough posted 13 transactions consisting of 14 buildings totaling $57.17 million in gross consideration.

Activity in The Bronx declined from a very strong October but figures were still impressive nonetheless. The borough had 4 transactions consisting of 4 buildings totaling $28.536 million in gross consideration.

Queens and Northern Manhattan were among the least active for November. Queens had only 2 transactions consisting of 3 buildings totaling $17 million in gross consideration and Northern Manhattan showed a steady 5 transactions consisting of 6 buildings totaling $16.625 million in gross consideration.

While December typically yields a flurry of year end closings, if this more modest level of activity holds it could be an indication that buyers are acting more cautiously to rising asking prices by sellers. That said, owners may be justified in holding out for higher levels as the unemployment rate trends down, economic fundamentals show more consistent improvement and rents continue to rise.

Trailing 6-Month Sales Averages: For the six months ended in November (page 8), average transaction volume increased slightly to 35 transactions per month. It is notable that this is the highest 6-month average since May 2011. The 6-month average for dollar volume came in at $404.83 million, a slight $16 million increase from October’s average.

Manhattan (below 96th Street): After a lackluster October, multifamily sales activity more than doubled in November. For the month there were 16 transactions covering 24 buildings and totaling more than $130.827 million in gross consideration. It is worth noting that for the second month in a row there were no sales over $20 million, a change from earlier in the year when large institutional sales accounted for a significant portion of multifamily activity. The Upper East Side had a particularly active month with 6 transactions taking place. Included in them is 135 East 93rd Street, home of the popular Ottomanelli NY Grill, on Lexington Avenue. The 12 unit mixeduse walk-up building sold for $9.5 million, which represents $711 per square foot. In Little Italy, the Kalikow Group made their first NYC acquisition in 20 years buying 113-17 Elizabeth Street. The 27,800 square foot walk-up building sold for $12.6 million, which represents $454 per square foot.

Northern Manhattan: November transaction volume remained steady with 5 transactions consisting of 6 buildings but dollar fell significantly to $16.625 million. One notable transaction was the sale of 280 Manhattan Avenue, a 10-unit walk-up building located directly across the street from Mount Morris Park that was sold by our company. Despite the fact the building needed significant rehabilitation in several units, the property sold for $180 per square foot and $227,500 per unit with its $2.275 million price. Our company also closed the sale of 1804 Third Avenue, a 9-unit mixed-use walk-up building in East Harlem for $1.85 million. This property also needed some repair and had several units vacant, but achieved approximately $217 per square foot, reflecting the properties excellent retail potential.

The Bronx: After a very active October, Bronx multifamily sales dipped in November. For the month there were 4 transactions covering 4 buildings worth approximately $28.536 million in gross consideration. Whereas the previous month’s sales were largely made up of portfolios, these were all single assets. Prices however continue to show excellent improvement. 2676 Grand Concourse, a 72,500 square foot walk-up building sold for $6.6 million, which translates to $91 per square foot and $81,481 per unit. 3940 Bronx Boulevard, a 92-unit elevatored building in Williamsbridge sold for $8.75 million, representing an impressive $104 per square foot at $95,109 per unit.

Brooklyn: Brooklyn multifamily transactions increased significantly from October to November. The borough saw 13 transactions consisting of 14 buildings over $57.17 million in gross consideration. Notable sales for the month include 250 Pacific Street in Boerum Hill and 59 7th Avenue in Park Slope. The first was a 17,000 square foot walk up building containing 25 units. The property sold for $4.4 million, which represents $256 per square foot and $176,000 per unit. 59 7th Avenue is a corner mixed-use walk-up building that sold for $2.675 million, which represents an impressive $495 per square foot and $267,500 per unit – much of this price reflects the asset’s excellent retail. Another notable sale was that of 100 Willoughby Street, a 30,000 square foot property in Downtown Brooklyn. The price of just under $23 million is less based on its multifamily aspect and more based on the asset’s tremendous development potential. Avalon Bay is assembling properties in the area to build another soaring residential tower.

Queens: Queens saw two transactions totaling $17 million for the month. The first was 34-20 30th Street, a 62,000 square foot elevatored building in prime section of Astoria. The property sold for an impressive $12,000,000, which represents $192 per square foot and $142,857 per unit. The second sale consisted of two buildings located at 88-04 & 87-26 175th Street. These two elevatored buildings are located in Jamaica sold for $5 million, representing $138 per square foot and $83,333 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 (NYS) Labor Department reported an unemployment rate of 8% seasonally adjusted for November. After dipping 10 basis points in October, the rate regressed to the 8% level, which had been maintained from July to September of this year. NYS reported gaining 34,400 private sector jobs in November 2011. In the past two years NYS has recouped 61% or 202,700, of the private sector jobs lost during the 2008-2009 recession. At the state level, unemployment levels have remained fairly stagnant; however, New York City (NYC) levels have seen a steady increase since April. The November unemployment rate increased yet again for NYC and is now up 10 basis points from 9.0% in October to 9.1% (not seasonally adjusted).

Financing: Treasury rates exhibited a healthy increase across the board for the month. The December 30-year bond was up 13 basis points from 2.99% in November to 3.12%, while the December 10-year note was up 10 basis points from the November rate of 2.01% to 2.11%. The 5-year note showed increases from 0.9% in November to 0.97% in December. The 1-year T-bill was slightly lower in December at 1.2% from the November rate of 1.1%.

Rental Market / Vacancy: The November rental vacancy rate for Manhattan was at 1.16% as reported by Citi Habitats. This is slightly lower than the October rate of 1.18%. From June to October Manhattan rental vacancies had been on a steady incline; however, now the vacancy rates have begun to stabilize. Additionally, for the month, rental rates have decreased by 2% for studios and one bedrooms and remained unchanged for two and three bedroom units.

Expenses: The December price of home heating oil dropped 5.9 cents from the November rate of 414 cents per gallon to 408.1 cents per gallon of No. 2 oil. Residential electricity rates for November decreased by 8 basis points to 15.2 cents per kilowatt hours (KWH) from the October rate of 16 cents per KWH.

Our Observations For the Week

In his 2012 State of the City address, Mayor Michael Bloomberg said in collaboration with Bronx Borough President Ruben Diaz, Jr., he has released another Request for Proposal for a new operator at the Kingsbridge Armory, which has been vacant for 15 years. In 2009, the City Council rejected a proposal by the Related Companies to develop a mall in the Bronx armory because the developer couldn’t guarantee that retail tenants would pay employees $10 an hour plus benefits. The Mayor also highlighted a number of economic development projects in all five boroughs that will result in new jobs and increased tourism, and announced new affordable housing initiatives.

Moody’s Investors Services is forecasting a positive year for REITs that specialize in multifamily properties because the demand for single family housing remains uncertain and few new apartments are being built. “The economic environment will continue to favor apartment landlords,” the report states. “Employment growth and household creation drive demand for apartments, and although the employment picture remains weak, it has improved relative to one year ago, helping create new households.”

The vacancy rate for New York City office buildings fell to 7.4 percent in the fourth quarter 2011 compared to the previous quarter, with net absorption totaling positive 1,000,478 square feet, and rental rates increasing to $47.34 over the same period, according to CoStar’s Fourth Quarter 2011 Market Report. Nationwide, the office vacancy rate in the fourth quarter decreased to 12.3 percent from the previous quarter, with net absorption positive 21.73 million square feet.

Residential sales fell in all five boroughs of New York City in the fourth quarter of 2011 compared to the fourth quarter of 2010, but median sales prices increased slightly in the Bronx and Brooklyn, by 2.9 percent and 1.4 percent respectively, according to the Real Estate Board of New York. Citywide, in the fourth quarter 2011 residential sales fell by nearly 12 percent and median sales price dropped 2.3 percent compared to the fourth quarter of 2010. The Real Estate Board calculates its report based on deed filings rather than closing dates.

Gov. Cuomo Promises Jobs, Jobs, Jobs

The nation’s unemployment rate dropped to 8.5 percent in December, down from a revised November rate of 8.7 percent, the U.S. Bureau of Labor Statistics reported. Total nonfarm payroll employment increased by 200,000 jobs in December, consisting of an increase of 212,000 private sector jobs and a decline in government jobs. Private sector jobs grew by 1.9 million in 2011, while government employment fell by 280,000.

The Institute for Supply Management reported that the employment index for manufacturing hit 55.1 in December, the highest level since June. At the end of 2011, manufacturing employed about 11.8 million workers compared to 19.6 million workers at its peak in 1979. The Bureau of Labor Statistics reported that 23,000 new manufacturing jobs were added in December. The value of American manufactured exports over a 12-month period was $1.074 trillion, half of which were machinery, chemicals, and transportation equipment.

In his State of the State address, Gov. Andrew Cuomo called for building a 3.8 million square foot convention center at the Aqueduct Racetrack site in Queens, which would be the largest convention center in the country. The project would attract an estimated $4 billion in private investment. The governor proposed turning over the land on which the Jacob K. Javits Convention Center is located to private developers that would invest $2 billion in estimated private sector funds to build an 18 acre planned development similar to Battery Park City. The governor said his initiatives would create tens of thousands of jobs for New Yorkers constructing casinos, repairing the state’s infrastructure, and building new power transmission power lines. New York State’s unemployment rate was 8 percent in November 2011.

Trepp reported that 9.58 percent of CMBS loans linked to commercial properties were at least 30 days delinquent in December, an increase from 9.51 percent in November. The delinquency rate for loans tied to office buildings was 8.97 percent in December, compared to 8.29 percent in September and 6.93 percent in December 2010, while slight declines were recorded for loans tied to the multifamily and lodging sectors. The office vacancy rate was 17.6 percent nationwide at the end of 2011.

ASI Limited, which is fabricating the weathered steel panels for the façade of the 675,000 Barclays Center arena in Brooklyn, announced on December 30 that it had suspended its operations at its Indiana plant. To date, 57 percent of the 561 panels created to enclose the center have been installed. MaryAnne Gilmartin, EVP for Forest City Ratner, developers of the arena which is part of Atlantic Yards, said construction will continue at the site. The arena is scheduled to open in time for basketball season in the fall of 2012.

Pending Home Sales Rise in November

The National Association of Realtors reported that pending home sales in November reached their highest level in 19 months. The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 7.3 percent to 100.1 in November from an upwardly revised 93.3 in October and is 5.9 percent above November 2010 when it stood at 94.5. The October upward revision resulted in a 10.4 percent monthly gain.

Average home prices nationwide hit mid-2003 levels in October 2011, according to the latest S&P/Case-Shiller Home Price Indices Data. The report showed U.S. home prices in the 10- and 20-City Composites were -1.1 percent and -1.2 percent lower in October 2011 compared to the previous month. The 10- and 20-City Composites posted annual returns of -3.0 percent and -3.4 percent in October 2011 versus October 2010, respectively. In the New York Metropolitan area, home prices fell -1.2 percent in October 2011 from September 2011, and -2.0 percent in October 2011 compared to October 2010.

International investors and Wall Street execs seeking to avoid sinking their bonuses into the volatile stock market will take advantage of low interest rates and high rents and invest in New York City real estate developments in 2012, according to forecasts by two New York City real estate executives – Stephen G. Kliegerman, president of Halstead Property Development Marketing, and Gary Malin, president of Citi Habitats. Mr. Malin also predicts that development on the Queens waterfront will explode in the coming year.

With more than 600 New York City development sites on hold because of stalled construction financing, developers are inviting vendors to set up shop on their vacant lots to increase foot traffic and create a buzz. At Dekalb and the Flatbush Avenue Extension in Downtown Brooklyn, artisans are selling goods out of cargo containers on the site of City Point, which plans to open 50,000 square feet of retail space in 2012 and continue expanding through 2020. Produce is being grown at Riverpark Farm at the east end of 29th Street in Kip’s Bay on the site of the planned second tower for the Alexandria Center for Life Science.