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Archive for the 'Market Watch' Category

New York State Legislators Reach Deal On 421a, Rent Regulations

This week we’re highlighting the deal that will extend the 421a tax incentive program and state rent regulations, NYCHA’s apartment renovation problems, and the record number of rent-burdened Americans.

State Legislators and Governor Andrew Cuomo finalized a deal on Thursday evening, amending the 421a tax incentive program and the state’s rent regulations, Capital reports. Each program is scheduled to be extended an additional four years. Changes made to the 421a program include extending the length of abatements from 25 to 35 years, mandating an affordable component for each program development, and allowing condo & co-op projects in the outer boroughs. However, the 421a program will end after six months rather than four years if a labor agreement regarding living wages is not reached. Changes to state rent regulations include increasing the cap to maintain a stabilized unit from $2,500 to $2,700 beginning January 1st, 2016 (with indexed increases in subsequent years) and changing the amount a landlord can increase rents when performing major capital improvements.

A recent audit conducted by the Comptroller’s office found that New York City’s Housing Authority (NYCHA) has been inefficient in renovating and repairing low-rent apartments, the New York Post reports. Roughly 80 apartments have remained empty for more than 10 years due to renovations, with one apartment vacant since 1994. As of September 2014, 2,342 out of the 178,000 apartments overseen by NYCHA were vacant. With a waiting line of over 270,000 for affordable housing, Stringer stated that the city has cost itself $7.7 million in lost rent due to vacancy inefficiencies.

This week, Thor Equities agreed on a deal with Ceruzzi Properties – a Connecticut-based investor – to sell a development site located at 520 5th Avenue for $275 million, Crain’s reports. The site, located between 43rd and 44th Streets, consists of 300,000 buildable square feet and comes with plans to build a 71-story mixed use building consisting of hotel and residential components. Thor originally purchased the site in 2011 for $150 million, almost doubling their money.

The Queens office of the Department of City Planning and Mayor deBlasio have expressed their interest in creating more affordable housing in Long Island City, Crain’s reports. As land costs continue to rise in the area, developments have increasingly shifted away from rental projects and towards condo projects. The hope is that all projects going forward – whether rental or condo – will include some form of affordable housing. De Blasio would like to see increased density and zoning, especially in areas near transportation, which would allow for an increase in affordable units.

A new study released on Wednesday by The Joint Center for Housing Studies of Harvard University revealed that a record number of Americans are spending more than 30% of their income on rent, Forbes reports. More than half of all renters were considered “rent burdened” – meaning they spend more than 30% or more on rent – in 2013. National rental vacancy fell to 7.6% in 2014, which is the lowest it has been in two decades. The low vacancy rates coupled with an average rent increase of 3.2% – which is more than double the pace of inflation – have pushed rents higher.

April Multifamily Sales See Year Over Year Gains

New York City multifamily kicked off the second quarter of 2015 with strong year over year improvement in the month of April.

New York City saw 66 transactions comprised of 112 buildings totaling $783.379 million in gross consideration. This represents a 43% increase in transaction volume, a 29% increase in dollar volume and an 8% increase in building volume compared to April 2014, which saw 46 transactions comprised of 104 buildings totaling $607.866 million in gross consideration. All submarkets covered saw year-over-year gains in transaction volume, while four out of five submarkets saw dollar volume increase year-over-year.

Multifamily Month In Review

Pricing gains throughout the city continued, as the 6-month average price per square foot and gross rent multiple are up in every sub-market when compared to last year’s six-month averages.

“Demand continues to exceed available supply, which is pushing up transaction volume and pricing,” said Shimon Shkury, President of Ariel Property Advisors. “Despite some uncertainty of future rent stabilization legislation, the vast majority of market participants continue to hold a very positive outlook for New York City multifamily assets.”

The following is a breakdown of the April 2015 volume by submarket:

Manhattan accounted for almost 32% of the city’s dollar volume in April and saw 20 buildings trade across 13 transactions totaling $247.292 million in gross consideration. Of note, the Nathaniel, a new construction mixed-use elevatored building located on 3rd Avenue and East 12th Street in the East Village, sold for $98.25 million, or $1,196 per square foot. In Chelsea, a private investor purchased 125-129 West 16th Street for $41.5 million, or $1,051 per square foot. New management has plans to add two new floors on top of the existing structure, renovate units with condo finishes, and convert two office spaces to residential use.

Brooklyn lived up to its reputation as the city’s most transactional submarket, leading the way in terms of both transaction volume and building volume with 20 transactions comprised of 34 buildings totaling $206.526 million in gross consideration. In Clinton Hill near Fulton Street, a portfolio of four walk-up buildings consisting of residential 129 units sold for $38 million, or $309 per square foot. Up in Williamsburg, Brooklyn Standard Properties scooped up 45 Ainslie Street, a 20,000 square foot mixed-use building located less than two blocks from both L & G subway stations, for $7 million, which equates to $350 per square foot.

Northern Manhattan posted a strong month as the submarket experienced 19 buildings trade across 11 transactions totaling $153.47 million in gross consideration, which represents an 83% increase in dollar volume year-over-year. Treetop Development purchased a portfolio of 8 buildings throughout Inwood, Washington Heights and Hamilton Heights for $38 million from Westbrook Partners and Normandy Real Estate. The portfolio sold for $285 per square foot and a reported 3.0% cap rate. In Hamilton Heights, a mixed-use elevatored building located at 3671 Broadway exchanged hands for $27 million, or $386 per square foot.

The Bronx finished April only slightly behind Northern Manhattan in terms of dollar volume, as the borough saw 15 transactions comprised of 29 buildings totaling $152.942 million in gross consideration. The largest transaction of the month occurred a block from Yankee Stadium in Melrose, as 975 Walton Avenue sold for $30 million, or $108 per square foot. E&M Associates, who has been extremely active in the outer boroughs in recent months, sold the property to a private Brooklyn-based investor.

Queens saw dramatic year-over-year gains across all metrics, largely due to a very quiet April in 2014. In total, the borough experienced 7 trades consisting of 10 buildings totaling $23.15 million in gross consideration. Of note, a package of contiguous mixed use buildings located along a prime strip of Jackson Avenue in Court Square sold for $4.13 million, or $574 per square foot. In Corona, a corner mixed-use building exchanged hands for $4.25 million. The free-market building sold for, reportedly, a 5.75% cap rate.

For the six months ended April 2015, the average monthly transaction volume remained consistent at 68 transactions per month. The average monthly dollar volume decreased to $1.068 billion.

*The multifamily transactions included in the analysis occurred at a minimum sales price of $1 million, with a minimum gross area of 5,000 square feet, and with a minimum of 10 units.

More information is available from Mr. Shkury at 212-544-9500, ext. 11, or sshkury@arielpa.com. For a copy of the report, please see http://arielpa.com/report/report-MFMIR-Apr-2015.

Our Observations For the Week

New York legislators agreed to take a breather in negotiations, extending rent regulations an additional five days on Thursday, Bloomberg reports. Mayor de Blasio and the Democratic-controlled Assembly are aiming to end vacancy decontrol, a law that allows an apartment to convert from stabilized to free market when rent surpasses $2,500 per month. In addition to rent regulation, the 421a tax abatement program is also currently under negotiation. Governor Cuomo has stated that any new regulations are put into place will be back-dated to June 15th, the original expiration date.

The EB-5 visa program, which provides green cards to foreign investors in exchange for a $500,000 U.S. investment that will create 10 jobs or more, has started wait listing Chinese investors for the first time as it has seen an increase in applicants from other countries, The Real Deal reports. Traditionally, each country is allocated seven percent of the 10,000 EB-5 visas available each year, plus any remaining visas that other countries did not use up, the majority of which Chinese investors have gobbled up. A rise in applicants from Vietnam, Brazil, Mexico and Dubai, among others, has led to the waitlist for Chinese investors.

Foreclosures in the U.S. have reached a 19-month high, and the New York City metro area has experienced a 34 percent increase year-over-year in May, The Real Deal reports. A majority of the country’s twenty largest metro areas saw an increase in foreclosures, and Florida had the highest foreclosure rate of any state with one in every 230 homes. While the number of homeowners going into the foreclosure process is stabilizing at pre-crisis levels, the number of those who are losing their properties is still higher than before the recession. New York City currently has 1,211 properties in some stage of the foreclosure process.

On Tuesday and Wednesday, senior members of the Federal Reserve, who together form the Federal Open Market Committee (FOMC), discussed the state of the U.S. economy and the future of interest rate increases. Although June has been viewed as a possible point in time when the Fed would raise rates, the committee reaffirmed that the 0 to 0.25 percent range is still appropriate given a rather sluggish first quarter. Many are now looking to September as the first point of lift-off, as 15 out of 17 FOMC members expect some sort of interest rate hike by the end of the year.

In a two-year study released by the Design Trust for Public Space, it was found that almost 700 miles of public space under New York City infrastructure, which includes elevated subways, bridges and railways, is currently underutilized, Crain’s reports. Many of these areas can be converted into “valuable community assets” like public parks and retail space. Specific opportunities the report examined include Broadway Junction in Brooklyn, Division Street under the Manhattan Bridge and the Van Wyck Expressway in Kew Gardens, Queens. The Design Trust for Public Space was the first organization to bring attention to the High Line in 2001.

Governor Cuomo Proposes Short-Term 421a Tax Program Extension

This week we’re highlighting Governor Cuomo’s proposal for the 421a tax program, NYCHA’s plan to monetize city-owned property, and rental price increases in Manhattan and Brooklyn.

This week, Governor Andrew Cuomo stated that he would like to see a short-term extension of the current 421a tax abatement program should no resolution come to fruition by this Monday, June 15th, the date the current program is set to expire, Capital reports. Cuomo does not agree with Mayor de Blasio, who has publicly stated that he would like to end the tax program altogether if it cannot be reformed. He hopes to extend the program somewhere from three to twelve months, stating that the tax program is “a very complicated beast and it just doesn’t lend itself to throwing together a new program in several hours.”

Speaking in front of the City Council, The New York City Housing Authority (NYCHA) leaders outlined its plan to monetize valuable parcels of land currently owned by the city, Observer reports. With over $17 billion backlogged in repairs and operating at a steep deficit, NYCHA is attempting to revitalize its finances by selling land outright, or by land-leasing certain parcels in order to guarantee future income. In all scenarios, the city assured the Council that they will retain control of any future development and protect the interests of current residents. The plan will hopefully allow NYCHA to operate profitably by 2017.

Carlyle Group, the alternative asset management firm based out of Washington, is in the early stages of forming a real estate fund dedicated to core-plus assets in the United States – assets such as office buildings and shopping centers that may need work in order to boost value, Bloomberg reports. The fund will seek returns of around ten percent and the firm views core-plus assets as a major growth opportunity, particularly in the U.S., in the near future. Carlyle has traditionally applied an opportunistic strategy, seeking higher returns of fifteen to twenty percent.

Rental prices in both Manhattan and Brooklyn continued to rise in May, as the median rental price in Manhattan hit $3,380, a 2.4 percent increase from May of last year, The Real Deal reports. The median increase marks the 15th consecutive month that rental prices have gone up in the borough. In Brooklyn, the median rental price was $2,933, a 4.8 percent increase from last year. The increase in rents can be attributed to strong job growth coupled with a tight credit market, pushing prospective home-buyers into the rental market.

Many savvy New York City restaurateurs are opting to buy property, rather than lease space, in order to run their businesses, Commercial Observer reports. Retail and restaurant experts tout the importance of longevity in the business, as restaurants need time to market their name and build a customer base. As tenants, restaurateurs are at the mercy of their landlords, who may dramatically increase rents after a lease expires, or sell to a developer with plans to kick out tenants in order to make way for their own project. As owners, restaurateurs have two businesses, and should their restaurant fail, they have the ability to lease out the space to another tenant.

On Wednesday, Slate Property Group filed permits to construct a 126-unit rental building at 432 Rodney Street in Brooklyn, The Real Deal reports. The property, currently a one-story industrial building and former Quaker Sugar distribution center, sits just east of the Brooklyn Queens Expressway and is in close proximity to the L and G subway lines. The project will rise seven stories and span 99,000 square feet in total, 14,000 of which will be set aside for commercial space. Slate is unclear whether the new project will include any affordable units, as it will depend on the outcome of the 421a tax abatement program legislation.

U.S. Economy Adds 280,000 Jobs in May

This week we’re highlighting U.S. job growth in May, the increase in rent stabilized units in 2014 and Extell’s first Brooklyn project.

The U.S. Economy added 280,000 jobs in the month of May, a strong indicator that the first quarter contraction was not a fundamental slowdown, but rather a result of a harsh winter, the New York Times reports. Although the official unemployment rate increased very slightly to 5.5 percent, this can mostly be attributed to an increase in job-seekers entering the labor pool. The job growth experienced in May was also accompanied by solid wage increases, rising 0.3 percent.

For the second consecutive year, the total number of rent stabilized apartments increased in New York City, Capital reports. According to a report released by the Rent Guidelines Board, 9,182 stabilized units were added while 9,013 were removed, for a total net increase of 169 units. The increase in stabilized apartments the past two years is viewed as a positive trend for the deBlasio Administration, as the city lost a net average of 6,000 units per year from 2003 to 2012. The two largest contributors to the stabilized housing stock in 2014 were the 420-c and 421-a tax programs.

The Bronx has seen a flurry of new developments and increased investment recently, causing many professionals to compare the current state of the borough to Brooklyn, Real Estate Weekly writes. Transportation and infrastructure have always been present, allowing easy access to Manhattan and the entire metro area. Large investors such as Savanna envision the South Bronx waterfront transforming into an area like DUMBO, Williamsburg and Long Island City, where a wide array of residential and commercial uses blend together.

Extell Development has pioneered into Brooklyn for its first project outside of Manhattan, the New York Times reports. The developers known for One57 will pay $120 million to Washington Square Partners and Acadia Realty Trust, who control the development site, to build City Point, a $1 billion, 1.8 million-square-foot mixed-use project in Downtown Brooklyn. In addition to a 60-story tower that plans to house 500 rental units, Extell will also construct a four-level mall at the base of the tower that has already secured tenants such as Century 21 and CityTarget.

Roughly 100,000 rent stabilized apartments throughout New York City are threatened by vacancy deregulation in the near future, the Daily News reports. Affordable housing advocates are particularly worried because the majority of these apartments are in the city’s priciest neighborhoods such as TriBeCa, Chelsea and the Upper West Side. With a majority of stabilized rents hovering around $2,100, these rents will spike 20% once a tenant vacates, pushing rents above the $2,500 threshold and converting the units to free market. Mayor deBlasio is currently fighting to end vacancy deregulation, hoping to preserve more affordable housing.

Olshan Realty released a report this week indicating that the New York City condo market had a record-breaking month in May. 157 contracts were signed for $4 million or more, shattering last May’s record of 145 contracts of $4 million or more. The largest contract for the month was for a $40 million penthouse located in Scott Resnick’s 551 West 21st Street, which equates to $3,372 per square foot. The total dollar volume for the 157 contracts totaled $1.2 billion.

New York City Council Approves 1 Vanderbilt Proposal

This week we’re highlighting the approval of 1 Vanderbilt, the status of the Second Avenue subway, and the Department of Commerce’s report on first quarter GDP.

SL Green Realty’s proposal to build 1 Vanderbilt was unanimously approved on Wednesday by the New York City Council, Commercial Observer reports. The Council also unanimously passed theVanderbilt Corridor rezoning, which spans from East 42nd to 47th Streets. The proposed 63-story office tower is expected to rise 1,501 feet and include a total of 1.6 million square feet, 200,000 of which will be anchored by TD Bank. SL Green will also be contributing $210 million dollars towards transportation, infrastructure and other public incentives that will include a pedestrian plaza and a Long Island Railroad transit hall.

On Wednesday, Mayor deBlasio urged Governor Cuomo and the State Senate to take action regarding New York City’s most pressing issues including rent regulation and 421a tax program reform, Capital reports. At a press conference in Albany, the Mayor stated that Albany’s leadership needs to take responsibility and address items that will affect millions of New Yorkers. Although the Assembly has a copy of the Mayor’s bill outlining changes to 421a tax benefits, it has been rumored that the bill is receiving criticism because it lacks a provision that will guarantee paying construction and building workers a prevailing wage.

Crowdfunding firm Prodigy Network is currently in contract to buy two former F.M Ring portfolio properties from MetroLoft for a combined $100 million, The Real Deal reports. Prodigy will be dishing out $49 million to purchase 114 East 25th Street, a 42,000 square foot loft property, and $51 million for 331 Park Avenue, a 37,025 square foot building plus air rights. MetroLoft, who will still develop the properties to Prodigy’s specifications, purchased the pair of buildings less than six months ago for a total of $76 million.

Real gross domestic product – the value of the production of goods and services in the U.S. – decreased at an annual rate of 0.7% in the first quarter of 2015, according to Department of Commerce. This marks only the third quarter the economy has experienced a setback since economic expansion began in June 2009. The decrease primarily reflected negative contributions from exports, nonresidential fixed investment, and state and local government spending that were partly offset by positive contributions from personal consumption expenditures, private inventory investment, and residential fixed investment. Imports, a subtraction, also increased.

The construction of the Second Avenue subway line is 82% complete, and the first phase of the project is set to open in December 2016, the Wall Street Journal reports. The MTA hopes that the first phase, which will run from 63rd Street and Lexington Avenue to 96th Street and Second Avenue, will serve roughly 200,000 passengers daily, helping to alleviate the crowded 4, 5 and 6 Trains on the Lexington Avenue line. As president of capital construction, Michael Horodniceanu, noted, the last 18% will be the most difficult portion of construction as they must install communication, electrical, fire-safety and signal systems.

Many of the West Village’s long-tenured retail tenants have been disappearing in recent years, causing the neighborhood to experience “high-rent” urban blight, according to a piece by the New Yorker. Vacant storefronts have been commonplace, as tenants such as mid-range restaurants, antique stores and bookstores can no longer afford the large rent increases that are almost universal in the West Village. Many landlords are willing to let their storefront sit vacant for a number of months or even years with the hope they can fill the space with a higher-paying tenant, like banks and national retailers.

Federal Reserve Reiterates its Plan to Increase Interest Rates

This week we’re highlighting the Federal Reserve’s plan to raise interest rates, the East Harlem rezoning timeline and new plans for two Bushwick hotels.

Interest rates are expected to rise this year, should the economy meet forecasts made by the Federal Reserve, Bloomberg reports. In a speech made in Rhode Island on Friday, Chair Janet Yellen made a point to state that once rates are raised, they will continue to rise gradually and it may take several years to reach a sustainable long-term level. She believes that the U.S. is in a position for continued growth after a lackluster first quarter, as cheap gas prices are boosting household purchasing power.

The East Harlem rezoning made progress at a public forum on Wednesday as City Council Speaker Melissa Mark-Viverito mapped out its expected timeline, DNA Info reports. Prior to November when recommendations to the city will be submitted, seven steering committee meetings and five additional public forums will take place in an effort to hear issues raised by East Harlem’s residents. Matthew Washington, chair of Community Board 11, mentioned that in addition to the focus on affordable housing, discussions must be held in regards to other important topics such as public health, green spaces, jobs and transportation.

As neighborhoods such as SoHo, Midtown South and DUMBO have garnered attention for attracting many of the city’s top TAMI – technology, advertising, media and information – tenants, experts believe the Bowery district is emerging as the next go-to office destination for Manhattan creatives, the Commercial Observer reports. With office rents continuing to rise in other areas, the Bowery district has seen a growing number of commercial renovations, allowing fast-moving tech companies to move into turn-key spaces. According to NYCEDC, some 20-plus startups have already registered their information and settled into the area.

The Bureau of Economic Analysis is planning a number of changes in the way it calculates U.S. gross domestic product (GDP), Bloomberg reports. Specifically, the alterations will focus on seasonally adjusted data and they will be announced on July 30th with the release of the second-quarter GDP estimate. The changes are coming as a result of economists noting that growth “in any given first quarter still tends to be weaker than in the remaining three.”

Bushwick’s rapid gentrification became more pronounced this week as two separate developers filed plans to build a hotel, hoping the neighborhood can become New York’s next tourist destination, The Real Deal reports. Yoel Goldman proposed adding six floors to an existing one-story building at 71 White Street, totaling 80,000 square feet. The project will incorporate a retail component on the first and second floors and will feature a bar and gym on the hotel’s seventh floor. Less than a mile from Goldman’s project, Riverside Developers filed plans to construct a 140-key hotel at 27 Stewart Avenue.

Marvin Markus, who served as the Rent Guidelines Board chair for 13 years, composed a memo this week that called for the end of vacancy decontrol for rent stabilized apartments, among other things. Markus outlined several changes that he believes will “remove a costly bureaucratic system” and free up both time and money, allowing landlords to focus on running their buildings more efficiently. He also called for the elimination of 2-year lease renewals as he believes it is impossible to predict an owner’s operating costs over the course of two years, which can change dramatically. Markus is currently working as a Managing Director with Goldman Sachs.

Real estate private equity firms have been making adjustments recently in order to keep returns high and their investors happy, The Real Deal reports. Many private equity funds had the opportunity to snatch up properties for a discount in the wake of the financial crisis only to sell them for huge profits a year or two later. Now that the market has made a healthy recovery and prices have sky-rocketed, funds have turned to other options such as alternative debt and many are breaking into new markets like the outer-boroughs. Additionally, money is available more than ever as pension funds and insurance firms are seeking higher returns with bond yields at all-time lows.

Strong March Bolsters 1Q NYC Multifamily Figures

Recording the third highest monthly dollar volume total over the past 12 months, New York City multifamily sales experienced a remarkable transaction and dollar volume in March. These figures confirm the strong uptick in sales seen in 1Q15 multifamily reports, according to Ariel Property Advisors’ Multifamily Month in Review: New York City for March 2015.

Multifamily Month In Review

The gains in March are a significant turnaround from lackluster figures seen during the first two months of the year. In March, New York City saw 89 transactions comprised of 170 buildings totaling $1.799 billion in gross consideration. This represents a 162% increase in dollar volume, a 100% increase in building volume and a 48% increase in transaction volume compared to February 2015, which saw 60 transactions comprised of 85 buildings totaling $685.569 million in gross consideration.

“March numbers suggest growing economic strength is boosting investor confidence, and is consequently having a positive effect on multifamily asset prices and sales volume,” said Shimon Shkury, president of Ariel Property Advisors.

The following is a breakdown of the March 2015 volume by submarket:

Brooklyn played a huge role in March’s success, as the submarket was the most transactional and also led the way in terms of dollar volume with 58 buildings trading across 27 transactions totaling $683.094 million in gross consideration – roughly the entire city’s dollar volume for February 2015. Urban American unloaded their Kings Portfolio for $236 million – a 17-building, 1,434-unit portfolio located primarily in South and East Brooklyn – which translates to $156 per square foot. Another large portfolio consisting of 11 properties concentrated mainly in Flatbush and Brighton Beach exchanged hands for $206.5 million, or $236 per square foot.

Manhattan had a strong month as it experienced 19 transactions consisting of 40 buildings totaling $605.886 million in gross consideration. Thor Equities continued to make a push into the New York residential market as it purchased a 245-unit rental building with a condo conversion possible in the future located at 30 Park Avenue in Murray Hill for $179 million, or $757 per square foot. In Hell’s Kitchen, a 79,000 luxury rental building located at 311 West 50th Street sold for $72 million, which translates to $888 per square foot.

The Bronx saw a flurry of large, single building trades that helped spike dollar volume 111% year-over- year. In Castle Hill, 2001 Story Avenue – a 355-unit elevatored building – sold for $66 million and, reportedly, a 5.5% cap rate. On the Grand Concourse, the Morgan Group sold a 172,032 square foot building for $25.6 million which translates to $148 per square foot. Pricing across all metrics continue to show strength in the Bronx.

Northern Manhattan also saw a jump in dollar volume year-over-year as March totaled $223.714 million in gross consideration, a 50% increase from March 2014 figures. A pair of elevatored mixed use buildings at 4101 & 4113 Broadway totaling 126,000 square feet in Washington Heights sold for $42 million, or $333 per square foot.

Queens saw 9 buildings trade across 6 transactions totaling $30.247 million in gross consideration. In Astoria, a pair of mixed use buildings consisting of 10 units on Astoria Boulevard sold for $4.132 million, which equates to $404 per square foot. The neighborhood of Auburndale saw the month’s largest trade, as a small portfolio of 50 units sold for $11.2 million or $204 per square foot.

For the six months ended March 2015, the average monthly transaction volume increased to 68 transactions per month. The average monthly dollar volume also decreased slightly to $1.221 billion.

*The multifamily transactions included in the analysis occurred at a minimum sales price of $1 million, with a minimum gross area of 5,000 square feet, and with a minimum of 10 units.

More information is available from Mr. Shkury at 212-544-9500, ext. 11, or sshkury@arielpa.com. For a copy of the report, please see http://arielpa.com/report/report-MFMIR-Mar-2015.

Our Observations For the Week

On Thursday, the Department of Buildings (DOB) issued a press release outlining its plan to reform the agency over the next four years, including a $120 million infusion and 320 new positions. Commissioner Rick Chandler stated that the staffing and budget commitments will allow the agency to run not only more efficiently, but also with more transparency. Highlights include the addition of a risk management office and a separate affordable housing processing office. The DOB’s plan to reform comes several months after 16 employees were arrested for fraud and bribery following an investigation of DOB and the New York City Department of Housing Preservation and Development.

Fannie Mae and Freddie Mac are in the process of cutting back on market rate multifamily lending, as both are on pace to surpass their annual production caps in the third quarter, National Real Estate Investor reports. Both agencies increased their rates in the past few weeks and have imposed more stringent underwriting policies, which will likely prompt an uptick in interest in CMBS, commercial bank and life insurance lending. The Federal Housing Finance Agency introduced the production caps in 2013 in an attempt to increase private capital in the marketplace.

As the current 421a tax benefit program approaches its expiration on June 15th, Mayor deBlasio has submitted a new proposal that aims to benefit both landlords and the Mayor’s extensive affordable housing plan, Capital reports. The proposal would permit landlords who qualified for 421a tax benefits prior to 2008 to continue receiving those benefits for an additional 15 years, pending the landlords designate an additional 5% of their building’s units as affordable. This extension would encourage landlords to continue to participate in the 80/20 program, with their benefits about to otherwise expire, and the Mayor’s administration will add affordable volume and longevity.

The City Council approved a bill on Thursday that will place a two-year moratorium on owners and developers who wish to convert hotels to residential condominiums, Capital reports. The bill – one of six passed on Thursday – received opposition from several individuals who believed it was too severe as neighborhoods throughout the city may no longer have a need for hotels in the near future. Additionally, the bill calls for a study that will investigate the effects hotel-to-condo conversions have on New York City’s economy.

Pershing Square Capital Management founder and billionaire Bill Ackman is under contract to buy 787 11th Avenue from Ford Motor Company, the New York Post reports. The 464,000 square foot property, located between West 54th and West 55th Streets, is currently used for autoshows and a service center. Although an official sale price has not been made public, reports indicate the building could fetch up to $230 million. It has been rumored that Pershing Square could re-locate to a new space in the property while leasing out the remainder of the building.

Gary Barnett’s Extell Development is aiming to crush the most expensive sale of a single tower with its newest project, the Nordstrom Tower, reports the Wall Street Journal. The project, which is located at 57th Street and Broadway, is hoping to produce a total sellout of $4.4 billion when completed – $4 billion from condos and $400 million from the sale of the ground-floor to Nordstrom. Should the tower hit its expected milestone, it would easily eclipse the $2.8 billion sale of the GM building to Boston Properties in 2008.