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City Reviewing Policy Governing Transferable Development Rights

This week we’re highlighting the Planning Department’s evaluation of the city’s Transferable Development Rights policy, the Fed’s timetable for rate hikes, New York City’s rent regulations, and reports on the office market.

City Planning Commission Chairman Carl Weisbrod said his department has launched a review of the city’s policy governing the transfer of unused air rights to developers, Capital reports. Mr. Weisbrod said the program enabling owners to transfer development rights from landmarked buildings has been successful in many cases but is so restrictive that it’s been impossible for some nonprofits to sell their unused rights. The Department of City Planning has released a report evaluating the successes and challenges of the program in the last 50 years, and is seeking stakeholder input regarding changes to the zoning tool.

In interviews and Congressional testimony, Federal Reserve officials have indicated they will begin raising the federal funds rate around mid-year or later, the WSJ reports. The improving economy and strong job gains are influencing the decision to raise the short-term rates, but policymakers remain concerned that the inflation rate is still below their 2 percent target. As a result, it some officials say it might be prudent to delay a rate hike until the unemployment rate falls low enough to fuel inflation.

Rent regulations, which are scheduled to expire this year, should be renewed and strengthened to ensure that apartments remain affordable, Mayor Bill de Blasio testified before the Joint Fiscal Committees of the State Legislature. He also said he believes that vacancy decontrol should be ended because between 1994 and 2012, 250,000 rent stabilized units were decontrolled and, he claimed, thousands had been driven out of their homes by landlord harassment. Specifically he asked the state to enforce rent laws aggressively; requested $300 million for health and safety initiatives in NYCHA developments that would be matched by the city; requested $32 million for rental assistance to prevent and alleviate homelessness; and asked the legislature to reject a proposal in the state budget that would result in a $22.5 million cut to homeless prevention programs.

From 2011 and 2014, median rents in New York City rose 3.4 percent to an inflation-adjusted $1,200 a month, according a Census Bureau survey, the NY Times reports. Median household income for all renters between 2010 and 2013, however, only rose 1.1 percent to $41,500. Two out of three homes in the city are rentals, and about 30 percent of all households are rent burdened, spending at least half of their household income on rent. The city’s vacancy rate is estimated at 3.45 percent, below the 5 percent threshold that justifies rent regulation.

New York City’s rent laws are partly responsible for the city’s housing shortage, Greg David writes in Crain’s. The vacancy rate for rent regulated apartments is 2.12 percent “because people with below-market rents don’t move, even when their circumstances change.” Rent laws also have discouraged housing production. Between 2011 and 2014, the total number of housing units in the city increased by 48,000, or 1.4 percent, while the population grew by 2.8 percent. The result was a shortage of housing and a spike in rents.

Council Member Daniel Garodnick has introduced a bill that would require tenant relocation specialists employed by landlords to get licensed by the city, Crain’s reports. The proposed law outlines a number of activities that would be considered harassment, for which specialists could be fined up to $10,000. To receive a license, a specialist would have to post $50,000 bond, while a relocation firm with several specialists would need to post a $75,000 bond.

At least 9.5 million square feet of office space will be coming online in New York City between now and 2018, the NY Post reports. About 2 million square feet is currently available at 1 and 4 World Trade Center. The other office planned buildings include 3 World Trade Center, 2 million square feet; 1 Manhattan West, 1.5 million square feet; 55 Hudson Yards, 1.3 million square feet; 30 Hudson Yards, 1 million square feet; 390 Madison Avenue, 845,000 square feet; 425 Park Avenue, 650,000 square feet; and 10 Hudson Yards, 250,000 square feet. It is anticipated that demand for the buildings will be high because they are LEED-certified, column-free, state-of-the-art, and superior to older office buildings in the city.

A JLL report shows that tech and new media companies leased more than five million square feet of office space in New York City in 2014, accounting for 16.2 percent of all leasing activity in Manhattan, the Commercial Observer reports. While tech office leasing increased year-over-year by 4.9 percent, financial services industry leasing declined year-over-year by 3.2 percent and accounted for 24.7 percent of Manhattan’s leasing activity last year. Tech sector jobs in the city increased by 6.4 percent in 2014 compared to 2013 and the city continues to add 1,800 new tech jobs each month.

A total of 6.8 million square feet was leased in Lower Manhattan in 2014, a 10 percent increase year-over year and the highest level of leasing activity since 2006, according to a Downtown Alliance report. The report noted that 50 percent of the top commercial leasing deals were relocations, of which 65 percent were from the TAMI (Technology, Advertising, Media, and Information) and Retail Trade sectors. Tenants in Finance, Insurance, and Real Estate accounted for 39.5 percent of the occupied space, down from 51 percent in 2012. The job sector in the area also is becoming more diverse and from 2003 to 2014, private sector education and social service jobs increased by 116 percent; employment in professional services increased by 43 percent; and hotel, retail, and restaurant industry jobs rose by 29 percent.

The Business Outreach Center in partnership with the NYC Economic Development Corporation has launched the BXL Business Incubator in the Bank Note Building in the Hunts Point section of the Bronx, the Bronx Times reports. The Business Outreach Center has 90 members and offers affordable space to 60 entrepreneurs with room for at least 60 more. The 11,000-square-foot space was previously leased by another business incubator.

City Requests Feasibility Study for Sunnyside Yards

This week we’re highlighting the city’s request for a feasibility study for Sunnyside Yards, a new tenant task force, a ruling to evict a rent stabilized tenant using Airbnb, the 421a program, and updates on new developments.

The NYC Economic Development Corporation is requesting proposals from “a consultant or a consultant team to study the engineering and financial feasibility of developing atop Sunnyside Yards in Queens. “The agency is seeking a team to “holistically evaluate specific factors such as the technical/physical configuration and requirements of proposed deck structures over the rail yards, infrastructure/utility requirements, costs, local impacts, environmental issues, and implementation strategies. The Consultant shall provide and/or procure certain planning, engineering, cost estimating, public outreach, and preliminary design services related to the Project.” An information session will be held March 2 and the deadline for submission is March 20.

Governor Andrew Cuomo, Attorney General Eric Schneiderman, and Mayor Bill de Blasio announced the Tenant Harassment Prevention Task Force, a joint enforcement task force created to investigate and bring enforcement actions – including criminal charges – against landlords who harass tenants. “The new task force will conduct joint cellar-to-roof inspections, coordinate enforcement actions, and when necessary speed the prosecution of predatory landlords who purposefully distress properties as a form of harassment in order to displace tenants and deregulate rent-stabilized apartments,” according to the mayor’s announcement, which noted that tenant harassment complaints in Housing Court have nearly doubled since 2011.

A Manhattan Housing Court judge ordered the eviction of a rent stabilized tenant who was using his unit for short-term rentals on Airbnb, the NY Post reports. “Using a residential apartment as a hotel room and profiteering off of it is grounds for eviction … as it undermines a purpose of the Rent Stabilization Code,” Justice Jack Stoller wrote in his 12-page ruling issued Feb. 17. The tenant paid $6,670 for a regulated apartment with a market value of $9,000 apartment at 450 West 42nd Street and then listed it for $649 a night. State Sen. Liz Krueger, a critic of Airbnb, says the site encourages tenants to violate the terms of their leases, which puts them at risk of eviction.

Without the 421a tax exemption program, “The city would see a sharp drop off in the production of new housing units; a further skewing of the residential market toward condominium rather than rental production; and an accelerated tightening of housing costs for renters and buyers alike,” according to Steven Spinola, president of REBNY. The program has been instrumental in building affordable housing since the mid-1980s and is necessary to offset the tax burden (rental housing now pays more than 30 percent of its gross revenue to taxes), and rising construction and land costs.

The Park Hyatt hotel at One57 is paying 10 times more in taxes than the office building that was on the site before the new tower was built, according to a NY Post article examining the 421a tax abatement program. “In 2008-09, the market value of just the office building was $11.3 million and taxes were $259,462. The following year, taxes were $340,199 and in the declining market and start of construction in 2010-11, the value fell to $4,902,800 but the tax bill was still $230,025. Now, in the 2014-15 tax year, the new Park Hyatt hotel alone paid $3,496,613.06 in taxes and starting in July 2015 could pay $5,734,576.” The article also noted that the owners of the condos in the building are also paying hefty tax bills.

The city is seeking zoning code changes that will make it easier and less expensive to build affordable housing, the WSJ reports. The proposal, which will require City Council approval, would eliminate the parking space requirement for affordable units, allow taller buildings with higher ceilings and retail on the ground floor without sacrificing units, and adopt brownstone architectural designs such as first floors elevated from the street and buildings with courtyards set back from the street. It is estimated that these zoning changes could encourage the development of hundreds of new units of housing.

The city’s first micro-apartment complex, My Micro NY at 335 East 27th Street, will begin leasing 55 units from 260 to 360 square feet for $2,000 to $3,000 a month this summer, the NY Times reports. A zoning variance was required to allow the construction of these apartments because they are less than the required 400 square feet. More developers are seeking to build micro apartments that cater to single New Yorkers, who make up about half of the city’s population, up from about one-third in 1970. Of the single New Yorkers, only 19 percent are under 35 years old, while the number of singles 65 and older has increased by 10 percent since 2000.

The private companies developing Hudson Yards, Essex Crossing, Hallets Point, Astoria Cove, and Pacific Park are creating 21st Century cities much like their predecessors did in the early 20th Century in Forest Hills Gardens and Stuyvesant Town, according to a Daily News profile of the projects. The new complexes are building apartments, offices, schools, retail, supermarkets, and public spaces. One of the challenges of a long-term megaproject, however, is seeing it through several real estate cycles, which is why the Related Companies refuses to start construction on a building at Hudson Yards without securing commitments from major tenants.

Delancey Street Associates, the developers of Essex Crossing, have agreed to partner with 32BJ SEIU, New York City’s largest property workers service union, and the Lower East Side Employment network to implement a jobs skills training program to help members of the community gain employment at the project. Under the agreement, up to 80 full-time jobs with health insurance and retirement benefits will be created for local residents. This summer, Delancey Street Associates, comprised of BFC Partners, L+M Development Partners, and Taconic Investment Partners, is scheduled to break ground on the first phase of the project, 561 apartments, 313 of them affordable.

Bronx Borough President Ruben Diaz Jr. delivered his State of the Borough speech at the Mall at Bay Plaza, the borough’s new retail center. The borough president highlighted a number of initiatives planned for the Bronx including a 300,000-square-foot, state-of-the-art television and film studio with eight new sound stages in the Soundview neighborhood; a massive mixed-use development along the Harlem River waterfront from south of the 3rd Avenue Bridge to 149th Street; Fordham Landing, which could revitalize the northwest Bronx with 1 million square feet of residential, commercial, community, and recreational space; new development around the four proposed Metro North stations in the eastern section of the Bronx; and possibly decking three Bronx train yards-149th Street, the Grand Concourse near Lehman College, and the 1 train yards connecting Riverdale and Kingsbridge-to spur housing and economic development.

Simone Development Companies has been selected to develop a new 1.9 million-square-foot office, academic, and medical center on 33 acres of surplus state-owned land at 1500 Waters Place near the planned Metro-North Station in the Morris Park section of the Bronx, Empire State Development announced. In addition to medical office space, the project will include a retail plaza, a 150-room hotel, 100,000 square feet of space for higher education, community meeting space, and brand new recreational fields and amenities for the Morris Park community. Thousands of new permanent jobs and 1,900 construction jobs will be created in the $400 million development. The land was part of the 76-acre Bronx Psychiatric Center campus, which is downsizing to a smaller 43-acre complex. The state entered into a preliminary sale agreement with Simone for $16 million.

Women’s Housing and Economic Development Corporation and Blue Sea Development Corporation are close to breaking ground on a 12-story, 361,600-square-foot, mixed-use development on Elton Avenue between 162nd and 163rd Streets in the Bronx, the Bronx Times reports. The ground floor of the building will be the permanent home of the Bronx Music Heritage Center and also house 25,000 square feet of commercial retail space. The residential section will include 270 affordable apartments, of which 40 units will be reserved for elder musicians from the Bronx Music Heritage Center.

New York City Economy Grew by 2.8 Percent in the Fourth Quarter

This week we’re highlighting 2014 economic data released by the City Comptroller, the mayor’s new budget, a pledge by the City Council speaker to protect manufacturing zones, and updates on real estate developments throughout the city.

Real gross city product grew at an estimated annual rate of 2.8 percent in the fourth quarter 2014, a “healthy but still weaker pace” than the third quarter’s 4.2 percent growth, according to City Comptroller Scott Stringer’s Economic Update. New York City added 88,900 private sector jobs in 2014, a 2.6 percent increase, and the unemployment rate fell to 6.3 percent in the fourth quarter, the lowest quarterly average rate in over six years. Personal income tax revenues rose 10.8 percent year-over-year to over $2.3 billion in the fourth quarter, the highest fourth quarter on record, and hotel occupancy rates remained above 90 percent. Total venture capital investment in the New York metro area in 2014 exceeded $5 billion, which was about 59 percent higher than in 2013.

Mayor Bill de Blasio’s preliminary budget for Fiscal Year 2016 includes investments to address the homeless crisis. The budget includes $28.4 million for rental assistance and to move homeless New Yorkers out of shelters; $8.6 million for prevention programs and support services to keep New Yorkers stably housed; and $4.3 million for the PATH Community-Based Demonstration Project to improve family services like counseling and eviction prevention. The budget also includes $340 million for high-quality, full-day universal Pre-K for all four year olds, and $190 million to expand after-school programs for over 100,000 middle school students.

Mayor Bill de Blasio recently joined the new speaker of the state Assembly Carl Heastie to call for stronger rent laws, Capital New York reports. Assemblyman Heastie said rent reforms are his “number one priority” after the state budget. A bill has been introduced in the State Senate and Assembly to repeal vacancy decontrol and re-regulate most of the 250,000 apartments that have been removed from the rent stabilization program. Landlords counter that vacancy decontrol benefits the remaining rent stabilized tenants because it ensures that owners have the funds to invest in capital improvements in order to provide clean, safe, and comfortable apartments.

Calling jobs in manufacturing “gateways to the middle class for many first-generation immigrants,” Council Speaker Melissa Mark-Viverito has pledged to protect the city’s 21 industrial and manufacturing zones, Crain’s reports. Speaker Mark-Viverito said in her State of the City speech that the City Council will use the recommendations made in its industrial report issued in November as the framework to “protect industrial space and support growth in the city’s traditional manufacturing sectors, like furniture and ethnic food, and also nurture growing creative-sector industries.” The mayor is seeking to build affordable housing in some of the manufacturing zones.

Corruption charges were filed in the State Supreme Court in Manhattan against 11 employees from the Department of Buildings, five employees from the Department of Housing Preservation and Development, and 31 property managers, owners, and construction industry workers. The city workers are accused of taking bribes to clear complaints and stop-work orders, expedite inspections, or, in one case, order tenants to vacate a building in Bushwick, Brooklyn. The indictments are the result of a two-year investigation.

REBNY’s Broker Confidence Index rose to 9.22 in the fourth quarter, from 8.80 in the third quarter of 2014 and 9.00 in the fourth quarter of 2013, REBNY reports. Both residential and commercial brokers reported increased levels of confidence in the market now and six months from now, due to healthy activity and the steady rise in prices. The Residential Broker Confidence Index increased to 8.85 in the fourth quarter of 2014, from 8.23 in the third quarter of 2014 and 8.52 in the fourth quarter of 2013. Brokers attributed this increase to the steady rise in pricing for sales and rentals, as well as the robust level of sustainable activity. The Commercial Broker Confidence Index increased to 9.60 in the fourth quarter of 2014, from 9.38 last quarter and 9.49 last year. Commercial brokers commented on strong financing and market activity, particularly within the TAMI (Technology, Advertising, Media and Information) sector and in Lower Manhattan.

Queens saw a year-over-year jump in rents in January with the median rental price increasing 30.7 percent to $2,905, and the average price rising 22.3 percent to $2,929, according to the Elliman Report. Listing inventory in Queens totaled 298 in January. Brooklyn saw the median price rise 2.5 percent to $2,901, the average rental price increase 4.5 percent to $3,201, and listing inventory jump 60 percent to 1,926 in January 2015 compared to January 2014. Year-over-year in Manhattan, the median rental price rose 5.9 percent to $3,299, while the average rental price rose 4.6 percent to $3,974 compared to January last year. Listing inventory in Manhattan increased 8.2 percent year-over-year to 5,498, and the vacancy rate rose to 2.43 percent.

Six projects in Brooklyn were among the 10 largest developments filing permit applications in January, the Real Deal reports. A 44-story, 691,405-square-foot, mixed-use building with 544 apartments is being developed by Cammeby International at 532 Neptune Avenue in Coney Island; a 398-unit, 265,629, seven-story residential building is planned on the site of the former Rheingold Brewery at 10 Montieth Street in Bushwick; Spitzer Enterprises is planning to develop a rental building with 200 units in about 149,000 square feet of residential space at 416 Kent Avenue in Williamsburg; a four-story, 142,183-square-foot Talmudic seminary is planned for 74-10 88th Street in Glendale, Queens; a seven-story, 121,000-square-foot medical office building is planned for 101 Pennsylvania Avenue in Brooklyn.; Adam American is planning a 133-unit, eight-story, 106,006-square-foot mixed-use building at 1535 Bedford Avenue in Williamsburg; L+M Development is planning a 12-story, 96,038-square-foot residential building with 108 units at 79 Avenue D in Alphabet City; New York Lions Group is planning an 18-story, 90,000-square-foot, 110-unit residential building at 42-10 27th Street in Long Island City; an 11-story, 68,056-square-foot residential building that will contain 65 affordable apartments and a house of worship is planned for 2763 Morris Avenue in the Bronx; and an 98-unit, eight-story, 67,253-square-foot building is planned for 953 Atlantic Avenue.

Instead of building shiny tall towers, several developers in Hell’s Kitchen have opted to convert three existing rental buildings to luxury condos, the WSJ reports. The projects include Fifty Third and Eighth, a 36-year-old, 25-story rental at 301 W. 53rd Street that has been converted to 252 one- to three-bedroom condos ranging from $1.1 million for one bedrooms to $1.7 million to $2 million for three bedrooms; Stella Tower, which features 51 condos ranging from $1.8 million to $6.2 million for one- to three-bedroom units in the former Bell Telephone building at 425 W. 50th Street; and 432 W. 52, a former nurses’ dormitory, which is offering 55 condos including studios starting at $620,000, one bedrooms at $850,000, and two-bedrooms at $1.3 million.

A boutique condo at 1188 Bedford Avenue in Bedford Stuyvesant is coming to market with units priced at nearly $1,000 per square foot, a price that’s becoming the norm for condos in the neighborhood of brownstones, DNAinfo reports. The 14 units range from $379,000 for a 400-square-foot studio to $825,000 for an 850-square-foot two-bedroom with two baths. In addition to Bedford Avenue, new condo developments are rising along DeKalb and Throop Avenues, and in Stuyvesant Heights. In 2014, average condo sales in Bedford Stuyvesant rose 25 percent from the previous year to $604,000, with the average price per square foot increasing 12 percent to $770.

Investment Property Sales Rise Dramatically Across All New York City Submarkets In 2014

Ariel Property Advisors has released its 2014 year-end sales reports for Manhattan, Brooklyn, Queens, Northern Manhattan, and the Bronx, showing dramatic gains in dollar volume throughout the city. The summaries below include links to each report.

Manhattan Year-End Sales Report

Manhattan Investment Property Sales Rise 22 Percent to $31.8 Billion in 2014 vs. 2013

Investment property sales in Manhattan rose 22 percent to $31.8 billion in 2014 compared to 2013, according to Ariel Property Advisors’ Manhattan 2014 Year-End Sales Report. For the year, 870 investment properties traded over 715 transactions in Manhattan compared to 883 properties over 696 transactions the previous year.

Highlights: With 50 transactions totaling over $10.5 billion, the office product class continued to dominate Manhattan’s total dollar volume in 2014, accounting for 33 percent of the aggregate. Development site sales in Manhattan increased 13 percent year-over-year to $5.966 billion and jumped a significant 73 percent over 2012. The number of development sites traded last year rose 19 percent to 215 compared to the year before. For a copy of the report, click here.

Brooklyn Year-End Sales Report

Brooklyn’s Development Boom Continued Unabated in 2014

Brooklyn’s development boom continued unabated in 2014 accounting for nearly a third of the $6 billion in investment property dollars spent in the borough last year, according to Ariel Property Advisors’ Brooklyn 2014 Year-End Sales Report. More than 9.8 million buildable square feet of development properties traded for over $1.8 billion in 2014, a 28 percent increase in dollar volume from 2013 and an 84 percent increase in dollar volume since 2012.

Highlights: Year-over-year, transaction volume for all asset classes in Brooklyn rose 25 percent to 1,323, nearly half of all the transactions in New York City last year, and the dollar volume jumped 42 percent to over $6 billion. Brooklyn’s multifamily sales accounted for a majority of the borough’s commercial real estate transactions during 2014. With 856 transactions consisting of 1,040 properties, multifamily properties were responsible for more than half of the investment dollar volume in Brooklyn during the year. Year-over-year, the average cap rate compressed 79 basis points to 4.96 percent in 2014. Additionally, the average gross rent multiple jumped by nearly more than 2.0 points to 13.28. For a copy of the report, click here.

Queens Year-End Sales Report

Queens Investment Property Sales Rise to $3.65 Billion in 2014, 25 Percent Higher Than Previous Year

Investment property sales in Queens rose to $3.65 billion in 2014, a 25 percent jump from the previous year, according to Ariel Property Advisors’ Queens 2014 Year-End Sales Report. Year-over-year, transaction volume increased 29 percent to 706, and the number of investment properties traded rose 25 percent to 925.

Highlights: Development site sales accounted for nearly third of the dollars spent on investment properties in Queens last year, as demand continued to accelerate for this asset class. Queens saw over $1 billion in development site sales, a tremendous 48 percent gain in dollar volume compared to 2013, and a 191 percent jump compared to 2012. Investors continued to demand multifamily buildings in Queens in 2014 with multifamily transactions rising 44 percent to 338, the number of properties traded increasing 39 percent to 414, and total dollar volume of $1.276 million, a slight 8 percent decline, compared to 2013. For a copy of the report, click here.

Northern Manhattan Year-End Sales Report

Northern Manhattan Investment Property Sales Increase 49 Percent Year-Over-Year to $3.22 Billion in 2014

Investment property sales in Northern Manhattan jumped 49 percent to $3.22 billion in 2014 compared to 2013, according to Ariel Property Advisors’ Northern Manhattan 2014 Year-End Sales Report. Transaction volume in 2014 increased 19 percent to 377 and the number of properties sold rose 8 percent to 584, compared to 2013 which recorded 541 properties sold over 316 transactions valued at $2.16 billion.

Highlights: Multifamily properties hit new pricing highs in 2014, surpassing previous records seen in 2007. The average cap rate fell to 4.63 percent, while some transactions with significant upside saw cap rates as low as 3 percent. The average gross rent multiple rose 1.6 points, ending the year at 12.67; the average price per unit rose 31 percent to a record $237,865; and the average price per square foot rose 22.5 percent to $266, above the 2007 peak of $239 per square foot. For a copy of the report, click here.

Bronx Year-End Sales Report

Bronx Investment Sales Rise to $2.39 Billion in 2014

Bolstered by large multifamily portfolio transactions and several game-changing commercial and development deals, the dollar volume of investment sales in the Bronx rose above $2.39 billion, a 39 percent increase from the previous year and a 55 percent jump from 2012, according to Ariel Property Advisors’ Bronx 2014 Year-End Sales Report. Investment sales transaction volume increased by 11 percent to 342, and the number of properties traded increased 20 percent to 577 in 2014 compared to 2013.

Highlights: Multifamily dollar volume year-over-year rose 67 percent to $1.8 billion and the number of multifamily properties traded jumped 45 percent to 401 compared to 2013. The multifamily market accounted for 65 percent of the borough’s investment sales transaction volume and 77 percent of its dollar volume. As a further indication of the strong market, the average cap rate compressed from 7.71 percent in 2013 to 6.16 percent in 2014. Additionally, the average gross rent multiple grew from 7.24 to 8.54 over that same period. The Bronx 2014 Mid-Year Sales Report For a copy of the report, click here.

The Manhattan 2014 Mid-Year Sales Report tracks all development, multifamily, industrial, and other commercial property sales over $1 million, while the Brooklyn, Queens, Northern Manhattan, and Bronx reports track all development, multifamily, industrial, and other commercial property sales over $850,000.

Our Observations For the Week

U.S. businesses created 257,000 new jobs in January, and the unemployment rate ticked up slightly to 5.7 percent from the previous month’s 5.6 percent as more workers reentered the job market, the Labor Department reported. More than 1 million jobs have been created in the last three months, indicating that the economy is on track for a healthy recovery, the WSJ reports. Also, after years of sluggish wage growth, average hourly earnings are rising, showing an increase of 0.5 percent last month and an increase of 2.2 percent over the last year. Wages increased 3 percent or more annually before the recession.

The creation and preservation of affordable housing was the centerpiece of Mayor Bill de Blasio’s State of the City address last week. The administration is proposing that the city build 80,000 affordable units by 2024; preserve 120,000 affordable units; and build 160,000 market rate units. Developers will be required to include affordable units in all residential buildings constructed in areas targeted for major rezonings including East New York in Brooklyn; Long Island City and Flushing West in Queens; the Jerome Avenue corridor in the Bronx; downtown Staten Island; and East Harlem. The administration proposes to partner with Amtrak and the MTA to build an 11,250-unit complex on the 200-acre Sunnyside Yards in Queens, and plans to make a $200 million capital investment to stimulate the creation of 4,000 units of housing, most of them affordable, on the South Bronx waterfront. The mayor also noted that the Rent Guidelines Board passed the “smallest rent increase ever last year—helping protect tenants from being squeezed by their landlords.” In addition, he announced a citywide ferry service and expansion of the Bus Rapid Transit system to connect residents to jobs in Manhattan.

Although the demand for affordable housing is great, some residents of neighborhoods targeted for upzonings by the de Blasio administration are concerned that his plans will lead to gentrification, which in the end will make their neighborhoods less affordable, the NY Times reports. The administration is proposing taller buildings along several commercial corridors in East New York, but local residents fear that the market rate apartments “could gut neighborhoods, not preserve them.” In Prospect-Lefferts Gardens a request for a Planning Department study to upzone a stretch of Empire Boulevard has been met with strong opposition because of concerns that a rental building with 80 percent luxury units would decrease the community’s affordability while the remaining affordable units wouldn’t serve the low-income families that need it most.

Queens political leaders also expressed concerns about Mayor Bill de Blasio’s proposal to build 11,250 affordable units of housing at the 200-acre Sunnyside Yards because of the pressure it would put on the area’s already overcrowded schools, buses, and train lines, DNAinfo reports. The mayor said the development would be similar to Stuyvesant Town and plans to begin a feasibility study this month to assess the costs and other factors associated with the project.

A new study has explored the link between public transportation and employment and ranked 177 New York City neighborhoods by the number of jobs accessible by mass transit within 60 minutes during rush hour, DNAinfo reports. The study noted that the highest incomes were in neighborhoods with the greatest access to public transportation, while areas without adequate transportation options saw higher unemployment. Co-author Mitchell L. Moss said, “The city can probably do more to reduce inequality by improving transportation than by improving education.” Mayor Bill de Blasio announced two transportation initiatives in his State of the City address—launching a ferry network and expanding the Bus Rapid Transit system.

Developers are rushing to break ground on new projects in an effort to beat the June 15 expiration of the 421a tax abatement program, Crain’s reports. Launched in 1971 to encourage development during a period of disinvestment and flight, the future of the 421a program after June 15 is uncertain. Developers noted that rising land prices and construction costs will make building rental apartments hard to justify financially without the current 421a abatement. As a result, development sites that have already secured construction permits are currently the most sought after by investors.

In 2014, the median sales price of Manhattan co-ops and condos increased 9.9 percent from the previous year to $940,000, and rose 25.3 percent compared to the previous decade, according to the Elliman Report’s 2005-2014 Manhattan Decade report. The average sales price rose 19 percent to $1.7 million year-over-year, and 40.7 percent from the previous decade. At 12,695, the number of sales remained virtually the same in 2014 as the year before, but rose 63.2 percent compared to 2005. While the listing inventory increased 20 percent to 4,995 in 2014 compared to 2013, it was 33.3 percent lower last year compared to 2005 when the listing inventory was 7,489.

New York City reached an all-time record 56.4 million visitors in 2014, of which 44.2 million came from U.S./domestic locations, while 12.2 million came from international locations, according to an announcement by Mayor Bill de Blasio. Tourists generated a record $61.3 billion in overall economic impact, supporting 359,000 tourism related jobs and $21 billion in wages. The city’s hotel sector reached 102,000 hotel rooms last year, while selling a record 32.4 million total hotel room nights, an all-time high. The tourism industry also generated $3.7 billion in local tax revenues. Average hotel occupancy for the year finished at 89 percent, while average daily room rates citywide finished the year at $295. Both occupancy rates and room rates in New York City are the highest in the country.

NYC Multifamily Volume Jumps 39 Percent Year-Over-Year In 2014, Report Shows

The New York City multifamily market saw large year-over-year gains in 2014 with dollar volume jumping 39 percent to $12.59 billion, according to Ariel Property Advisors’ Multifamily Year in Review: New York City 2014.

Multifamily Year In Review

Transaction volume also rose 8 percent to 761 and building volume increased 13 percent to 1,413, compared to 2013 which saw 1,250 buildings sell over 704 transactions valued at $9.075 billion.

Institutional transactions $20 million and above in Manhattan and the outer boroughs played a significant role in making 2014 a standout year, accounting for more than 50 percent of all dollar volume in every submarket other than the Bronx, where it was 47 percent. Neighborhoods that were particularly active were the Upper East Side, Kew Gardens in Queens, Morrisania in the Bronx, and East Harlem.

“The market continued to experience strong sales volume and the elevated demand pushed prices higher throughout the boroughs,” said Shimon Shkury, president of Ariel Property Advisors. “The Bronx had an especially good year in terms of pricing, but while the average cap rate in the borough dropped 100 basis points year-over-year, at 6.07 percent it is still higher than the rest of the city. Recording 222 transactions, Brooklyn saw more transactions than any other submarket.”

While a number of factors played a role in driving dollar volume and pricing significantly higher in 2014, the strengthening market for residential end-users has increasingly taken center stage. With condominium prices surging to record highs, an increasing number of multifamily building purchases are being made with the intention to convert the existing rental properties to condominium use. This is translating to higher prices per square foot in Manhattan, rising to $866 per square foot in 2014, a 25 percent increase compared to 2013. Manhattan’s dollar volume also rose by 15 percent year-over-year, even as its transaction volume decreased slightly. Outer markets such as The Bronx, Brooklyn, and Northern Manhattan experienced similar market and price expansion.

The following are key highlights from the report:

Manhattan. Dollar volume for multifamily transactions in Manhattan increased 15 percent to $5.138 billion, despite a slight drop in the number of transactions taking place. This supports the perception that Manhattan is viewed as one of the world’s greatest investor safe-havens, for current owners are choosing not to sell because they cannot find suitable replacement assets that offer the same returns and upside, and buyers are paying ever higher premiums to own core Manhattan assets. Specifically, the Upper East Side claimed four of the top 10 largest multifamily deals in New York City in 2014, including the $485 million sale of two mixed-use elevatored buildings located at 1660 2nd Avenue and 160 East 88th Street.

Brooklyn. Brooklyn had a tremendous year with more than $2.35 billion in multifamily sales, a year-over-year increase of 88 percent, and 222 transactions, more than any other submarket. Brooklyn also claimed some of the most active neighborhoods in the city including Bushwick, Bedford-Stuyvesant, Crown Heights, and Williamsburg. Sales of core multifamily buildings extended to other neighborhoods as well. In December, a luxury rental building at 101 Third Avenue in Boerum Hill sold to a European investor for $52.2 million, which translates to an impressive $746 per square foot.

Bronx. Investor confidence is very high in the Bronx market heading into 2015 as the average multifamily capitalization rate dropped more than 100 basis points in the past year to 6.07 percent. The bourgeoning South Bronx has attracted a slew of investors, developers, and tenants to pair with a strong pipeline of residential and hotel developments, which had a positive effect on the entire borough’s pricing. While transaction volume in the Bronx was up 18 percent from 2013 to 186, dollar volume increased 49 percent to $1.625 billion.

Northern Manhattan. With catalysts such as the 125th Street revitalization, rising prices in core Manhattan, and an improving retail scene, investors continue to flock to Northern Manhattan as they look to capitalize on rising rents. East Harlem saw some dramatic growth this year, with some multifamily assets selling for more than $400 per square foot. While Northern Manhattan saw some of the highest dollar volume growth relative to other areas covered in this reports rising 116 percent to $2.59 billion, it’s worth noting that a large portion of that came from the $1.040 billion sale of Urban American to Brookfield.

Queens. Queens followed up on a robust 2013 with a solid year, totaling $884 million multifamily sales – down 17 percent from last year. Of note, a Kew Gardens Hills portfolio made up of 12 elevatored buildings and 1,269 units sold for $216 million, or $209 per square foot. Rents continued to climb throughout the borough, most notably in the neighborhoods of Northwest Queens like Astoria, Long Island City, and Sunnyside. Queens has traditionally been known as a submarket that sees relatively few multifamily buildings change hands. Given all of the positive activity throughout the borough, many owners chose to hold off selling in 2014 as the borough continues to appreciate.

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. 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. Shkury at 212-544-9500, ext. 11, or sshkury@arielpa.com. For a copy of the report, please see http://arielpa.com/newsroom/report-MFYIR-2014.

Our Observations For the Week

Real gross domestic product – the value of the production of goods and services in the U.S. – increased at an annual rate of 2.6 percent in the fourth quarter of 2014, according initial estimates released by the Commerce Department. In the third quarter, real GDP rose 5.0 percent. The slowdown was attributed in part to an increase in imports because of the strengthening dollar and a decline in exports because of the softening world economy. Consumer spending rose, however, because of the improving job market and falling gas prices.

Fed policymakers announced they would continue to maintain short-term rates near zero but have indicated they may raise rates midyear, the WSJ reports. While the latest Fed policy statement noted that the labor market is improving, inflation remains below the target of 2 percent, largely because oil prices have dropped 60 percent since June. In response to the announcement, the dollar strengthened against the Euro, which accelerated another drop in crude-oil prices.

U.S. homeownership fell to 64 percent in the fourth quarter 2014, the lowest level since the second quarter of 1994, Bloomberg reports. The share of first-time homebuyers also declined in 2014 to the lowest level in nearly three decades, but the rental market benefited from the shift. U.S. households grew by 1.66 million in the fourth quarter from the previous year, while owner-occupied homes fell by 0.5 percent and renter-occupied apartments increased by 5 percent.

The Department of City Planning is reviewing potential legal hurdles to the city’s mandatory inclusionary zoning policy, which will require developers to set aside a percentage of affordable housing in projects built in areas rezoned to allow increased density, Crain’s reports. Although the department is confident the program “will withstand legal scrutiny,” others speculated opponents could invoke the Urstadt Law, which gives the state power over rent regulation. In California, a 2009 lawsuit charged that mandatory inclusionary housing violated state law, resulting in most city’s abandoning the affordable requirement.

The de Blasio administration is defending the 421-a program as a means to produce affordable housing, but some City Council members claim the tax abatement program is contributing to the affordability crisis, Crain’s reports. Vicki Been, head of the Department of Housing Preservation and Development, said 421-a helps create affordable housing in affluent neighborhoods, bringing income diversity into those areas. However, Councilman Brad Lander charged that the program drives up land values.

Last year, 1.5 million applicants sought 2,500 new affordable apartments through 41 lotteries run by the city’s Department of Housing Preservation and Development, the NY Times reports. As a result, City Councilman Mark Levine is seeking to create a task force to examine the system. In a lottery in Councilman Levine’s Upper Manhattan district, about three-fourths of the applicants screened were rejected mostly because their earnings were too low, they failed to provide necessary paperwork, had trouble producing tax records, or proving creditworthiness because their employment histories consisted of many short-lived or low-paying jobs.

Up to 7,000 apartments may be reserved for affordable housing in new developments in East New York over the next 15 years as part of the Department of City Planning’s rezoning proposal for the neighborhood, DNAinfo reports. Under the plan, 12-story residential buildings and retail would be allowed on Atlantic Avenue from Conduit to Jamaica Avenue, while the low-rise character of the interior blocks would be maintained. The draft plan will be discussed at a public meeting February 18.

Hotel occupancy rates in the outer boroughs rose as high as 81 percent between January and November 2014, compared to a 65 percent occupancy rate typical in other hotel markets, Crain’s reports. It is estimated that of the nearly 56 million tourists that visited the city last year, 22.5 million stayed in hotels. The outer boroughs are adding more hotels with about 23 of the nearly 50 hotels planned for Queens being built in Long Island City; Brooklyn has 50 hotels and is projected to add 20 more by 2017; and the Bronx has 400 hotel rooms but five hotels are either in the planning or construction phase in the borough.

The Brooklyn Bridge Park Corporation signaled plans to include affordable housing in two residential buildings at Pier 6, the last development site in the 1.7 mile waterfront park, the WSJ reports. Although public funds were used to build Brooklyn Bridge Park, it was designed to be self-sufficient by using income generated from the commercial sites in the park to cover its operational and maintenance expenses. A lawsuit has been filed seeking to block building the two additional residential buildings at Pier 6 in order to maintain the area as park land.

Governor Pledges $486 Million for Affordable Housing

This week we’re highlighting Governor Cuomo’s State of the State address, more job gains in New York City, and updates on local developments.

In his State of the State address, Governor Andrew Cuomo pledged $486 million for affordable housing. In 2015-16, $229 million in capital resources will be invested as part of the state’s five-year House NY program, and nearly $257 million in JP Morgan mortgage settlement proceeds will be set aside for housing. The governor also pledged $250 million for the Penn Station Access project, which will build four new Metro North stations in the Bronx at Co-op City, Parkchester/Van Nest, Morris Park, and Hunts Point to enable access from the eastern section of the Bronx to Penn Station.

New York City showed a net gain of 94,600 jobs between December 2013 and December 2014, bringing the city’s job count to 4,145,900, according to the NY State Labor Department. The city’s unemployment rate remained 6.3 percent in December, while the state unemployment rate fell slightly to 5.8 percent from 5.9 percent in November.

Tenant advocates are calling for an end to the 421-a tax abatement program, which is set to expire in June, Capital reports. The coalition claims that the program has outlived its usefulness and that “luxury housing produced through 421-a fuels gentrification and displacement.” Proponents say the program is important to the de Blasio administration’s goal of building 80,000 affordable housing units because developers are required to set aside at least 20 percent of their units for affordable housing.

City Councilwoman Margaret Chin is pushing a bill that would require landlords to keep 10 percent of a building’s rent roll in escrow to pay for tenants’ temporary housing if a building is vacated because of safety violations, DNAinfo reports. While 12 City Council members have signed onto the bill as co-sponsors, it has not been brought before the Committee on Housing and Buildings.

Prices for Manhattan development sites have reached such dizzying heights that long-time owners are now willing to sell, Crain’s reports. One owner received an $800 million bid for a parking lot near the High Line that he purchased for $2.4 million in the 1980s. The rising prices have prompted owners of several large residential development sites between 17th and 18th Streets to ask $1,000 or more per buildable square foot, which is a 50 percent increase from the previous year. With land prices that high, developers will have to ask $3 million or more for a 1,000-square-foot apartment just to break even.

The strengthening dollar and falling oil prices are reducing the purchasing power of international investors who buy nearly a third of the high-end condos in Manhattan, Bloomberg reports. Nearly 2,400 luxury condos with units priced at more than $2,300 per square foot are expected to hit the market in Manhattan this year, according to the Corcoran Sunshine Marketing Group.

Queens led the city in the number of demolition and new building permits issued in 2014, the Commercial Observer reports. Permits in Queens jumped 20 percent year-over-year with 643 new building permits and 575 full building demolition permits in 2014, compared to 2013 when 593 new building permits and 510 demolition permits were issued. Queens received fewer permits for housing units, however, with 3,789 permits issued in the first 11 months of 2014, compared to Brooklyn which was issued 6,934 housing permits and Manhattan which was issued 5,281.

Construction has started on Fifty Five Hudson, a 51-story, 1.3 million gross square foot, LEED Gold office tower at 33rd Street and 11th Avenue in Hudson Yards. The trophy office tower will be ready for tenant fit-out in 2017. Related Companies announced it has partnered with Mitsui Fudosan America, the U.S. operations of Japan’s largest real estate company and Oxford Properties Group to fully capitalize the tower in the 28-acre Hudson Yards development.

Developer Est4te Four has released renderings of its Red Hook Innovation Studios, an urban campus that will feature four new office buildings and a waterfront promenade in the Red Hook section of Brooklyn, the Brooklyn Daily Eagle reports. “The office buildings would surround a historic warehouse at 202 Coffey St. that’s slated for a makeover into a fashion, art and music event space,” according to the article. The developer recently picked up two more properties in Red Hook, 62 Ferris Street for $16 million and 219 Sullivan Street for $10 million.

A Comfort Inn by Marriot is under construction at 2471 Third Avenue between East 135th and East 136th Streets near the Harlem River waterfront in the South Bronx, the Bronx Times reports. The $12 million hotel is being built on the site of an abandoned gas station and is expected to offer rooms for $120 to $140 per night. Down the street, the Chetrit Group and Somerset Partners are planning to build six residential towers.

City Finances 17,300 Affordable Units in 2014

This week we’re highlighting reports on affordable housing and construction costs, proposed property tax cuts, and updates on developments throughout the city.

The city has financed the creation and preservation of more than 17,300 affordable units during calendar year 2014, according to Mayor Bill de Blasio. The units are located in all five boroughs-the Bronx, 5,518 units; Brooklyn, 5,190 units; Manhattan, 5,022 units; Queens, 1,044 units; and Staten Island, 602 units. With 11,185 preserved units and 6,191 new construction units financed, the city exceeded its first year projections by more than 1,300 affordable units. Based on average household size, these new and preserved units are enough to affordably house nearly 42,000 New Yorkers, the mayor said.

Between 2015 and 2024, more than 58,000 units of subsidized rental housing will be eligible to opt out of affordability restrictions, with a large number of these units located in high-cost neighborhoods in core Manhattan, according to a report by the NYU Furman Center. Between 2002 and 2011, many affordable buildings located in higher-amenity and higher cost neighborhoods converted to market rate, while new affordable units were built in neighborhoods with poverty rates averaging over 30 percent, violent crime in the top fifth of neighborhoods, and poor performing schools. Since 2000, only 6 percent of new subsidized affordable rental units have been located in Manhattan below 96th Street.

Construction costs in New York City increased by nearly 5 percent in 2013 and rose an additional 5 percent in 2014, the New York Building Congress reports. Although the recent drop in oil prices may lower some supply and delivery costs, construction costs could rise even higher since trades such as curtain wall and cast-in-place concrete are reportedly running out of capacity. A survey of construction executives found that costs varied by building type. For hospitals construction costs averaged $800-$950 per square foot; 5-star hotels, $700-800 per square foot; university buildings, $600-$850 per square foot; secondary schools, $500-$650 per square foot; and speculative office space, $425-$500 per square foot.

Governor Andrew Cuomo plans to include in his proposed budget a $1.7 billion break on property taxes, which will provide credits to more than 1 million property owners and 1 million renters, Bloomberg reports. The credits would be given to homeowners making less than $250,000 annually whose property tax is more than 6 percent of their income. Renters with incomes as high as $150,000 would qualify for a credit if a portion of their annual gross rent attributed to property taxes is higher than 6 percent of their income.

In the last seven years, New York City has added 30,000 hotel rooms bringing total number of rooms to 102,000, the NY Post reports. Additional rooms are in the pipeline and by 2016 the number of rooms is expected to reach 110,000. The city saw record tourism in 2014 with 55 million visitors and occupancy rates averaging 90 percent for 10 months of the year. A 3.4 percent increase in average daily rates boosted revenue by 4.3 percent per available room in the third quarter compared to the same period the year before.

The Chetrit Group and Somerset Partners plan to build a complex of at least six residential towers on the waterfront in the Port Morris section of the South Bronx, the Real Deal reports. The towers will average 25 stories and will initially be marketed as rentals but condos may be offered later. The developers bought a block-long lot at 101 Lincoln Avenue more than a month ago and just picked up a second, adjacent lot consisting of 1.5 acres on the waterfront. Together the sites offer 1.2 million buildable square feet. The developers are reportedly seeking a third site nearby with 300,000 buildable square feet.

The family of the late Bess Meyerson, former Miss America and city commissioner, joined hundreds of other Jewish residents fleeing the Lower East Side in the 1920s and moved to the spacious and utopian Sholem Aleichem Cooperative Houses on Sedgwick Avenue south of Van Cortlandt Park in the Bronx, according to a profile in the NY Times. The Sholem Aleichem Cooperative Houses were created by families affiliated with the Workmen’s Circle and named for the Yiddish writer whose work inspired “Fiddler on the Roof.” The complex suffered financial challenges in the Great Depression and the most recent recession, but in 2013 Chestnut Holdings purchased the property and is upgrading it.

The Department of City Planning will begin studying a 100-block area of Long Island City to assess whether it has the infrastructure, including schools and transportation, to accommodate greater density through upzoning, the WSJ reports. The area around Queens Plaza is one of the 15 communities under review citywide for possible upzoning to encourage the development of affordable housing. In 2001, the city rezoned 34 blocks of Long Island City between Queens Plaza and Court Square, which has led to the development of 8,000 units of housing since 2006 and nearly 20,000 more now under construction.

The pace of development in downtown Brooklyn is continuing at a rapid clip and more than 13,000 affordable and market-rate residential rental units are in the works, the WSJ reports. BKLYN AIR, a 40-story luxury condo that opened at 309 Gold Street in July was 75 percent occupied in five months, and another 70-floor residential building is planned for the corner of Gold and Willoughby Streets. A 53-story condo-rental at 388 Bridge Street opened last June and to date 90 percent of the 234 rentals are leased and about 50 percent of the 144 condos have sold. Projects coming online include the 861-unit rental at 214 Duffield Street; 120 luxury rental lofts in a 19th-century conversion at 248 Duffield Street; and 250 mixed-income and 440 market-rate apartments at City Point, which abuts Gold Street.

The median sales price of homes in Brooklyn rose 2.6 percent to $585,000 in the fourth quarter of 2014 compared to the fourth quarter of 2013, while the average sales price increased 9.9 percent to $756,569 during this period, according to the Elliman Report. Sales dropped 3.1 percent year-over-year to 1,697, and listing inventory increased 41 percent to 6,015.

In Queens, the median home sales price rose to $430,475 in the fourth quarter 2014, a 15.5 percent jump from the fourth quarter 2013, and the average sales price rose to $492,217, a 14.1 percent year-over-year increase, according to the Elliman Report. The number of sales fell 22.5 percent to 2,590, and the listing inventory increased 6.7 percent to 5,602.

Average rents in Manhattan declined 1.2 percent to $3,960 in December 2014 compared to December 2013, according to the Elliman Report. Listing inventory in Manhattan fell 14.3 percent to 5,493, and the vacancy rate declined slightly to 2.52 percent. Average rents in Brooklyn declined 1.3 percent year-over-year to $3,139, and the listing inventory increased 17.5 percent to 1,893. In Queens, average rents rose 4.9 percent year-over-year to $3,015, and listing inventory totaled 254.