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NYC Construction Spending Close to Boom Era

This week we’re highlighting the rise in New York City construction spending, increase in existing home sales nationwide, new public health restrictions, and updates on projects throughout the city.

New York City will spend $32.9 billion on construction in 2014, a 17 percent increase from 2013, when spending reached $28.2 billion, according to estimates by the New York Building Congress. Construction spending is expected to increase to $35.3 billion in 2015 and $35.6 billion in 2016. The Building Congress is forecasting residential spending of $10.9 billion in 2014, which is an increase of $4.1 billion from 2013, $11.7 billion in 2015, and $12.4 billion in 2016. While residential spending is expected to rise by 60 percent this year, the number of new units produced is expected to increase by only 22 percent, from 18,400 units in 2013 to 22,500 this year, in part because so much of the new construction is in the luxury market. The Building Congress forecasts a total of 23,250 new units in 2015 and 24,000 units in 2016, compared to 33,200 units built for $5.9 billion in 2008.

Nationwide, existing-home sales reached their highest annual pace of the year in September, the National Association of Realtors® reports. All major regions except for the Midwest experienced gains in September. Total existing-home sales1, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 2.4 percent to a seasonally adjusted annual rate of 5.17 million in September from 5.05 million in August. Sales are now at their highest pace of 2014, but still remain 1.7 percent below the 5.26 million-unit level from last September.

The governors of New York and New Jersey announced that individuals who have had direct contact with Ebola patients in Liberia, Sierra Leone, or Guinea will be quarantined for 21 days after arriving at JFK or Newark airports. Other air travelers from the affected region that haven’t had direct contact the virus will be actively monitored and quarantined if necessary. The new measures were adopted the day after Craig Spencer, a doctor who worked with Ebola patients in Guinea, tested positive for Ebola after taking NYC public transportation and patronizing local restaurants and a bowling alley in Manhattan and Brooklyn.

The city will offset rising construction costs and land prices by reducing the time it takes to get a project approved, Housing Preservation and Development Commissioner Vicki Been reportedly said at a recent Urban Land Institute conference. The city will not raise subsidies for affordable housing, the commissioner said, which means land owners will have to adjust their asking prices so new housing can be built. Construction costs have risen by $40 or $50 per square foot for affordable and middle-income housing in the last eight or nine months, developer Jonathan Rose said.

Astoria City Councilman Costa Constantinides and other members of the City Council are criticizing the five-building, 1,700-unit Astoria Cove development for not including enough affordable housing, DNAinfo reports. “The developer has the option to build only 10 percent of the units at 80 percent AMI, while the other 20 percent remaining affordable units could go up to 175 AMI. That’s the equivalent of paying $2,700 a month for a one-bedroom,” the councilman said, adding that such rents aren’t affordable in his community. The developer has promised 345 units of affordable housing for the project, which was approved by the Planning Commission and is now being reviewed by the City Council.

The office of Bronx Borough President Ruben Diaz Jr. brokered a deal that will extend Barnes & Noble’s current lease at the Bay Plaza Shopping Center for two years. Barnes & Noble, which is the only bookstore in the Bronx, was planning to close the site in January after it reached an impasse in its lease negotiations with owner Prestige Properties. The renewed lease saves 50 jobs and allows both companies more time to develop a long-term agreement.

Since 2001, the South Bronx Waterfront Partnership has funded 75 projects to restore the Bronx and Harlem Rivers, educate local communities about the waterways, and increase public access to the waterfront, the Huffington Post reports. The Partnership shared its expertise on urban river restoration and community engagement at a recent symposium Reclaiming a River: Conservation and Community held in the Bronx.

The New York City Economic Development Corporation is sharing with the community proposals from developers seeking to transform the vacant 138,000-square-foot Bedford Union Armory, at Bedford Avenue and Union Street in the Crown Heights section of Brooklyn, DNAinfo reports. The agency, which hasn’t selected a developer yet, is reviewing proposals for a hotel, residential housing (either sales or rentals), a performing arts space with ticketed events, office space for local businesses, and retail space for a pharmacy or a grocery store. While community input is being requested, EDC reps stress that the plan for the armory must be financially viable in the long term.

More than 50 Brooklyn pastors are exploring partnering with private developers and collaborating with city agencies to build affordable housing on their land, DNAinfo reports. Brooklyn Borough President Eric Adams hosted a recent conference on “faith-based property development” for hundreds of religious leaders who are seeking ways to develop their properties in order to better serve their congregations and communities.

The Coney Island section of Brooklyn has seen improvements such as the refurbishment of the Stillwell Avenue subway terminal, the development of a baseball stadium for the Brooklyn Cyclones, and 2009 rezoning of a 19-block zone around the amusement area, but city efforts to revitalize the neighborhood stalled because of the recession and superstorm Sandy, which wiped out thousands of apartments, the WSJ reports. Recently, however, restaurants have opened up on Surf Avenue, including an Applebee’s, and several national tenants are planning to move into the neighborhood, signaling that the area is poised for a turnaround.

New York City Multifamily Dollar Volume Rises 16 Percent In August 2014 Compared To August 2013

The dollar volume of New York City multifamily sales rose 16 percent in August 2014 compared to August 2013, while transaction volume fell by 19 percent, according to Ariel Property Advisors’ Multifamily Month in Review for August.

Multifamily Month In Review

For the month, New York City saw 54 transactions comprised of 81 buildings totaling $601.172 million in gross consideration compared to August 2013, which saw 67 transactions comprised of 103 buildings totaling $518.247 million in gross consideration. The August 2014 figures declined compared to July 2014, which saw 74 transactions over 113 buildings and $702.277 in gross consideration.

“Multifamily trading in August was characterized by single asset transactions rather than institutional sales,” said Shimon Shkury, president of Ariel Property Advisors. “This continues the trend seen in June and July as strong pricing suggests a lack of supply throughout the city.”

The following is a breakdown of the August 2014 volume by submarket:

Northern Manhattan. With 16 transactions comprised of 31 buildings totaling $186.231 million in gross consideration, Northern Manhattan was the most active submarket across all metrics. An 86-unit elevatored, mixed-use building located in Hamilton Heights anchored the region’s strong month as the property sold for $32.5 million, which translates to $326 per square foot. In East Harlem, a 46-unit mixed-use building located on 2nd Avenue and 108th Street sold for $8 million, or $324 per square foot.

Brooklyn. Dollar volume in Brooklyn rose to $185.885 million, which is a 56 percent increase compared to August 2013 and a 66 percent increase compared to July 2014. Brooklyn saw two large single assets trade for over $50 million including 100-116 South 4th Street, a newly-constructed elevatored building located in Williamsburg, which sold for $52 million, or $662 per square foot. In Sunset Park, a 32-unit elevatored building sold for $8.87 million, translating to $197 per square foot.

Manhattan. Manhattan saw mostly single assets trade as nine buildings traded across eight transactions totaling $155.801 million in gross consideration. A 71-unit elevatored building in Kips Bay stood out as the month’s largest transaction, selling for $43.625 million, or $702 per square foot. On 5th Avenue in Flatiron, a 25-unit mixed-use building sold for $24.726 million, or $1,893 per square foot.

The Bronx. The Bronx had a quiet month with 13 transactions comprised of 16 buildings totaling $64.255 million in gross consideration. A walk-up, mixed-use building located in Kingsbridge Heights just off of the prime Fordham Road retail corridor sold for $13.3 million or $268 per square foot. In Riverdale, a 55-unit elevatored building sold for $11 million, or $229 per square foot.

Queens. Queens saw three buildings trade across four transactions totaling $9 million in gross consideration. A 16-unit mixed-use walk-up building located in Astoria sold for $4.3 million, or $299 per square foot, while a 12-unit mixed-use building in Ridgewood transacted at $3 million, or $328 per square foot.

For the six months ended in August 2014, the average monthly transaction volume remained steady at 64 transactions per month. The average monthly dollar volume decreased slightly to $781,443,744.

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/newsroom/report-MFMIR-Aug-2014.

Our Observations For the Week

New York City’s unemployment rate dropped to 6.8 percent in September from 7.8 percent in July, which is the city’s largest two month rate drop recorded since the state began keeping records in 1976, the NY State Labor Department reports. Between September 2013 and September 2014, New York City showed a net gain of 95,400 private sector jobs. Statewide, unemployment insurance benefits dropped in September to 125,437, the lowest level since November 2007, compared to the peak of 680,000 in February 2010.

The Department of City Planning is conducting “visioning” sessions with people who live or work in East New York and Cypress Hills to ensure that the city’s re-zoning proposal addresses their priorities, Brooklyn Bureau reports. Pratt Institute’s Ronald Shiffman, who proposed the concept of inclusionary zoning in 1983, said inclusionary zoning is good for income integration but isn’t an effective tool for creating affordable housing. One local affordable housing developer said that rezoning and tax credits won’t be enough because what is needed is a massive infusion of funds to pay for the subsidies needed to build affordable housing.

JPMorgan Chase is seeking to build two towers at Hudson Yards on the north side of 33rd Street between 10th and 11th Avenues, the NY Times reports. Chase approached city and state officials in June with a proposal to build a 62-story tower and a 40-story tower in exchange for incentives, the article said. The complex would house 16,000 employees.

More than 75 percent of the $210 million developer SL Green Realty Corp. has pledged for Grand Central transit improvements will be used to upgrade the Lexington Avenue line, which is the most congested line in the city, Crain’s reports. The transit upgrades are part of a deal to allow the developer to build One Vanderbilt, a 65-story tower adjacent to Grand Central. SL Green presented its plans in a 63-page report submitted to Manhattan’s Community Board 5.

Nearly three-quarters of all Airbnb rentals in the city are illegal, according to a report issued by NY State Attorney General Eric T. Schneiderman. Large-scale operators managing from three to 272 units earned $168 million, or 37 percent of the city’s Airbnb revenue. This is in contrast to the company’s marketing materials that claim, “Airbnb allows longtime residents to stay in their homes by earning just a little extra money to help make ends meet.” Forty percent of the rentals were concentrated in the Lower East Side/Chinatown, Chelsea/Hell’s Kitchen, and Greenwich Village/SoHo.

The appellate division of the New York Supreme court reversed a lower court decision and ruled that New York University can proceed with its 2-million-square-foot expansion plan, the WSJ reports. Backers of the lawsuit sought to protect the Mercer Playground, La Guardia Park, and La Guardia Corner Gardens from the university’s development. The appellate division ruled that these city-owned plots weren’t intended to be used as parks.

The Housing Partnership, a nonprofit affordable housing advocate, is proposing creating a new special district in West Harlem in which to develop 2,000 units of affordable housing, DNAinfo reports. The proposal also includes selling unused air rights over the Amtrak rail lines that run along the West Side Highway to buildings on Broadway for $170 million and using the proceeds from the sale to create the Harlem Promenade, an elevated park over a portion of the Amtrak rail lines. The Harlem Promenade would connect Hamilton Heights to existing parkland on the other side of the West Side Highway.

Several development projects on East 125th Street are expected to transform the commercial corridor in East Harlem, Crain’s reports. At East 125th Street and Park Avenue, Ian Bruce Eichner’s 352-foot-tall residential tower will open, and across the street work crews have topped out the seven-story Corn Exchange Building, which has been vacant for decades. In addition, developer Gary Barnett purchased the Pathmark at East 125th and Lexington for $39 million.

Advocates seeking to transform 3.5 miles of abandoned railroad tracks in Queens into a recreational green space called QueensWay released a study detailing their plans, DNAinfo reports. The project, which extends from Rego Park to Ozone Park, would cost about $120 million. Attractions would include a climbing wall, adventure playground, cafe, cultural facilities, and bike and pedestrian paths.

The Bronx Brewery has opened a tasting room to accompany its brewing operation on 136th Street in the Port Morris section of the Bronx, the Daily News reports. The company is brewing borough-centric beer in a former lace factory and will soon open an outdoor beer garden. The Bronx Brewery is the second beer operation that has opened in the borough with the Gun Hill Brewery opening a facility in Williamsbridge in January.

New Policy Allows Sale of Market Rate Rentals in 80-20 Buildings

This week we’re highlighting a new policy implemented by the Attorney General’s office, an update on major transportation projects and developments, and the latest property sales reports.

The New York State Attorney General’s office has implemented a new policy for 80-20 buildings that will allow owners to sell up to 80 percent of their market rate rental units, in exchange for preserving the remaining 20 percent as affordable housing or expanding the low-income apartments they own. The policy applies to existing rental buildings receiving incentives such as tax exemptions, low-income housing tax credits, and bond financing. Previously, the restrictions for affordable units expired after a fixed period of time, often 30 years or more.

Six major transportation projects are expected to be completed in New York City between 2014 and 2022, the Commercial Observer reports. The article highlighted the Fulton Center, the Lower Manhattan transportation hub that will open in the third quarter of 2014; the 7 Train Expansion to 11th Avenue and West 34th Street, which is expected to be completed in February 2015; the World Trade Center Path Station, which is expected to be fully open at the end of 2015; the first phase of construction on the expanded Moynihan/Penn Station Redevelopment Project, which is expected to be completed by 2016; the Second Avenue Subway, whose first phase is scheduled for completion in December 2016; and the East Side Access, which will transport Long Island Railroad commuters from Queens’ Sunnyside Yards station to Grand Central Terminal and is scheduled for completion in 2022.

Residential brokers are increasingly catering to foreign clientele who are seeking luxury apartments in New York City, the NY Times reports. Many foreign investors are buying New York City apartments because they want to park their money in a stable economy like the U.S. The article noted that investors from Kazakhstan and Brazil are among those investing in luxury condos and that one Brazilian executive recently bought a $60 million apartment at One57.

If the state repeals the Urstadt Law, foreclosures will rise and the city will be “back in the ownership business,” Charles Urstadt, who advocated for the 1971 law that gave the state power over rent regulation, said in an interview with the New York Observer. “In 1971, there were 72,000 vacant apartments and New York was in danger of becoming the biggest landlord in the city,” he said. “Since we passed the Urstadt Law and vacancy decontrol, foreclosures went down and the value of apartments has gone up.” In private he said that elected officials are grateful for the law because, “They don’t want to be responsible for what happens when taxes, water and electricity go up, but the rent doesn’t—and then the buildings go into foreclosure.”

Manhattan Assemblyman Keith Wright, chairman of the Assembly’s Housing Committee, has joined Rep. Charles Rangel in calling for a moratorium on subsidized, 80-20 luxury development, the New York Observer reports. Instead he is advocating for funding more new low- and middle-income housing. The article also noted that Assemblyman Wright will not commit to supporting Mayor Bill de Blasio’s effort to repeal the Urstadt Law.

Public Advocate Letitia James released a list of the “worst landlords” in the five boroughs. The buildings on the list have multiple violations in each apartment and are located in the poorest neighborhoods like Brownsville, East Harlem, and Morris Heights. The public advocate’s office is recommending more severe HPD penalties against repeat offenders.

Since development sites in Manhattan, Brooklyn, and parts of Queens have become scarce, developers have started looking to the Bronx for new projects, the Commercial Observer reports. Last month, Youngwoo & Associates purchased the landmarked Bronx General Post Office at 558 Grand Concourse between East 149th and East 150th Streets for $19 million. The building, which sits amidst 13,000 students in the area, including students from Hostos Community College, thousands of professionals at Lincoln Medical Center, and three subway stations and bus stops, may be converted to a retail complex.

Two new affordable housing complexes are planned for Community Board 6 in the Bronx. Mastermind Development is building a $90 million, 13-story, 256-unit, below-market residential building at East Tremont Avenue between Webster and Park Avenues. Developer Pravin B. Anajwala Tower and the Best Development Group are scheduled to break ground in January on a $70 million, two-building complex at West Farms Road, Boston Road, and Longfellow Avenue. Compass Residences, former City Council Speaker Gifford Miller’s 10-building, 1,300-unit project, is currently under construction on a former industrial strip along the Sheridan Expressway.

Several residential sales reports were released last week:

REBNY’s Third Quarter Residential Sales Report covering all five boroughs shows that sales prices for homes throughout New York City posted significant, double-digit increases in the third quarter of 2014 as the overall number of sales declined year-over-year. , the Commercial Observer reports. Last month, Youngwoo & Associates purchased the landmarked Bronx General Post Office at 558 Grand Concourse between East 149th and East 150th Streets for $19 million. The building, which sits amidst 13,000 students in the area, including students from Hostos Community College, thousands of professionals at Lincoln Medical Center, and three subway stations and bus stops, may be converted to a retail complex.

The third quarter Elliman Report for Brooklyn shows that the median sales price rose 4 percent year-over-year to a new record of $587,515, which is 8.8 percent above the pre-financial crisis record set seven years ago. Year-over-year, the average sales price also rose 4.5 percent to $726,100, number of sales declined 2 percent to 2,077, and listing inventory increased 3.4 percent to 4,990. The median sales price of North Brooklyn, which includes Williamsburg and Greenpoint, and East Brooklyn, which includes Bedford-Stuyvesant and East New York, increased 15.5 percent and 14.5 percent, respectively.

The third quarter Elliman Report for Queens shows that the median sales price increased 6.2 percent year-over-year to $395,000. Year-over-year, the number of sales fell 19.4 percent to 2,213, and the listing inventory fell 8.5 percent. The luxury market increased 12 percent to $840,000, the highest level in the seven years of tracking this metric.

U.S. Unemployment Rate Falls to Lowest Level Since July 2008

This week we’re highlighting more good news on the national jobs front, a planned executive order to increase the hourly wage for employees in city subsidized projects, reports on Manhattan’s condo and co-op sales and office market, and updates on local developments.

The U.S. unemployment rate fell to 5.9 percent in September, which is the lowest level since July 2008. The economy added 248,000 jobs in September, but earnings remained weak and underemployment remained high. Job gains have averaged 227,000 a month year-to-date, which could result in 2014 being the strongest year for job growth since the late 1990s.

Mayor Bill de Blasio plans to sign an executive order to increase the hourly wage from $11.90 to $13.13 for employees of commercial tenants in new projects receiving more than $1 million in city subsidies, the NY Times reports. The administration estimates that about 18,000 workers will be affected in the next five years, or about 70 percent of all jobs at businesses receiving assistance from the NYC Economic Development Corp. The $13.13 hourly wage applies to workers without benefits, while workers with benefits will earn $11.50. The previous living wage law exempted many retailers and companies that lease space in city-subsidized projects.

The median sales price for Manhattan apartments in new developments increased 14.2 percent to $1,629,000 in the third quarter of 2014 compared to the third quarter of 2013, while the median price for resales rose 2.5 percent to $876,000 during the same period, according to the Elliman Report on Co-op and Condo sales. The rising prices were attributed to the improved jobs picture, international investors, and low mortgage rates that have led to a tight market characterized by bidding wars. The number of sales declined, however, 13.3 percent to 3,328 and listing inventory jumped 27.6 percent to 5,828 year-over-year.

In the third quarter, 2.8 million square feet of office space in Manhattan was absorbed, of which 84 percent was Class A office space, Cassidy Turley reports. Manhattan saw its sixth consecutive quarter of positive absorption in the third quarter and year-to-date over 5.7 million square feet of office space has been absorbed. Demand was strong for space downtown and fundamentals have improved for Midtown and Midtown South. The overall Manhattan availability rate fell to 9.5 percent, which is the lowest rate in 24 quarters.

BAE Urban Economics has been selected to “work with a number of local partners to analyze real estate markets in various neighborhoods in the city to help identify ideal locations for mandatory inclusionary zoning and draw up possible prototypes,” Crain’s reports. The firm, which is headquartered in San Francisco, responded to an RFP and was selected by senior staff at the Housing Development Corp., Department of Housing Preservation and Development, and City Planning.

The Related Cos. is taking measures to discourage tenants from renting out their apartments through Airbnb, Crain’s reports. The majority of Related’s rental units are regulated and the landlord said it is committed to complying with rent stabilization laws that prohibit renting out apartments for fewer than 30 days unless the leaseholder is present. In a separate effort, affordable housing advocates and hotel unions have formed a coalition against Airbnb.

Queens’ Community Board 2 voted to approve special permits for the $1 billion expansion of Silvercup Studios in Long Island City, the Queens Courier reports. The board recommended, however, that 20 percent of the 1,000 residential units be set aside for affordable housing instead of the proposed 10 percent. The mixed-use development includes eight new soundstage studios as a part of a larger 2.2 million-square-foot complex containing an office tower, retail space, a catering hall, and cultural space.

The City Planning Commission voted to approve Alma Realty’s Astoria Cove, a mixed-use development on the Queens waterfront. The complex will feature 1,700 apartments, of which 345 will be affordable housing, 54,000 square feet of retail space, a waterfront esplanade, and a public school. The project won’t include financial subsidies from the city but the developer plans to apply for 421a tax abatement.

Flushing, Queens, has become a city within a city featuring condos selling for more than $1 million, banks, retail, and a transportation hub for the 7 train and LIRR, according to a NY Times profile of the community. Housing inventory is tight but several new projects are planned including the 250-unit second phase of the Sky View Parc condominium and the first phase of the 600-unit Flushing Commons, which will also include a town square and commercial space.

The unemployment rate has dropped below 10 percent to 9.8 percent in the Bronx, which has reported double-digit unemployment rates since January 2009. Bronx Borough President Ruben Diaz Jr. said his administration is committed to creating jobs by supporting Bronx businesses, attracting new businesses, and partnering with the Labor Department to match workers with jobs.

Developer Omni New York LLC broke ground on a 15-story affordable housing development at 655 Morris Avenue in the Melrose section of the Bronx. The building will house formerly homeless residents and include 175 low- and moderate-income units of affordable housing, as well as nearly 10,000 square feet of onsite commercial space, and an 8,500-square-foot community center. The $63.8 million project will be financed with $31.3 million from tax exempt bonds, $11.44 million in subordinate debt, and $21.19 in tax credit equity.

The Red Apple Group is planning a 32-story tower at 86 Fleet Place in downtown Brooklyn, New York Yimby reports. The building will feature 385,000-square-feet of residential space to accommodate 440 apartments, and 100,000 square feet of retail space on the ground floor. The Red Apple Group also developed three other buildings in the Fort Greene neighborhood.

Local Officials Float Pied-a-Terre Tax

This week we’re highlighting a proposal to tax pied-a-terre’s in New York City, a City Council vote to create a landlord registry, and updates on developments throughout the city.

State Sen. Brad Hoylman, a Manhattan Democrat, has been circulating a draft proposal to impose a 0.5 percent tax surcharge on second homes in New York City valued at more than $5 million that would gradually rise to a 4 percent tax surcharge for second homes valued above $25 million, the WSJ reports. The proposal would exempt apartments that serve as the primary residence for New Yorkers. Critics in the real estate industry said the tax could jeopardize demand for luxury condos under development and harm the residential market.

The NY City Council voted 49-0 to create a public registry of landlords who threaten or force tenants out of their buildings and will also double the maximum fine for such behavior to $10,000.The Council Members are concerned that some landlords harass tenants so they can force them out and increase rents.

OnForce Solar in partnership with Bronx Community College is creating a technology hub to help develop a skilled local work force for OnForce Solar and other tech companies, the NY Times reports. The proposed $7 million technology hub, which will be funded by OnForce Solar as part of the state program called Start-Up NY, will be located in a 23,000-square-foot former machine shop on Home Street that will include high speed fiber optics, 320 work stations, conference rooms, a café, and rooftop garden.

The Department of City Planning is proposing a new Bronx neighborhood in a 57-block area between Grand Concourse and Highbridge that would be named “Cromwell-Jerome,” the Daily News reports. The proposal also includes rezoning the Jerome Avenue corridor. The city is encouraging input from local residents about the future of the neighborhood, which is full of auto shops, parking lots, and self-storage facilities but would be a viable area for retail and affordable housing to meet the goals of the de Blasio administration.

A request by Brooklyn’s Community Board 9 to send a resolution to the Department of City Planning to study rezoning parts of Crown Heights and Prospect Lefferts Gardens has sparked protests by local residents who are concerned that new developments will price them out of their community, DNAinfo reports. Supporters, however, say the rezoning would protect the neighborhood from overdevelopment and is necessary in order to meet the goals of the de Blasio administration’s affordable housing plan.

Skanska USA Building announced it has canceled its contract with Forest City Ratner to build modular apartments at Brooklyn’s Pacific Park, formerly known as Atlantic Yards. The builder said it was incurring millions of dollars in additional costs because of “significant commercial and design issues on the project.”

Mixed-use towers are rising in the Fort Greene section of Brooklyn, an area once characterized exclusively by its 19th century townhouses and tree-lined blocks, according to a NY Times profile of the neighborhood. The Brooklyn Cultural District, which is located in Fort Greene, will include more than 400,000 square feet of cultural space in the next few years; the Theater for a New Audience opened the Polonsky Shakespeare Center last year on Ashland Place; north of the theater, excavation has begun on a 52-story mixed-use tower with 586 apartments; Two Trees Management is building a 32-story tower with 300 apartments, a library, and space for arts groups at Ashland Plaza and Lafayette; a Marriott brand hotel, Autograph Collection, is planned for Rockwell Place; and 66 Rockwell, a 42-story mixed-income tower began leasing this year.

Saks Fifth Avenue will open an 85,000-square-foot store in Brookfield Place at 225 Liberty Street in Lower Manhattan and its parent company, Hudson Bay Company, will lease 400,000 square feet of office space adjacent to it for its New York City-based corporate associates. Also, the company’s outlet division, Saks OFF 5th, plans to open a 55,000-square-foot space in 2017 nearby at One Liberty Plaza at Church and Liberty Streets.

The Upper West Side has experienced a severe shortage of housing inventory in the last few years, but half a dozen new developments are planned in the West 70s and 80s, the NY Times reports. Most of these projects, however, are in buildings that are converting from rentals to condos, which will leave the rental inventory unchanged or possibly decrease it. Of the apartments on the Upper West Side (Columbus Circle to Columbia University between Central and Riverside Parks), 40 percent are rent-regulated units, more than any other section of Manhattan.

Major New York City office developers are switching gears and moving into the residential market, according to a NY Times article. The Durst family, which owns 4 Times Square and 10 other office towers, is investing more than $100 million for a 90 percent stake in Hallets Point, seven apartment buildings with more than 2,000 units, a school, esplanade, and supermarket on the Queens waterfront in Astoria; Brookfield, which owns Brookfield Place, is investing $1 billion for nearly 4,000 apartments in northern Manhattan and Roosevelt Island; Tishman Speyer Properties, which owns Rockefeller Center and the Chrysler Building, is bidding on a property in downtown Brooklyn with plans for a large residential building; and the Fisher family is developing a 950-foot-tall condo in TriBeCa and 37-story apartment building on the East Side.

NYC Multifamily Transaction Volume Stable In July, Dollar Volume Dips

New York City multifamily transaction volume remained stable in July, but dollar volume dipped year-over-year as institutional and portfolio sales took a back seat to smaller deals, according to Ariel Property Advisors’ Multifamily Month in Review for July.

Multifamily Month In Review

In July, New York City saw 62 transactions comprised of 81 buildings totaling $601 million in gross consideration. This represents a 3 percent decrease in transaction volume, a 35 percent decrease in building volume and a 43 percent decrease in dollar volume compared to July 2013, which saw 64 transactions comprised of 125 buildings totaling $1.058 billion in gross consideration. Dollar volume in July was virtually unchanged compared to June, while transaction and building volume declined by 14 percent and 27 percent, respectively, from the previous month.

“With the exception of Northern Manhattan there were fewer institutional and portfolio sales citywide in July, which resulted in a year-over-year decline in dollar volume,” said Shimon Shkury, president of Ariel Property Advisors. “Because multifamily pricing remained strong across all submarkets, the report indicates that the decline was due to a lack of available supply rather than a lack of demand.”

The following is a breakdown of the July 2014 volume by submarket:

Manhattan. Although dollar volume declined 70 percent to $178.9 million in July 2014 compared to July 2013, Manhattan had the highest dollar volume in the city with 12 buildings sold across 11 transactions. A Turtle Bay mixed-use building comprised of 43 residential units and 7 commercial units sold for just over $40 million, which translates to $804 per square foot.

Northern Manhattan. Northern Manhattan was the lone exception to the city’s overall trend of experiencing fewer portfolio sales, as 24 buildings traded across 11 transactions totaling $148.638 million in gross consideration. A package of two southern Harlem buildings located at 2053 Frederick Douglass Boulevard and 300 West 112th Street helped anchor the region’s strong month, selling for $30 million, or $465 per square foot. In addition to the 55,000 square feet of existing space, the deal also included roughly 30,000 square feet of additional development rights.

The Bronx. Volume in the Bronx remained relatively stable with 25 buildings trading across 22 transactions totaling $143.401 million. A 72,000-square-foot, mixed-use building at 2141 Holland Avenue in Morris Park sold for $16.5 million, which translates to $229 per square foot.

Brooklyn. Brooklyn posted declines from the previous month with 13 transactions covering 15 buildings totaling $90.868 million in gross consideration. A 112-unit elevatored building located in Sheepshead Bay sold for $20 million, which equates to $189 per square foot.

Queens. Queens had a light month, with five buildings trading across five transactions totaling $39.320 million in gross consideration. A large percentage of the borough’s dollar volume came from the sale of a 103-unit building located in Elmhurst, which traded for $21 million, or roughly $236 per square foot. Another notable sale took place in Astoria where 24-16 29 Street, a 27 unit building, sold for $7.25 million, or $290 per square foot.

For the six months ended in July 2014 the average monthly transaction volume remained steady at 62 transactions per month and average dollar volume of $806,052,207.

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/newsroom/report-MFMIR-Jul-2014.

Our Observations For the Week

New York City’s unemployment rate dropped to 7.3 percent in August from 7.8 percent in July and 8.8 percent in August 2013, according to the NY State Labor Department. New York State’s unemployment rate was 6.4 percent in August and the U.S. unemployment rate was 6.1 percent. Between August 2013 and August 2014, New York City added 105,400 private sector jobs, an increase of 3.1 percent, and New York State added 137,100 jobs, an increase of 1.5 percent.

New York City’s 105 colleges and universities invested $2 billion annually from fiscal years 2010 to 2012 to maintain current facilities and build new ones, and they are expected to invest nearly $10 billion more through 2017, according to a report by the NY Building Congress. Cornell Tech, Columbia University, NYU, Fordham University’s Lincoln Center campus, and City College are making the largest investments. Enrollment in NYC colleges and universities rose to 534,710 in 2012, the highest student population of any city in the country and nearly twice the number of second ranked Los Angeles.

Youngwoo & Associates has entered into a joint venture with RXR Realty to redevelop Pier 57 on the West Side of Manhattan, Crain’s reports. RXR plans to convert 200,000 to 300,000 square feet of the pier space to office space and will oversee building and leasing that part of the project, while Youngwoo & Associates plans to build a retail mall on the ground floor of the pier.

Madison Marquette and Perella Weinberg purchased the 400,000-square-foot Bank Note Building in the South Bronx from Taconic Investment Partners for $114 million. Taconic bought the property in 2007 for $32.5 million and invested in $37 million to rehab the landmarked property. The new owners are planning to build retail space on the ground floor of the building, a former printing plant that features a red brick façade, loft space, vaulted windows, and a prominent smokestack.

The board of trustees of the Brooklyn Public Library approved a proposal to sell the land beneath the Brooklyn Heights Library to Hudson Companies for $52 million, the NY Times reports. The developer’s proposal, which calls for a 30-story, mixed-use property with housing, retail, community space, a gym for St. Ann’s School, and a library, will be reviewed by City Planning, the borough president, City Council, and mayor. The library plans to use funds from the sale for capital improvements to the 60 branches in the Brooklyn Public Library system.

When 550 apartments in a half a dozen new residential buildings are completed in the Dumbo section of Brooklyn in the next few years, an estimated 1,500 to 2,000 new residents are expected to join the neighborhood’s 4,000 current residents and 10,000 office workers that are primarily employed in the media and tech industries, the NY Times reports. Dock Street, Two Trees’ 290-rental complex on Water Street is scheduled to begin leasing this fall and will include a 300-seat public middle school. Greystone Property Development is building a 25-unit residential building at 47 Bridge Street, and Slate Property Group and Adam America are converting a warehouse at 51 Jay Street into 74 condos.

In Brooklyn, 2,378 rooms in 27 hotels are currently in the development pipeline, which is a 37 percent increase in the number of hotels and nearly a 12 percent increase in rooms compared to last year, the Commercial Observer reports. Brooklyn hotels are now competing with hotels in downtown Manhattan and are attracting foreign and corporate travelers as well as friends and family.

A new hotel is opening in the Hub in the Bronx where other projects including a new plaza and a proposed affordable housing complex, DNAInfo reports. The Umbrella Hotel, a 56-room boutique hotel with a cigar lounge, rooftop bar, meeting room, and business center is set to open in late October at 681 Elton Avenue. The hotel will join the Opera House Hotel, which opened last year nearby on 149th Street.

The NY Times profiled a new photography exhibit, The Bronx Artist Documentary Project, which features the work of 30 photographers who recorded 80 Bronx artists during the last year. Visual artists, photographers, and performers are moving to the Bronx, drawn by affordable rents and industrial buildings that can be used as studios. Locals say that the newcomers are breathing new life into struggling neighborhoods and reviving the borough’s interest in the arts.

After opening the Union Square Cafe in 1985, owner Danny Meyer helped rehabilitate Union Square’s “former seedy, drug-infested image” and today the area has become so desirable that both commercial and residential rents have risen dramatically, according to a profile of the Manhattan neighborhood in the NY Times. One bedroom apartments rent for between $4,000 and $5,000 and sell for more than $1.1 million, while two-bedrooms sell for around $2 million. But demand for housing is high as families enjoy amenities such as the newly refurbished playground on the northern end of Union Square Park, the farmer’s market four days a week, and retail stores such as Barnes & Noble and Babies “R” Us.

Local Coalition Challenging Airbnb

This week we’re highlighting a campaign to counter the public relations push launched by Airbnb, a proposed City Council bill designed to protect Mom and Pop shops, Section 8 budget cuts, rental figures for August, and updates on local developments.

A local coalition is launching a campaign to challenge Airbnb, claiming the website that matches spaces with budget travelers reduces the city’s stock of affordable housing and often violates a 2010 hotel law prohibiting renting apartments for less than 30 days unless the occupant is present. Elected officials, housing advocates, community activists, and the NY Hotel Association oppose Airbnb’s push into the NYC market because of concerns that regulated apartments are being used as hotel rooms and other issues over safety, oversight, tax collections.

A bill currently in the City Council’s Committee on Small Business would give commercial tenants the right to challenge a landlord’s non-renewal, set up mediation on lease terms for all renewals, and limit security deposits to no more than two month’s rent, the Commercial Observer reports. Critics say the bill would result in fewer people investing in retail space, a decline in commercial property values, and trigger lawsuits challenging the city’s authority.

Federal budget cuts have created a $37 million shortfall in the city’s federal Section 8 voucher program, the NY Times reports. As a result, the NYC Housing Preservation and Development Agency has stopped issuing new vouchers, rescinded dozens already issued, and is forcing more than 9,000 households to move to smaller, less expensive apartments or pay more for rent. Only households with three to four people are now eligible for two-bedroom apartments, and two-person households living in two-bedroom apartments must move to one-bedroom apartments and residents living alone must move to studio apartments unless the tenants agree to pay higher rents. Of the 120,000 city households receiving Section 8 vouchers, about 32,000 are administered by HPD with the majority administered by the NYC Housing Authority, which already has a downsizing policy and has responded to federal cuts by no longer issuing new vouchers.

The median rental price for a Brooklyn apartment fell 1.5 percent to $2,808 in August 2014 compared to August 2013, which is the first time in 14 months that the Brooklyn median rental price declined from the prior year period, but the average rental price in the borough increased 2 percent to $3,172 year-over-year. Also, total listing inventory in Brooklyn increased 32.5 percent to 1,797. Median rents in Manhattan rose 0.8 percent to $3,175, the number of new rentals declined 5.9 percent to 4,551, and the vacancy rate fell to 1.87 percent in August 2014 compared to the same month last year. In Queens, the median rental price fell 1 percent to $2,788 year-over-year and the listing inventory fell 6.8 percent to 317 month-to-month.

Average rents for one-bedroom apartments in the Rego Park section of Queens increased by nearly 13 percent to $1,996 in August compared to July, and average rents for two bedroom apartments increased by more than 9 percent to $2,566 during this period, according to a report by MNS. Young families are moving into the area in search of space after being priced out of other communities such as Long Island City and Astoria.

New York City’s private and public building owners initiated $5.7 billion worth of alternation and renovation projects in 2013, a 5 percent increase from 2012, according to a New York Building Congress analysis. Of the total, office alternation and renovation work accounted for $2.1 billion in construction starts in 2013, which is a 66 percent increase from 2012. In the first six months of the year, alternation and renovation construction was valued at $3.6 billion and of that amount $1.2 billion was in the office sector.

The Real Deal reported on permits filed in August for 10 major projects located throughout the city. The list includes a permit filed by the Moinian Group for 466,256 square feet of commercial space at 400 11th Avenue/3 Hudson Boulevard in Hudson Yards; a 44-story tower that will include 111 apartments at 68 Trinity Place; a 207,053-square-foot, 33-story tower, with 270 residential units at 44-26 Purves Street in Long Island City; a 110,207-square-foot, 33-story, 271-room hotel at 151 Maiden Lane in Lower Manhattan; a 26-story, 150-room Wingate by Wyndham Hotel at 32-55 Queens Boulevard in Long Island City; a 14-story, mixed-use building with 55 residential units at 2230 Broadway on the Upper West Side; a six-story, 55,740-square-foot residential building with 58 units on an empty lot at 950 Summit Avenue in the Highbridge section of the Bronx; an 11-story, mixed-use building at 11-51 47th Avenue in Long Island City; an 18-story, 51,625-square-foot building project with 30 condos at 570 Broome Street; and a 7-story, 51,355-square-foot-building with 44 residential unit s at 7516 Bay Parkway in the Bensonhurst section of Brooklyn.

Developer Sarjay Patel is planning to build a nine-story, 75-key hotel at 335 Grand Concourse on the corner of East 140th Street in the South Bronx, New York YIMBY reports. The high-end hotel, which will be walking distance from Yankee Stadium, will primarily serve the courthouse complex at East 161st Street, Hostos College, and Lincoln Hospital. It also will target the Manhattan market because the nearby 138th Street subway station is one stop from Manhattan.

A rendering of a 10-story supportive housing project that social services provider PSCH is planning to build in the Morrisania section of the South Bronx was recognized by New York YIMBY for its attractive design. “Its colorful, minimalist look and clean facade would be at home in Williamsburg, but its Bronx location makes it far more impressive,” the article said. The 40,000-square-foot building, which will have studio, one- and two-bedroom apartments, was designed by Urban Architectural Initiatives and is scheduled to break ground this month.

The Bushwick section of Brooklyn features mostly frame houses and industrial areas, which is an advantage because it gives builders “a blank canvas to create whatever we want,” one active developer said in a NY Times profile of the area. Artists and students priced out of Williamsburg and Long Island City began moving into the industrial northwest section in the mid-2000s and were followed by galleries, restaurants, and bars. Today young people in their 20s and 30s are moving into the area and new rentals and condos are being developed to accommodate them.

Two subsidiaries of the Lightstone Group, which is developing a 700-apartment complex along the banks of the Gowanus Canal in Brooklyn, will spend $20 million to help clean up toxic soil beneath the project, DNAinfo reports. The cleanup will include removing 17,500 cubic yards of contaminated soil and conducting tests to find the source of the contamination. Lightstone started construction on a 12-story tower at the site at Bond and Second Streets earlier this year.

The N and R trains will resume service on Monday under the East River between Court Street in Brooklyn Heights and the Whitehall Street station in Lower Manhattan. The tunnel has been closed since last summer to repair damage caused by Hurricane Sandy.