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City Set to Rehab 500 Affordable Apartments

We would like to wish everyone a safe and restful Labor Day. This week we’re highlighting that the city has identified 27 buildings throughout the city where affordable apartments will be renovated, the surge of Chinese investors participating in the EB-5 visa program, the de Blasio administration’s pledge to eliminate separate entrances at mixed-income projects, and updates on local developments.

Nearly 500 apartments in 27 New York City buildings will be renovated in the first phase of a $350 million initiative that will result in the creation or preservation of 4,000 units locally and thousands more statewide, DNAinfo reports. Of the 27 buildings, 14 are located in Brooklyn, including 90 units at 1548-1564 Bergen Street in Crown Heights, seven are in the Bronx, including 63 units at 1259-1269 College Avenue in Morrisania, and the remainder in Upper Manhattan and Jamaica, Queens. Average rents will range from about $570 per month to about $1,650 a month. The 500 apartments are the first of 4,000 units that will be renovated under the initiative.

The EB-5 program is on track to run out of immigrant-investor visas in the fiscal year ending September 30 because of demand from Chinese investors, which have taken about 85 percent of the visas this year, the WSJ reports. The program offers 10,000 investor visas annually, and currently more than 10,000 additional petitions are awaiting review. The program enables foreign investors and family members to receive green cards, or permanent residency within as little as two years in exchange for investing at least $500,000 in U.S. development projects.

The de Blasio administration is seeking to eliminate separate entrances for individuals living in the affordable sections of market-rate buildings in both mandatory and voluntary projects because it isn’t in keeping with the administration’s principles of equality, the NY Times reports. However, an affordable housing expert countered that the entrance is irrelevant because the goal is for lower-income residents to benefit from affordable housing, good schools, and public safety that are available in wealthier enclaves. The article reviewed a luxury condominium tower at 40 Riverside Boulevard overlooking the Hudson River, which will also include a separate 55-unit, six-floor affordable section where renters will pay $850 for one-bedrooms and $1,100 for two bedrooms and enter through a separate entrance.

Unlike the period before the financial crisis when banks underwrote exit strategies for condos switching to rentals, builders are increasingly comfortable planning condo projects without a Plan B, the Real Deal reports. Part of the shift is attributed to the demand for luxury units and the fact that condos are reselling at a 19-year high, but also because land prices have increased so much that new projects in Manhattan today are only feasible as condos. For example, a 90,000 BSF development site at east 59th and Third Avenue traded earlier this year for $100 million.

Retailers such as coffee bars, upscale restaurants, and even Urban Outfitters are moving into the Garment District and landlords are renovating their retail spaces to accommodate them. The demand for retail services is being driven by the technology, advertising, and media companies moving into the district replacing fashion industry jobs, which declined to 20,852 in 2012 from 36,925 in 1995, according to the WSJ article. Two years ago, asking rents for ground-floor retail space on Broadway from Times Square to Herald Square ranged from $125 to $150 per square foot, compared with today when asking rents are from $200 to $350 per square foot.

The NYC Department of City Planning has released a report that explores increasing development around Metro-North stations in The Bronx including existing stations in Melrose, University Heights, Morris Heights, Tremont, Williams Bridge, and Fordham, and proposed stations in Morris Park and Parkchester/Van Nest. The recommendations include increasing density and land uses with a focus on mixed-income housing, retail, and neighborhood services. The study noted that the Bronx is growing at a rate unseen since the 1940s and is projected to grow by 14 percent by 2040, faster than any other borough.

Developer Sanba Partners plans to build 22 townhouses in Red Hook, Brooklyn each of which will be around 2,600 square feet with a private back yard, rear roof deck, and private parking. Ground breaking is scheduled for year-end on the block-through development site at 115 King Street between Van Brunt and Richards Streets. The townhouses are slated to be completed in the spring of 2016.

Jonathan Butler and partner Eric Demby have opened Berg’n, a 9,000-square-foot beer and food hall, behind glass garage doors on Bergen Street between Franklin and Classon Avenues in the Crown Heights section of Brooklyn. The NY Times reports that the recent lunchtime patrons included families, neighbors with laptops, and creative workers occupying offices above at 1000 Dean Street in the former Studebaker service station.

In the Greenpoint neighborhood of Brooklyn, where about 35,000 residents live in the area bordered by the East River, Newtown Creek, the BQE, and McCarren Park, two- and three-family wood-frame townhouses make up about 75 percent of the housing stock and sell for from $1.3 million to $2 million, up from $750,000 to $850,000 in 2012. One bedrooms rent for around $1,700 to $2,200 a month in prewar buildings, and $2,500 to $3,500 in luxury and new buildings, according to a NY Times profile. The 2005 rezoning ushered an era of new luxury condo and rental development with the new Greenpoint Landing project bringing 5,500 units of affordable and market-rate housing to 22 acres on the waterfront in the next decade.

Unions Pledge Lower Wages on Affordable Housing Projects

This week we’re highlighting union support for affordable housing projects, a report on where the city’s new housing units are being built, an overview of the Midtown office market, and updates on developments throughout the city.

A group of NYC construction unions have pledged to accept wages that are 40 percent less than normal on affordable housing projects in certain neighborhoods in Queens, Brooklyn, the Bronx, and Upper Manhattan by using less experienced workers drawn from the local community.The unions are joining affordable housing advocates in demanding that 50 percent of all new units be affordable, and in turn pressuring Mayor Bill de Blasio to require that developers hire organized labor on these projects. Developers voiced concern that it wouldn’t be financially feasible to set aside 50 percent of the units as affordable and also about the quality of the workforce.

A new report shows that about 9,260 rental units and up to 3,660 new condos will come online in New York City every year beginning in 2015. The greatest number of new rental units will become available in the “outer outer” areas. For example, about 21,500 rental units are in the pipeline in Brooklyn, but only 8,500 are in core Brooklyn-Brooklyn Heights, Downtown Brooklyn, Williamsburg, and Dumbo-while 13,025 units are being developed in non-core areas such as 3,200 rental units at Greenpoint Landing and 977 units at the former Rheingold Brewery in Bushwick. The report noted that 11,980 units are in the pipeline in “core” Queens-Hunters Point, Long Island City, and Astoria.

Buildings in Midtown from 30th Street to Central Park South at 59th Street have more vacant blocks of contiguous office space than at the height of the recession in 2009, according to a Savills Studley study. The midtown office towers are facing increased competition from buildings downtown and in Hudson Yards. Technology and media companies are clustering in midtown south between Canal Street and 30th Street or moved to Lower Manhattan for cheaper rents.

The City Council has approved a variance for 176 Woodward Avenue, a Ridgewood, Queens site that is currently zoned for industrial use, which will pave the way for the development of a mixed-use building on the site. In exchange, the developer, Slate Property Group, will set aside 50 percent of the 88 residential units as affordable and allow artists and community groups to rent 3,000 square feet of space in the building for $10 a year.

The NYC Department of Housing Preservation and Development and South Bronx Overall Economic Development Corporation will receive $300,000 in grants and low-interest loans to clean up various sites in the Bronx and turn them into new affordable housing units. Funds will be used by NYC HPD to construct a 57-unit affordable housing project on 491 E. 165th Street and 1052 Washington Avenue, and by the South Bronx Overall Economic Development Corporation to build an affordable housing project with 95 units at 996 Washington Avenue that will serve formerly homeless individuals.

Alembic Community Development and Monadnock Development announced financing to renovate P.S 186, an abandoned school at 549 W. 145th Street in Hamilton Heights. The former school will be transformed into a 79-unit residential building that will include 63 units for low-income families, seven units for middle-income families, and a 10,000-square-foot facility for the Boys and Girls Club of Harlem. Construction is expected to be completed by 2016. The Boys and Girls Club purchased the school from the state for $215,000 in 1986, 11 years after the school closed.

Competition for housing in Brooklyn is so fierce that it’s driving out long-time residents, the NY Times reports. The inventory of apartments for sale in Brooklyn dropped 5.9 percent to 4,426 in the second quarter of this year at the same time sales jumped 12.5 percent to 2,086. Buyers have changed too with nearly a third of the 382 buyers in northwest Brooklyn in the second quarter earning at least $300,000 a year, compared with 11 percent a year ago, and 65 percent offering cash, compared with 32 percent the previous year. The frustrated buyers and renters profiled in the article have left Brooklyn and moved to Jersey City, Sunnyside, Queens, and East Harlem.

The Real Deal highlighted six proposed projects along the waterfront in Greenpoint, Brooklyn, that will help add 3,000 to 5,000 new residential units to the area in the next five to 10 years.The developments include a $435 million, 39-story, 600-unit mixed-use project planned for 145 West Street; a 179,000-square-foot development at 161 West Street; a six-story development with 93 affordable units at 21 Commercial Street in Greenpoint Landing; three, six-story residential buildings on Box Street-72 Box Street with 50-units, a 20-unit building at 56 Box Street, and five, floor-through units at 62 Box Street; a 60,000-square-foot residential building at 79 Quay Street; and the Brooklyn Expo Center at 79 Franklin Street, which will open next month with a 2,200-seat banquet hall, offices, and cafeteria.

Of the 210 residential units under construction at 1133 Manhattan Avenue in Greenpoint, 105 are below market and 58,832 people have entered a lottery to try to get one. The $67 million mixed-use development, which is slated to be completed by the end of the year, will set aside 42 units for families earning at or below $29,050 per person, and 63 units for families earning at or below $101,675 per person.

New York City Multifamily Transaction Volume Holds Steady in June

Multifamily transactions remained steady in June while the number of properties traded and the dollar volume of those deals declined at the same time the market saw a slowdown in portfolio sales, according to Ariel Property Advisors’ Multifamily Month in Review New York City for June.

Multifamily Month In Review

For the month, New York City saw 65 transactions comprised of 88 buildings totaling $513.094 million in gross consideration. This represents a 25 percent increase in transaction volume, a 19 percent decrease in building volume and a 20 percent decrease in dollar volume compared to May 2013, which saw 52 transactions comprised of 108 buildings totaling $641.876 million in gross consideration. Year-over-year, transactions declined a slight 7 percent, building volume decreased by 26 percent, and dollar volume dropped 53 percent compared to June 2013, which was one of four months last year with dollar volume above $1 billion.

“Despite lighter activity in June, total multifamily dollar, transaction, and property volume in the city increased dramatically in the first half of 2014 compared to the first half of 2013,” said Shimon Shkury, president of Ariel Property Advisors. In July, the firm released the Multifamily Quarter in Review: New York City I Q2 2014, which highlighted volume from the first two quarters of the year.

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

Brooklyn. Brooklyn led the way in the month of June as the borough reported 18 transactions totaling $182 million, a 69 percent increase in dollar volume from May and an 80 percent increase from June 2013. Anchoring Brooklyn’s strong month was the $60 million sale of the Standish Hotel luxury rental building in Brooklyn Heights, which was purchased by private equity firm Westbrook Partners. The building sold for $768 per square foot and the new owners are considering a conversion to condominiums.

Manhattan. Manhattan had an uncharacteristically slow month with just nine buildings trading across eight transactions totaling $113.125 million in gross consideration. Four of these transactions involved Upper East Side buildings, averaging close to $1,000 per square foot.

Northern Manhattan. Northern Manhattan had a typically active month with 14 transactions covering 22 buildings and $110.737 million in gross consideration. Transaction and building volume rose 56 percent and 16 percent, respectively, compared to June 2013, but the dollar volume of those trades declined 13 percent. The effects of the Columbia expansion continue to show above 125th street, as a multifamily walk-up building at 368 West 127th Street traded for over $400 per square foot and $200,000 per unit.

The Bronx. The Bronx had an active month full of small transactions. The borough recorded 18 transactions, an increase of 50 percent compared to the previous month and an increase of 12 percent compared to June 2013, but dollar volume dipped to $72.935 million from the May total of $131.025 million. Pricing also continues to trend upwards in the borough, as eight of the 18 trades sold for over $120 per square foot, with a 5-building package on City Island Avenue trading for $166 per square foot and $142,000 per unit.

Queens. Queens had a relatively lackluster month, as eight buildings traded across seven transactions, totaling $34.250 in gross consideration, keeping pace with May of 2014, while lagging behind an unusually high dollar volume total of $244.87 million for June of 2013. This month’s trades were predominantly consisted of smaller sales between private owners instead of larger institutional sized deals.

For the six months ended in June 2014, the average monthly transaction volume dipped slightly from 63 to 61 transactions per month. For the second month in a row, the average dollar volume decreased, this month to $808,393,362.

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-Jun-2014.

Our Observations For the Week

Private sector jobs in New York City increased by 3 percent to 101,000 in July 2014 compared to July 2013, and the city’s unemployment rate dropped to 7.8 percent in July from 7.9 percent in June, , the NY State Labor Department reported. The state gained 140,600 private sector jobs in the last year and the state’s unemployment rate for July remained unchanged at 6.6 percent. The U.S. unemployment rate was 6.2 percent in July. Nine major sectors in the state reported year-over-year job gains in July and only two sectors reported losses-manufacturing lost 9,200 jobs and government lost 6,200 jobs.

Robust job growth and higher personal income led to an estimated 3.1 percent increase in New York City’s Real Gross City Product compared to 1.9 percent in the first quarter of 2014 and 4.8 percent in the second quarter of 2013, according to a report by NYC Comptroller Scott M. Stringer. Among the positive year-over-year findings in the second quarter: personal income tax withholdings rose 6.6 percent in the second quarter to about $1.6 billion indicating positive income trends, job growth, salary increases, and late bonuses; general sales tax collections rose 5.2 percent to $1.7 billion; and the Manhattan hotel occupancy rose to 93.2 percent, the highest quarterly rate since records became available in 1993.

Residential construction in New York City is expected to increase 50 percent in 2014 to $10.2 billion from $6.8 billion in 2013, according to estimates by the New York Building Congress. An estimated 20,000 new units will be produced in 2014, a 9 percent increase from 2013, when 18,378 new units were built, but below far below the more than 30,000 built each year between 2005 and 2008. The report also noted that most of the new construction is being concentrated in the luxury residential housing market in Manhattan, parts of Brooklyn, and Queens. Total construction spending is expected to increase to $31.5 billion in 2014 from $28.5 billion in 2013.

Although residential construction spending in New York City is up, the number of housing units produced locally since the financial crisis in 2008 is lagging behind the rest of the country, the WSJ reports. High land and construction costs, difficulty obtaining financing, real estate taxes, onerous building codes, and landmark districts are among the barriers to residential development in New York City. Builders also are competing with luxury condo developers willing to pay more than $700 a square foot in Lower Manhattan, for example, which means paying more than $100 million to build a 150,000-square-foot building and selling units for more than $2,500 a square foot, or $3 million for a 1,200 square foot apartment.

The median rental price of apartments in Brooklyn increased 6.6 percent to $2,852 in July 2014 compared to July 2013, according to the Elliman Report, and total listing inventory in Brooklyn jumped 35.3 percent year-over-year to 1,727. In Queens, median rents increased 10.5 percent year-over-year to $2,646, and listing inventory dropped 26.2 percent from the previous month to 340. In Manhattan, year-over-year in July, median rents rose 5.4 percent to $3,205 and listing inventory declined 4.4 percent to 5,690. The vacancy rate for Manhattan in July rose to 1.82 percent.

Prestige Properties & Development Co. opened its $300 million, 780,000-square-foot, three-story Mall at Bay Plaza at the intersection of the Hutchinson River Parkway and I-95. A new 160,000-square-foot Macy’s and an existing JC Penney are the anchor tenants. Over 100 retail shops will be housed in the mall including many newcomers to the Bronx such as H&M, Ulta, Victoria Secret, Kay Jewelers, the Cap, and Aeropostale. The mall is responsible for creating more than 2,000 construction jobs and 1,700 permanent jobs.

The demographics of Manhattan’s Murray Hill, bordered by 27th Street, 40th Street, Fifth Avenue, and the East River, are changing and the area is now attracting families with young children and programs that cater to them, according to a NY Times profile of the area. Park Avenue features towers with co-ops and high-end rental apartments, while housing to the east of 3rd Avenue consists of rental and condo buildings where many recent college grads and young professionals live. Most of the neighborhood’s housing consists of co-ops with studios ranging from $400,000 to $500,000; one-bedrooms ranging from $600,000 to $1.1 million; two bedrooms ranging from $1.2 million to $1.8 million; and three bedrooms $1.9 million and up.

Queens Community Board Chair Seeks Rezoning for Affordable Housing

This week we’re highlighting a proposal to rezone four areas of Queens, a study highlighting how New York City has lagged behind other major U.S. cities in the creation of rental housing, and updates on new developments.

Joseph Conley, chair of Community Board 2 in Queens, is proposing that city officials rezone four areas in the borough to allow denser developments that would include at least 30 percent affordable housing. The areas identified include part of Queens Plaza in Long Island City; an area in Woodside bordered by Broadway, Northern Boulevard, and the Brooklyn Queens Expressway; an area in Sunnyside near Northern Boulevard between 43rd and 48th Streets; and above the Long Island Rail Road tracks on Woodside Avenue between 63rd and 65th Streets. Mr. Conley said residents are being priced out of Hunters Point and Long Island City.

Residential development is thriving in the Court Square area of Long Island City, Queens, where thousands of new residential rentals and condos will be completed in the next few years, the Real Deal reports. Rockrose Development has leased nearly all of its 709 units at LINC LIC at 43-10 Crescent Street and plans to build a 974-unit rental project at 43-25 Hunter Street. Brause Realty is building 250 rental units at 44-30 Purves Street; Emmy Homes and Lions Group recently sold out of the Vista, a 48-unit condo building at 44-15 Purves Street; Andy Ho is planning a 12-unit condo at 42-44 Crescent Street; Property Markets Group is building a 410-unit rental building at 23-01 42nd Street; L+M Development took control of a 197-unit building at 45-46 Pearson Street when it was in foreclosure; David and Jerry Wolkoff are planning two towers with 1,000 units at 22-44 Jackson Avenue (5 Pointz); and Ekstein Development is building a 86-unit condo project at 25-19 43rd Avenue.

Although New York City residents are more dependent on rental housing than other major U.S. cities, the number of new housing units created here only increased by 5.8 percent between 2000 and 2012, less than every other large city with an expanding population, according to a Policy Brief by the Citizens Budget Commission. New York City has median rents of $1,196, ranking it sixth in the nation, and 37 percent of the rental units in the city rent for less than $1,000, placing it 19th in the country. However, New York City ranks 9th among 22 other U.S. cities in terms of its lack of affordability because 51 percent of the city’s rental households spend more than 30 percent of their income on housing.

Families with children are flocking to the financial district, south of Chambers Street and the Brooklyn Bridge, and have helped push the area’s population to about 43,000 residents up from 23,000 in 2000 and 700 in 1970, according to a profile in the NY Times. An injection of $1.6 billion in federal Liberty Bonds following the terrorist attacks on September 11 when the residential vacancy rate exceeded 30 percent benefited rental projects at 90 West Street, 90 Washington Street, and 2 Gold Street. Today, more than a dozen apartment buildings are in the pipeline, and from 2014 to 2017, 1,000 new condo units and 1,200 rental units are expected to come online, including 644 apartments and 132 extended stay hotel suites at the former AIG headquarters at 70 Pine Street.

Average asking retail rents on Broadway from Battery Park to Chambers Street in Lower Manhattan have increased 22 percent to $277 a square foot from $227 a square foot last year, CBRE reports. Chain stores such as Urban Outfitters and Zara have leased space on Broadway and other retailers are looking for space in the area, which boasts an average household income of $204,000 from local residents, and a steady influx of office workers and tourists. In the next few months a 200,000-square-foot luxury mall will open at Brookfield Place and a 365,000-square-foot mall will open at the World Trade Center.

Nine new developments in Downtown Brooklyn will offer more than 4,000 residential units, of which 1,100 will be affordable units offered through a lottery. Rents for the affordable units will be as low as $546 a month for a studio and less than $900 for a two bedroom. The affordable units will be located in Atlantic B2, 461 Dean Street; BAM South, 286 Ashland Place; BAM North 1, 250 Ashland Place; The Hub, 333 Schermerhorn Street; 300 Livingston Street; 8-16 Nevins Street; 210 Livingston Street; BAM North 2, 280 Ashland Place; and City Point Phase 2, 1 DeKalb Avenue.

Fourteen designs for two towers at the southern end of Brooklyn Bridge Park, one with 31 stories and the other with 15 stories, have been submitted to the Brooklyn Bridge Park Corp. Momentum for the buildings slowed after the de Blasio administration announced a requirement that at least 30 percent of the new units must be set aside for affordable housing, which sparked a lawsuit from community groups seeking to stop the construction of the two towers. Although the city and state contributed about $160 million to develop the 85-acre park, routine park maintenance and repairs to the piers will be paid for with private funds generated from buildings leasing land in the park.

China’s Greenland Holdings Group, which in June bought 70 percent of Atlantic Yards, now known as Pacific Park Brooklyn, hopes to start the second and third buildings by year-end and finish the entire 6,400-unit, 15-tower project in less than 10 years, according to a WSJ profile of the company. Greenland has invested about $6 billion in the U.S. including a $1.4 billion mixed-use development in Los Angeles. The company also is investing in projects in South Korea, Australia, Malaysia, and London.

Reports Show Year-Over-Year Gains For Investment Property Sales In Manhattan, Queens, The Bronx, Northern Manhattan and NYC Multifamily Market

Ariel Property Advisors’ mid-year sales reports for Manhattan, Queens, The Bronx, and Northern Manhattan show increased property sales activity in the first half of 2014 compared to the first half of 2013, as well as year-over-year gains in the multifamily market in the second quarter. The summaries below include links to each report. The Brooklyn report, which was highlighted in last week’s Weekly Market Watch, showed a 34 percent increase in investment property transactions to 646, a 38 percent increase in property sales to 884, and a 73 percent jump in the dollar volume of the trades to more than $3.033 billion.

Dollar Volume of Investment Property Sales in Manhattan Jump 59 Percent in 1H 2014 vs. 1H 2013

Investment property sales in Manhattan showed a 59 percent increase in dollar volume, despite experiencing only a moderate increase in transactions and properties traded in the first half of 2014 compared to the first half of 2013, according to Ariel Property Advisors’ Manhattan 2014 Mid-Year Sales Report.

Manhattan recorded 348 transactions consisting of 422 investment properties totaling $16.5 billion in 1H14, compared to 332 transactions consisting of 417 investment properties totaling $10 billion in 1H13. The Manhattan 2014 Mid-Year Sales Report tracks all development, multifamily, industrial, and other commercial property sales over $1 million south of E. 96th Street and south of West 110th Street and is available at http://arielpa.com/newsroom/report-APA-Manhattan-mid2014-Sales-Report.

Investment Property Sales in Queens Jump More Than 40 Percent in 1H 2014 vs. 1H 2013

Robust multifamily and development site activity in Queens led to a 42 percent increase in investment property sales transactions in the borough in the first half of 2014 compared to the same period last year and a 49 percent increase in the dollar volume of those trades, according to Ariel Property Advisors’ Queens 2014 Mid-Year Sales Report.

In the first six months of 2014, Queens saw 456 properties sell over 346 transactions totaling $1.5 billion, compared to the first half of 2013, which saw 320 properties sell over 244 transactions totaling more than $1 billion. Brooklyn was the only submarket to sell more investment properties than Queens in the first half. The Queens 2014 Mid-Year Sales Report tracks development, multifamily, industrial, and other commercial property sales over $850,000 and is available at http://arielpa.com/newsroom/report-APA-Queens-mid2014-Sales-Report.

Dollar Volume of Bronx Investment Property Sales Up 92 Percent in 1H 2014 vs. 1H 2013

Boosted by a trio of multifamily portfolio trades, investment property sales in The Bronx increased 32 percent and the dollar volume of those deals jumped 92 percent in the first half of 2014 compared to the first half of 2013, according to Ariel Property Advisors’ Bronx 2014 Mid-Year Sales Report.

In 1H 2014, The Bronx saw 175 transactions comprised of 297 investment properties valued at $1.15 billion, compared to 132 transactions comprised of 225 investment properties valued at $601 million in 1H 2013. The Bronx 2014 Mid-Year Sales Report tracks all development, multifamihttp://arielpa.com/newsroom/report-APA-Bronx-mid2014-Sales-Reportly, industrial, and other commercial property sales over $850,000 and is available at http://arielpa.com/newsroom/report-APA-Bronx-mid2014-Sales-Report.

Report Shows Upper Manhattan Investment Property Prices in 1H 2014 Surpassed 2007 Peaks

Upper Manhattan investment property prices reached new heights in the first half of 2014, surpassing previous records seen during the peak in 2007, according to Ariel Property Advisors’ Northern Manhattan 2014 Mid-Year Sales Report.

Rising rents and low interest rates pushed cap rates uptown to 4.58 percent, 100 basis points below the level seen in 2007. The average price per unit in multifamily buildings also rose higher than the level seen in the peak year of 2007, with 1H14 seeing $221,318 compared to $194,038 in 2007.

For the first half of this year, Northern Manhattan saw 179 total investment property transactions consisting of 243 properties totaling approximately$911.930 million in gross consideration. This translates to a 10 percent increase in transaction volume, no change in the number of properties sold, and a slight 3 percent increase in dollar volume compared to 1H2013, which saw 163 transactions comprised of 242 properties totaling $888.376 million in gross consideration. The Northern Manhattan 2014 Mid-Year Sales Report tracks all development, multifamily, industrial, and other commercial property sales over $850,000 and is available at http://arielpa.com/newsroom/report-APA-N-Man-mid2014-Sales-Report.

NYC Multifamily Building Sales Rise 18 Percent in 2Q 2014 Compared to 2Q 2013

New York City multifamily building sales increased 18 percent in the second quarter of 2014 compared to the second quarter of 2013, and the dollar volume of those trades rose a modest 1 percent, according to Ariel Property Advisors’ Multifamily Quarter in Review: New York City, Q2 2014.

In the second quarter 2014, 328 multifamily buildings traded citywide over 174 transactions totaling $2.137 million, compared to 277 buildings selling over 174 transactions totaling $2.106 million in the second quarter of 2013. Volume in the second quarter declined compared to the first quarter, which had 195 transactions and 344 building trades valued at $2.985 in gross consideration. 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 and is available at http://arielpa.com/newsroom/report-MFQIR-Q2-2014.

Our Observations For the Week

The U.S. economy added 209,000 jobs in July, marking the first time since 1997 that 200,000 or more jobs have been added in six consecutive months, the Labor Department reported. Jobs were created in professional and business services (47,000), manufacturing (28,000), retail (27,000), construction (22,000), and government agencies (11,000). The unemployment rate rose slightly to 6.2 percent in July from 6.1 percent in June, reflecting that more people are looking for work.

Real GDP increased 4.0 percent in the second quarter, after decreasing 2.1 percent in the first quarter, the Commerce Department reported. Increases in private inventory investment, exports, personal consumption expenditures, state and local government spending, nonresidential fixed investment, and residential fixed investment were partly offset by the acceleration in imports.

The S&P/Case-Shiller Home Price Indices for May showed that the 10-City Composite increased 9.4 percent year-over-year and the 20-City Composite increased 9.3 percent year-over-year, which is lower than the +10.9 percent and +10.8 percent returns reported in April. The New York metro area posted a 4.8 percent year-over-year increase in May. The New York metro area and the 10- and 20-City Composites posted month-to-month gains of 1.1 percent from April to May.

Mayor Bill de Blasio announced a $350 million public/private revolving loan fund to renovate 7,500 apartments for lower and middle income New Yorkers in buildings with 20 to 100 units. Citigroup and other banks will contribute $290 million, the city’s pension funds are adding $40 million, and the Housing Development Corporation will contribute another $20 million. The pension funds will earn 2.75 percent on the investment.

Queens Borough President Melinda Katz said that she will not recommend the development of the five building, 1,700-unit Astoria Cove complex in Hallets Point because it will overwhelm the local transportation network and, as planned, won’t include enough affordable housing. The developer is planning to set aside 20 percent of the units, 345 apartments, as affordable housing. Community Board 1 has called for the developer to increase the amount of affordable housing to 35 percent.

Manhattan’s cross-town corridors such as 14th Street, 23rd Street, and 57th Street are now desirable locations for developers to build new, luxury residential rentals and condos, plus they provide additional income from ground floor retail, the NY Times reports. Residents are now more product-driven than neighborhood driven and want to live near transportation hubs. Also, major thoroughfares can be twice the width of a normal 60-foot street, which offers residents more light, air, and views.

Hundreds of millions in public and private money is flowing into three sites in the Sunset Park section of Brooklyn – the Brooklyn Army Terminal, Industry City, and Liberty View Industrial Plaza. The de Blasio administration is planning to invest $100 million into renovating 500,000 square feet of the Brooklyn Army Terminal. Marvin Schein and Sal Rusi have invested about $80 million into renovating Liberty View Industrial Plaza and are marketing the space to technology companies and the garment industry. Jamestown Properties, Bevedere Capital, and Angelo Gordon bought a 49 percent stake in the 6 million square foot Industry City and are leasing to food manufacturers that will also open retail spaces.

Design and creative businesses are moving their offices into industrial spaces in the Gowanus section of Brooklyn, the WSJ reports. Online annotation company Genius is leaving Williamsburg and leasing nearly half of a 90,000-square-foot industrial building on 3rd Street west of the Gowanus Canal that PWR Realty purchased about seven months ago for $20 million. Farmigo moved its 30 employees from Dumbo to Gowanus about three months ago, and Holstee’s 10 employees left Manhattan for the neighborhood last year.

New renderings have been released for the Taystee Building at 450 West 126th Street between Amsterdam and Morningside Avenues in West Harlem. The 11-story, 300,000-square-foot, LEED-silver certified development will offer office space, include a public passage-way that will link 125th and 126th Streets, and serve as the anchor for the Manhattanville Factory District.

Brooklyn Leads City With 884 Investment Property Sales In 1H2014

In the first half of 2014, total investment property sales in Brooklyn rose 38 percent from the first half of 2013 to 884, nearly twice the number of investment property sales in the city’s second most active submarket of Queens, according to Ariel Property Advisors’ Brooklyn 2014 Mid-Year Sales Report.

Brooklyn 2014 Mid-Year Sales Report

In addition, the number of transactions increased 34 percent to 646 and the dollar volume of those trades jumped 73 percent to more than $3.033 billion in gross consideration in the first half of 2014 compared to the first half of 2013, which saw 640 properties trade over 482 transactions totaling $1.757 billion in gross consideration. The Brooklyn 2014 Mid-Year Sales Report tracks development, multifamily, industrial, and other commercial property sales over $850,000.

Highlights from Brooklyn report:

“With strong fundamentals driving steady demand for multifamily properties and development sites, this uptick shows no signs of abating,” said Jonathan Berman, vice president of Ariel Property Advisors.

“Multifamily portfolio sales were particularly active in Brooklyn during this period, especially in Crown Heights, Bedford Stuyvesant, and Bushwick, three neighborhoods where about a quarter of the borough’s total investment property transactions were concentrated,” Mr. Berman continued.

As a further indication of the strong multifamily market, the average cap rate compressed from 5.75 percent in the second half of 2013 to 5.19 percent in the first half of 2014. Additionally, the average gross rent multiple grew from 11.24 to 11.9 over that same period.

One notable multifamily transaction was Colony 1209, a 126-unit rental building at 1209 DeKalb Avenue in Bushwick that sold for $58 million, which equates to roughly $570 per square foot and over $450,000 per unit. Another was 76 Meserole Street, a newly-constructed 49-unit rental building in Williamsburg that sold for $35.6 million, which represents a price per unit of over $725,000.

The development market remained strong as well, with the dollar volume increasing 20 percent year-over-year to more than $878 million, while the number of transactions and property sales stayed relatively stable at 125 and 234, respectively. The majority of the development properties were traded in the neighborhoods of Bed-Stuy (19), Crown Heights (16), Downtown (16), Gowanus (13), Greenpoint (17), and Williamsburg (31).

“Sites in primary and secondary locations of the borough saw high demand from developers and users alike, pushing up land values resulting in an increased number of transactions approaching or surpassing the $300 per buildable level,” said Daniel Tropp, vice president of Ariel Property Advisors. “The success of several recent new construction projects now coming online, both in Brooklyn and beyond, only further drives these numbers.”

Notable development sales include the sale of the Dupont Realty Greenpoint Development Portfolio, which was a $48.5 million transaction with 261,000 buildable square feet site as-of-right with the potential to add an additional 100,000 square feet with affordable housing. Another notable transaction is the sale of 564 St. Johns Place, a 135,000 buildable square foot site in Crown Heights that traded for $24,000,000 or $177 per buildable square foot.

Ariel Property Advisors Vice President Mark Spinelli also noted that retail is expanding in Brooklyn with national chains opening this year along Fulton Mall in Downtown Brooklyn. “The dollar volume of commercial and retail properties nearly doubled between 1H14 and 1H13, rising to $175.6 million from $97 million a year ago,” Mr. Spinelli said. “New retail and office properties in the pipeline are adding strength to this market and further illustrate that Brooklyn is evolving into a 24/7 live/work environment.”

Lastly, special purpose, user, and other industrial properties accounted for a growing share of all transactions as increasing rents and reduced inventory drove demand. Additionally the potential rezoning of certain areas such as East Williamsburg, Gowanus, and East New York has driven up these values due to higher offers based on speculation.

A copy of Ariel Property Advisors’ Brooklyn 2014 Mid-Year Sales Report is available at http://arielpa.com/newsroom/report-APA-Brooklyn-mid2014-Sales-Report.

Our Observations For the Week

REBNY’s Broker Confidence Index declined slightly from 9.21 in the first quarter to 8.88 in the second quarter of this year. The Commercial Broker Confidence Index was 9.45 in the second quarter down from 9.62 in the last quarter due to concerns among commercial brokers about rising land prices and the sustainability of growth in the tech industry six months from now, but overall the outlook was positive. “The growth in tourism, jobs and the continuing improvement in the local and national economy is bolstering the commercial real estate market,” the report said. The Residential Broker Confidence Index dropped from 8.80 in the first quarter to 8.30 in the second quarter because of the general lack of residential inventory, lack of product for mid-market buyers, and concern about financing sales.

A plan to redevelop the long-vacant Kingsbridge Armory into the world-class Kingsbridge National Ice Center is resulting in spikes in retail rents in the surrounding area, the Norwood News reports. More than a dozen merchants with stores across from the Kingsbridge Armory were informed that their rents will double on August 1. At a recent Community Board 7 meeting, the affected businesses were invited to consider relocating to vacant storefronts within the borders of the Jerome Gun-Hill Business Improvement District and Webster Avenue.

Permits have been filed for a 10-story, 92-unit building at 2065 Walton Avenue in the Fordham section of The Bronx, New York YIMBY reports. The land was purchased for $1.15 million last November. The property, which will be 100 percent below market, is being developed by Alan Bell and the Jericho Project, which is involved in supportive housing projects for the formerly homeless in Upper Manhattan and the Bronx. Homeless veterans will be offered 60 percent of the apartments and homeless young people between the ages of 18 and 25, with a focus on LGBT youth, will be offered the remainder.

The quarter-mile bike and pedestrian path linking the South Bronx to Randall’s Island is scheduled to open in 2015, DNAinfo New York reports. As part of the $48 million South Bronx Greenway project, the pathway will link Randall’s Island to the Bronx at 132nd Street and run south under the Amtrak trestle and over the Bronx Kill. Currently pedestrians walk to Randall’s Island using the Triborough Bridge or the pedestrian Bridge at 103rd Street in Manhattan.

Although it’s located in The Bronx, North Riverdale feels more like the suburbs, according to a NY Times profile of the area. The neighborhood features views of the Hudson River and the Palisades cliffs of New Jersey, the 70-acre College of Mount Saint Vincent, and Van Cortlandt Park. In the first six months of 2014, eight single-family homes sold for an average $653,000, and 46 co-ops sold for an average $184,000.

The WSJ profiled another area of the Bronx, Bedford Park, pointing out that residents priced out of Riverdale are finding value in the neighborhood. The area is surrounded by the New York Botanical Garden and Bronx Zoo on the east, Lehman College on the west, Montefiore Medical Center to the north, and Fordham University to the south. Webster Avenue has been rezoned to attract new residential and commercial buildings, and a new, 122-unit apartment building is being developed at East 201st Street and Webster. One- and two-bedroom co-ops sell for between $100,000 and $200,000, and single and two-family homes sell for between $375,000 and $475,000. One-bedroom rentals start at $1,000, and two-bedrooms at around $1,350.

Individuals working in creative industries who have been priced out of Williamsburg, Greenpoint, and Dumbo are seeking more affordable live/work spaces along the subway lines in neighborhoods like Crown Heights, Bedford-Stuyvesant, and North Flatbush in Brooklyn, Sunnyside and Astoria in Queens, and some areas of the South Bronx, Crain’s reports. Between 2003 and 2012, the number of design firms in Brooklyn increased by 101 percent, increased 45 percent in Queens, but only increased 6 percent in Manhattan.

Mayor Bill de Blasio’s affordable housing plans for East New York may not end up being affordable for local residents, the Gothamist reports. “As it’s written, the [citywide] unit percentage breakdown amounts to a median rent of between $1,050 and $1,670, with 8% of the 200,000 units for rent at $630,” says Shai Lauros, the director of community development for Cypress Hills Local Development Corporation. “Affordable rents for this community typically range from $375-625, so there is a discrepancy here. This could contribute to displacement.” Purnima Kapur, executive director of the Department of City Planning, acknowledged that what works in Greenpoint and Williamsburg will not work in East New York, but added that the community needs to become more “economically integrated” and not be treated as only “a poor people’s residence.”

In June, Brooklyn had 27 hotel projects with 2,416 rooms in the pipeline. Of these, seven with 544 rooms are in the planning phase, six hotels with 493 rooms are in the final planning stage, and 14 with 1,379 rooms are under construction, the Commercial Observer reports. The $80 million, 246-room Holiday Inn Brooklyn Nevins Station topped out recently at 300 Schermerhorn Street in Downtown Brooklyn, a 183-room luxury Level Hotel Brooklyn is being planned in North Williamsburg, a 200-room Starwood hotel is being developed at Pier 1 in Dumbo, and a Marriott Autograph Collection hotel is being planned in Fort Greene.

Dollar Volume of NYC Multifamily Trades Up 33 Percent in May 2014 vs. May 2013

New York City multifamily building sales rose 15 percent and the dollar volume of those trades jumped 33 percent in May 2014 compared to May 2013, according to Ariel Property Advisors’ Multifamily Month in Review: New York City for May.

Multifamily Month In Review

For the month, New York City saw 52 transactions comprised of 102 buildings totaling $645.876 million in gross consideration compared to May 2013, which saw 61 transactions comprised of 89 buildings totaling $484.966 million in gross consideration.

“May figures bolster our expectations that market reports covering the first half of 2014 will show strong year-over-year gains in multifamily pricing and sales volume,” said Shimon Shkury, president of Ariel Property Advisors.

Transaction volume was unchanged month-to-month but building volume declined 8 percent from 111 In May compared to April and the dollar volume of those trades declined 9 percent from $711 million, primarily because of fewer deals in the Bronx and Brooklyn.

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

Manhattan. Manhattan rebounded in May after a slow April with 13 transactions totaling $239.218 million in gross consideration, a 31 percent increase in dollar volume from the previous month and an 88 percent jump in dollar volume compared to May 2013. Despite leading the city in transactions and dollar volume, only one notable portfolio traded in Manhattan as individual properties made up the bulk of transaction volume for the month. Manhattan’s activity was anchored by the $68.167 million sale of 277 West 10th Street, a 144 unit core asset located in the West Village. The transaction represented $495 per square foot and the new owner plans to reposition the asset by reconfiguring the building to larger units.

Northern Manhattan. Northern Manhattan experienced very strong month-to-month and year-over-year gains as it saw 31 buildings trade across 10 transactions totaling $133.478 million. This represents a 107 percent increase in building volume and a 68 percent increase in dollar volume from April, and a 138 percent increase in building sales and an 80 percent increase in dollar volume compared to May 2013. Northern Manhattan can attribute its strong month to portfolio sales, which accounted for 24 of the buildings traded. A notable transaction was the sale of a portfolio of properties owned by Yeshiva University for $72.5 million to Cammeby’s International. The sale represented $192 per square foot and $179,000 per unit.

The Bronx. Although the Bronx saw month-to-month decreases after an unusually strong April, the borough experienced solid year-over-year gains as the number of buildings sold increased 40 percent to 28 and dollar volume of those trades increased 32 percent to $131 million from May 2013. Pricing remained strong as ever in the Bronx, as the average price per square foot for multifamily transactions in May was $129.

Brooklyn. After seeing several very active months, Brooklyn multifamily sales calmed down in May with 12 transactions trading for $107.455 million in gross consideration, a decrease of 20 percent and 52 percent, respectively, from the previous month. The sale of a newly-constructed building located at 76 Meserole Street in East Williamsburg $35.6 million, or $584 per square foot, stands out as a testament to strong pricing throughout the borough.

Queens. With $34.7 million trading across five transactions, Queens’ May multifamily sales picked up from a sluggish April. A 66 unit elevatored building in Kew Gardens sold for $14 million, or $212,000 per unit, demonstrating the region’s strong pricing.

Trailing 6-Month Sales Averages: For the six months ended in May 2014, the average monthly transaction volume remained steady, dropping slightly to 63 transactions per month. For the first time since February, the dollar volume fell below $1 billion and averaged $937.6 million in May.

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-May-2014.

Our Observations For the Week

The MTA and labor unions representing the LIRR settled their four-year-old contract dispute and averted a strike. The agreement gives existing LIRR employees a 17 percent wage increase over 6 and a half years, but the contract will have no impact on MTA fares. To ensure the long-term affordability of the wage increases, all employees will for the first time contribute to their health insurance costs, and new employees will have different wage progressions and pension plan contributions.

New York City had a net gain of 94,300 jobs from June 2013 to June 2014, bringing the city’s job count to 4,067,500, the New York State Labor Department reported. The city’s unemployment rate in June remained unchanged at 7.9 percent, while the state’s unemployment rate dropped slightly from 6.7 percent in May to 6.6 percent in June, the lowest level since November 2008. The U.S. unemployment is 6.1 percent.

Kuafu Properties and Siras Development have purchased five adjacent parcels on the southeast corner of 38th Street and 11th Avenue across from the Javits Center in Midtown for $62 million, Forbes reports. The investors are planning to build a 20-story, 380,000-square-foot tower that will include 50 luxury condos, a 400-room, high-end hotel, office space, ground-floor retail, and a three-story Shanghai Club. According to the article, Kuafu Properties is a New York-based “full-service development platform established with the vision of bridging Chinese capital with prominent U.S. real estate projects.”

A city proposal to upzone five blocks of the Vanderbilt Corridor north of 42nd Street, which would allow SL Green to build a 67-story tower adjacent to Grand Central Terminal without purchasing 1.3 million square feet of air rights over Grand Central Terminal, would “cause an unconstitutional taking of our client’s property,” Duane Loft, a lawyer for Grand Central Terminal argued at a City Planning hearing. “The development rights above Grand Central are property rights, and the Constitution protects those rights from being taken from their owners without just compensation,” he said, the Commercial Observer reported. The Grand Central legal team has threatened to file a $1 billion lawsuit over the unused air rights.

The Downtown Brooklyn Partnership released a report that chronicles the growth of Downtown Brooklyn in the 10 years since the area was rezoned in 2004. The rezoning and $400 million in public investment has resulted in more than $4 billion of private investment leading to the creation of 5,200 residential units, more than 1,000 new hotel rooms, almost a quarter million square feet of office space, and 625,000 square feet of retail. The original plan anticipated more commercial than residential development so today the vacancy rate of Downtown Brooklyn’s 17 million square feet of commercial office space is close to 4 percent, which means businesses are running out of room to expand.

Ten years after Downtown Brooklyn was transformed by the rezoning, Mayor Bill de Blasio is proposing to redevelop the 21-acre Brooklyn Strand, a series of disconnected parks, plazas, and greenways between Borough Hall and Brooklyn Bridge Park. The mayor’s other downtown initiatives include investing in three new and revitalized spaces at Fox Square at Flatbush and Fulton Street, Willoughby Square, and BAM Park; launching the Brooklyn Cultural District BID; making Jay, Tillary, Adams, and Willoughby Streets safer and more inviting; and creating a consortium of Downtown Brooklyn’s 11 colleges.

Operators of the Mall at Bay Plaza in the Bronx are hoping to attract wealthier Bronx shoppers and even Westchester residents when the $270 million mall opens at the Hutchinson River Parkway and I-95 in mid-August. The mall will be anchored by Macy’s, which last opened a store in the Bronx in 1941, and will house newcomers to the borough H&M, Victoria’s Secret, and Aeropostale. In recent years, suburban residents that previously commuted to Midtown Manhattan for shopping have been staying closer to home and patronizing high-end malls in Westchester.

The Bowery Residence Committee, a provider of social services, is reportedly proposing to build 132-units of affordable housing and a shelter for 200 single homeless adults at 233 Landing Road, between Cedar Avenue and the Major Deegan Expressway in the University Heights section of The Bronx, the Daily News reports. The building would be the first of its kind to offer both affordable housing and a shelter. Three homeless shelters housing 140 families and at least 15 supportive housing developments for people with disabilities and substance abuse or mental health issues are located in Community Board 7, the article said.

The New York City Department of Housing Preservation is seeking proposals to build a mixed-use, mixed-income development with approximately 200 new affordable apartments on a municipal parking lot in the Flushing neighborhood of Queens. The development site is bordered by 41st Avenue, College Point Boulevard, Main Street, and the Long Island Railroad (LIRR) Flushing-Main Street Station. The deadline for the proposal is October 10, 2014.

Young professionals and families seeking affordable housing in a diverse community can find it in the Briarwood neighborhood of Queens, according to the NY Times. Although single-family homes are scarce, one- and two-bedroom co-ops are plentiful. One-bedroom co-ops now sell for around $145,000, compared to $160,000 to $165,000 before the recession. Rentals range from $1,000 to $1,200 a month for studios to up to $2,300 to $2,600 for a three-bedroom. The neighborhood is accessible to Manhattan via a 40-minute commute on the E and F subway lines.