Manhattan state of the market through the first half of 2015: Shows no signs of slowing down - by Jesse Deutch

Jesse Deutch, Ariel Property Advisors

Manhattan investment property sales showed no signs of slowing down in the first half of 2015(1H15), as transaction and dollar volume continued to increase when compared to the already robust 2H14, according to Ariel Property Advisors’ Manhattan 2015 Sales Report.

During the first half of 2015, Manhattan, below 96^th St. on the east side, and below 110^th St. on the West side, saw a total of 422 transactions comprised of 522 properties totaling $25.125 billion in dollar volume. These figures represent a 57% increase in dollar volume, a more modest 11% increase in transaction volume, and a 15% increase in property volume when compared to the 2H14, which saw $16.017 billion in sales across 381 transactions comprised of 455 properties.

This increase in total dollar volume can be largely attributed to a continuation of the factors that drove the market in 2014 - an active market for institutional commercial/office assets, and a substantial increase in the sale of development sites. More large-scale transactions in the hotel sector were also a big contributor to total sales volume. Such activity demonstrates investor’s confidence in Manhattan’s economic prospects, mainly the continued strong outlook in regards to the city’s business and tourist climate, as well as the future residential condominium market.

Office building transactions had a remarkable half as nearly $10 billion in sales took place across 27 transactions, three of which were over $1 billion.

Despite rising land prices, the market for Manhattan development sites saw impressive sales in 1H15, with $4.981 billion in gross consideration, a 60% increase in dollar volume compared to both 1H14 and 2H14. As land prices continue to rise and condominiums achieve record pricing, an increasing number of developers are focusing their attention on condominium conversions as an alternative to ground-up development.

The multifamily product class continues to be an attractive option for investors as 1H15 has seen strong year-over-year gains in terms of dollar volume, transaction volume and property volume. Average cap rates, gross rent multiples and prices per unit were mostly stable compared to the end of 2014 but the average price per s/f saw a modest jump to $907 to start the year. Premiums are being paid by investors looking to convert existing multifamily rental buildings to condominiums, as was the case in Stonehenge’s $58 million sale of 330 East 63^rd St., which the new buyer plans on converting.

The first half of 2015 also showed strong metrics in the Lower Manhattan neighborhoods of East Village, Alphabet City, The Lower East Side, NoHo, Bowery, Nolita, Chinatown and Two Bridges. Dollar volume throughout these neighborhoods ballooned to an aggregate $1.39 billion, a 98% increase from the previous six-month period during the 2H14.Transaction volume increased by 19% and the number of properties traded was up by 51%, which is explained by more portfolio and assemblage transactions taking place in these neighborhoods.

The multifamily asset class in Lower Manhattan saw $802 million in dollar volume during 1H15, a 247% increase in dollar volume year-over-year and a 67% increase since the 2H14.  This consisted of 55 properties trading over 38 transactions, which is a 31% increase in transaction volume and a 77% increase in property volume compared to 2H14. Capitalization rates compressed 14 basis points to 3.94%, gross rent multiple jumped from 17.6 to 18.07,the average price per s/f rose 11% to $873 and the average price per unit rose 13% to $607,558.

 In March, Stone Street Properties sold 260-268 Elizabeth St., a five building multifamily portfolio containing a total of 48 residential units, six retail spaces and offering a total of 63,500 buildable s/f for $61.25 million. The sale price translates to approximately $1.155 million per unit, $1,586 per s/f and traded at a reported 4.75% cap rate and a gross rent multiple over 17. The site previously traded in November of 2012 for $33.5 million.

Lower Manhattan’s development market also had an active 1H15. The area saw $257.7 million worth of development, industrial and garage assets sell across 12 transactions comprised of 16 properties. The average price per buildable s/f in the area climbed to $531.One significant transaction took place at 194-198 Orchard St. & 187-195 E Houston St. The site, which has 220’ of wraparound frontage at Orchard & East Houston St. and has approximately 113,246 buildable s/f as-of-right, sold for $75 million, or $662 per buildable s/f. The developer plans on building an 83-unit, mixed-use condominium project and will reportedly include a 30,000 s/f Equinox gym at the base.  

With new tenants lining up for Essex Crossing’s retail opportunities, ongoing progress at Ian Schrager’s hotel and condo development at 215 Chrystie St., and the strong condominium pre-sales which boast prices above $2,000 per s/f at 50-52 Clinton St., 100 Norfolk St. and the Jefferson at 211 East 13^th St., 2015 is shaping up to be an incredible year for Lower Manhattan real estate.

For a copy of the Ariel Property Advisors’ Manhattan 2015 Sales Report visit http://arielpa.com/research/reports/

Jesse Deutch is a vice president at Ariel Property Advisors, New York, N.Y.