Moderator Peter Von Der Ahe, an associate with Marcus & Millichap Real Estate Investment Services Inc., noted that apartment investment volume across the city is down just 40% from last year, and for properties valued less than $100 million, volume is down 20%. That's significantly lower than the volume declines seen in the office and retail sectors.

The market today is better than it was during the last downturn in the early 1990s, pointed out Ofer Yardeni, a managing partner with Stonehenge Partners. Back then, there were assets for sale but investors didn't buy them because they were afraid of where the market was heading, he said. "Now, we know these opportunities don't happen every day," he related. Indeed, Stonehenge has bought more than $400 million worth of real estate in the Big Apple, including $296 million in multifamily, and continues to snap up properties. In fact, Yardeni stated, it makes more sense to buy an asset in New York and increase its value through rent increases and improvements than to risk developing a new property.

Still, it doesn't mean Manhattan communities haven't felt the pinch of the slowdown. While Stonehenge's properties in neighborhoods like the Village and Chelsea have held up well, Yardeni observed some softness in the luxury assets in the Upper West Side and Midtown West. Rent collections are coming later in the month, he said, and more residents are asking to sublease their units or bring in a roommate.

"It's taking longer to rent units and we have to work harder," Yardeni said. Despite that, he added, it's still possible to find tenants and the buildings in the firm's portfolio are fully or almost fully occupied. "We advertise at the local universities and on the Internet. You can't have the mentality of 'I'm in New York, so tenants will come to me.' You have to be aggressive and creative with your marketing campaign."

On the condominium front, sales are holding up and there isn't much resistance to pricing, although developers need to be more flexible to move units because there's a perception in the market that there should be concessions, said Daniel Hollander, senior managing director at the Clarett Group.

Demand for units from foreign buyers has increased. "Buyers seem to be taking a long-term view of the market," he said. "Whatever dips there are, the fact remains that there's still a shortage of units."

Meanwhile, Townhouse Management Co. which is in a $100-million joint venture--with Apollo Real Estate Advisors LP--to acquire more than $500 million in real estate, is focusing its energies on the Bronx. "We have a lot of money in the keg ready to spend when prices go down," said Mitchel Maidman, president of Townhouse. Until that point, the firm is working to add value to its existing holdings through improved services, better management and the like.

Condominium sales volume and pricing have slowed in New York's outer boroughs, although the possibility of a major oversupply situation in hot condo submarkets such as Brooklyn's Williamsburg area is unlikely. "Product gets absorbed pretty quickly, there's limited supply and it's hard to get product developed" in those areas, said Hollandar. The supply is so constrained, added John Manginelli, regional manager for KeyBank Real Estate Capital, developers would most likely begin new projects if they could obtain financing. Financing in general is tough, but Fannie Mae and Freddie Mac continue to lend as usual to Manhattan's apartment market. "Mezzanine and equity financing has been a bit harder to find," he said. "Stabilized deals are getting financed." Uncertainty over the capital markets, Manginelli noted, is driving some owners to take out supplemental financing just in case.

Given the tighter lending environment, Yardeni pointed out that it sometimes makes sense to buy on an all-cash basis. Without depending on a lending source, buyers are able to close faster on deals. "So we buy all cash and make improvements to the property," he explained. "Once we bring the value up, then we go to the banks to obtain financing, because not we're in a better position" because the asset is stabilized.

At least for the short term, it will be easier to obtain financing for Big Apple apartment properties than for retail or office assets, "Banks will clearly have to come around," Manginelli said. "Multifamily in urban markets is still quite strong."

The panelists also discussed the revisions to the city's 421a program, which took effect in July. Making changes to that program was a big mistake, said Hollander. "It worked. It helped to stabilize neighborhoods in Upper Manhattan and the Bronx and keep rental product affordable," he maintained. Not having the program is "going to hurt because it makes it very hard to start a new rental property today. Ultimately, though, the city will come back around. It's an expensive city to develop in and we need those types of programs in place."

Instant Insights /

Manhattan's Residential Market Remains Afloat in Downturn

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