NEW YORK CITY-Multifamily assets fared better than other sectorsin withstanding the worst of the investment sales drought acrossthe five boroughs, says a five-year study from brokerage firm CPEXReal Estate. Although the peak-to-trough drop in the number ofsales for the sector was second only to that suffered bydevelopment parcels, prices for apartment properties held uprelatively well.

|

With multifamily sales picking up in the fourth quarter of 2009and 2010 signaling the start of a recovery in property salesgenerally, “expectations are for activity and dollar volume tocontinue to grow” in the apartment category, albeit not rising tothe highs seen between 2005 and 2007, the report says. “All in all,multifamily assets have been resilient over the past year ascompared to office, retail and industrial assets and we expect thecategory to continue its preferred status.”

|

Looking at the five-year period between 2004 and last year, thereport found that the relatively low overall decline in multifamilyprices tended to favor more attractive assets, with lower-tierproperties taking the biggest hit in valuations. From peak totrough, dollar volume for apartments declined 72%, compared to 65%for industrial, 75% for development sites, 80% for retailproperties, 86% for office and 92% for mixed-use assets. Dependingon the sector, those peaks occurred variously in ’05, ’06 and ’07,while ’09 invariably represented the trough.

|

The report forecasts that well-priced apartment assets will draw“significant interest from the market” and attract multiple offers“from the still significant investment pools on the sideline.Multifamily properties at overly inflated values will languish.Housing consolidation will continue, but will be tempered by areduction in new units slated to come online, as builders havescaled back or abandoned development plans in the past twoyears.”

|

That being said, a commentary earlier this week by ShimonShkury, partner at Massey Knakal Realty Services, notes “somepotentially ominous clouds” on the investment sales horizon. Hecites an article in the New York Times that reports asteep decline in single-family house and apartment sales since theexpiration of the Homebuyer Tax Credit earlier this spring. “Thisis backed up by a sharp drop in mortgage applications, which arenow at their lowest point since 1997,” Shkury writes. Further, theCommerce Department on Wednesday reported a 10% drop in housingstarts nationwide for May, the month after the tax creditexpired.

|

Despite these indicators, and news that May retail salessuffered a drastic falloff across the US, “lack of inventorycontinues to help pricing in the investment sales market,” writesShkury. “Bidding activity remains strong for well priced listingsbut there are very few discretionary sellers out there.”

|

A new report by Marcus & Millichap Real Estate InvestmentServices founds similar concerns in the retail sector citywide.“Although buyer interest remains elevated for New York City retailproperties, many investors continue to exhibit uncertainty overproperty values,” the report states. “Consequently, activity levelshave declined sharply in several areas, further muddling pricingexpectations and affecting the bidding climate.”

|

The Marcus & Millichap report predicts that investor demandwill stay strongest for mixed-use properties, “where owners canhedge risk with below-market-rate apartment units.” For retailcondominiums, though, deal flow will remain depressed “until thecredit markets relax sufficiently to facilitate speculative andowner-user acquisitions.”

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.