NYC Multifamily Market Remains Bullish, Despite 421-A Uncertainty
Regulatory uncertainty, with the expiration of 421-A, and rising land prices have resulted in developers finding themselves in a holding pattern with regards to new rental developments in 2016. What does this mean for the New York City rental market? This was the question asked to a panel of experts at BisNow's 7th Annual Multifamily Rundown on February10, 2016.
Maury Golbert, CPA, J.D., LL.M., Tax Partner and chair of Berdon's Real Estate Services Group, moderated a panel of developers and investment services executives, who provided their insights on the current and future state of the New York City rental market. Joining Golbert on the panel were:
- David Lowenfeld, COO, World-Wide Group;
- David Dishy, President - Development, L + M Development Partners;
- Drew Fletcher, EVP, Greystone Bassuk;
- Natasha Vardi, SVP, The Moinian Group; and
- Matthew Sparks, Principal, Eastern Consolidated.
Despite the regulatory uncertainty, the panelists agreed that New York City remains a dynamic market and the safest place to invest. In fact, Eastern Consolidated's Sparks said that investors continue to include local operators but that more than 50% of activity comes from foreign capital.
Greystone's Fletcher said the pipeline of new rental development will "slow down dramatically" until the 421-A incentive is resolved or new incentives are introduced. Dishy of L+M Development said developers need "a highway we can drive down to get things done," a coordinated programmatic approach rather than one-off approvals. In response to a question from Golbert, not a single panelist or audience member could name a single multifamily rental project developed in the past 10 years that was paying full real estate taxes when placed in service.
Despite the uncertainty regarding the future of 421-A and the possibility that there may be no resolution of the issue until 2017, specific areas of opportunity include:
- Existing Rental Properties in Manhattan - There are plenty of existing properties, specifically rent stabilized properties, which continue to be strong investments. Multifamily continues to be the "most favorite investment class in the world," according to World-Wide's Lowenfeld, who described the current climate as "a time for caution by investors, yet a great time for condominium buyers." In addition to purchase prices for these properties generally being lower, long-term investments that incorporate upgrades and a repositioning strategy will also likely result in a natural progression of rent increases.
- The Financial District and The Outer Boroughs - The financial district has become a dynamic "live, work, play" destination in Manhattan. When looking to the outer boroughs, Brooklyn continues to become a "thriving metropolis" and Long Island City is still a bargain compared to Manhattan as you can find "2 for 1" rental opportunities in the area, where Lowenfeld says you will get twice the space for your money as compared to Manhattan.
- Developments Focused on the Sophisticated Renter - The Manhattan renter continues to become more sophisticated, which has resulted in a greater desire for control and choice when renting. In response to this type of renter, new properties are incorporating a variety of high-end amenities as a means to differentiate themselves in the market. Vardi noted that The Moinian Group's Sky Development on 42nd and 11th includes 70,000 square feet of amenities, including three pools, a pet spa, and a regulation-size basketball court. Renters also have the option to select from one of two finish packages on their units, giving them a greater sense of ownership in their rental unit.
Following the discussion on market opportunities, Golbert asked the panelists to provide insight on new trends that will impact the market. The panelists' responses included:
- Micro-Unit Developments - New apartments that are 400 square feet or smaller are becoming more and more popular in the U.S. New York City's first development of this type opened in late 2015 at Carmel Place in the Kips Bay neighborhood. Although micro-units are still a controversial topic, Sparks said these developments have the potential to provide a "super fit apartment-like hotel experience" at more affordable rates, whether they are constructed as stand-alone projects or incorporated into larger multifamily buildings.
- Technology - Similar to other areas of business, Vardi said that the real estate market is being impacted by our society's growing reliance and desire for technology. New technologies are providing renters with the ability to take virtual tours and get internal and external views of units without stepping foot inside the building. Additionally, in the era of high-end amenities, developments are incorporating new technologies, including technology concierges, to meet the needs of New York City's tech-savvy population.
- Affordable Communities - Sparks noted that quality of life and the need for convenience continue to be major influencers in purchasing and leasing decisions. Build affordable communities with a drug store, dry cleaner, grocer, etc., not just buildings, he said. Lowenfeld noted that some renters in Manhattan spend approximately 40% of their net income on rent, which is not a sustainable model and will lead to the creation of affordable communities that provide mixed income and affordable housing coupled with affordable neighborhood conveniences.
- Vertical Neighborhoods - Vardi noted that new developments coming on line create a sense of community within the building itself.
Despite the challenges that both developers and renters face in the New York market, panelists agreed that now is still "the greatest time to live in New York City" for a number of reasons:
- The economy is strong and diverse, with job creation in all sectors.
- Downtown has emerged as a 24/7 community.
- Luxury rentals have come on-line outside of Manhattan.
- The Bronx offers great investment opportunities.
- Financing is still available: banks are still lending and rates remain low.
"The best is yet to come," said World-Wide's Lowenfeld.
Berdon LLP, New York Real Estate Accountants