The Adjustment And Reset That’s Needed
A report from Real Estate Weekly on New York. “A new report is showing a pause in Manhattan’s new development market, but that isn’t deterring a stream of buildings entering the city in the next few months. Halstead’s vice president of research and analytics Matthew Petrallia said it will generate more accurate pricing in the long run. ‘It’s good not to see a lot of inventory launching,’ Petrallia said about Manhattan. ‘Pricing is being revised down to a more realistic figure and we’ve continued to see that come down.’ Petrallia added that new developments in Manhattan tend to start with a high ‘aspirational pricing’ and eventually adjust to more appropriate prices.”
“When looking at quarter-over-quarter, average price per square foot in Brooklyn actually declined 5.29 percent year over year. But, Brooklyn’s available inventory doubled, mostly in part because of Brooklyn Point at 138 Willoughby adding 458 new units. Even with all the new developments expected to come online within the next few months, Petrallia said he expects both boroughs to remain relatively flat as long as a glut of new developments are spread out timewise.”
From Biznow. “Residential construction in New York City has slowed significantly since 2016’s cracking pace, and multifamily developers say it is a welcome development that will help soak up supply. The New York City Building Congress has predicted residential construction spending will hit $11.6B this year, and then slide down to $10.6B in 2019. By comparison, housing builders spent $16B on construction in 2016. ‘I expect construction prices to fall off a cliff in 2019 and 2020. It’s a good thing if you can find land to build on,’ Douglaston Development Chairman Jeffrey Levine said. ‘Land has stopped selling. Banks have stopped financing condos.’”
“Levine, whose developments include a 554-unit rental building at 2 North 6 Place in Williamsburg, Brooklyn, believes there is no doubt building rentals will pay off. The population is increasing, there is strong rental demand from baby boomers and millennials who do not want to be tied down with a home. Meanwhile, the tax law changes have made homeownership in the city much less attractive, he said. But, he describes the Affordable New York policy as worthless and unlikely to spur more multifamily development. ‘Rents have got to go up, land has to go down and tax abatements have to get better,’ he said.”
From Curbed New York. “Renters can take comfort that concessions are now the norm in the New York City market—and even better, prices are on the slow decline. In Manhattan, prices are down across the board: This past month saw the largest year-over-year decline in net effective rent tracked in six-and-a-half years, the fourth consecutive monthly year-over-year decline in median face rent, and the third highest recorded landlord concession market share in seven-and-a-half years.”
“‘Despite record concessions, we’re seeing the face rent sliding too,’ says Jonathan Miller, the author of Douglas Elliman’s report. ‘It means the concessions have kept the rate of [price] decline somewhat in check, but have not stopped it.’”
“In Brooklyn, concessions are also being offered for roughly half of all rentals, and the size of concession was 1.5 months of free rent or equivalent. Rents are falling in Brooklyn, too—March marked the fourth consecutive decline in the year-over-year net effective median rent, which dropped 6.3 percent to $2,629.”
“Finally, Northwest Queens hit a new record for landlord concessions. “The most mind-blowing numbers are in Queens,” Miller says, with the share of new rental transactions with concessions at a whopping 63.3 percent, up from 42.7 percent. The size of concession was 1.8 months, up from 0.9 months. This was the fourth consecutive month with year-over-year decline in net effective rent, while the existing median rent stabilized as new development median rent slid. As long as the rental market is flooded with luxury apartments, you can count on rental concessions being the norm, Miller says.”
From Bloomberg. “Here’s some good news for New York City apartment-hunters: Manhattan rents dropped 3.8 percent in March from a year earlier, the most since 2011. The news is even better for tenants looking in Brooklyn and northwest Queens. Rents dropped 6.3 percent and 6.4 percent respectively, and landlords offered so many move-in incentives that they set records for giveaways, according to appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. ‘For the renter, it’s a pretty good time to jump in,’ said Hal Gavzie, Douglas Elliman’s executive manager of leasing. ‘For the landlords, it’s a little stressful.’”
“Property owners across the three boroughs are contending with an avalanche of new apartment supply, giving them no choice but to cut prices. They’re stepping up discounts in the name of attracting renters, who are hunting as much for the best deal as they are for a place to live. And that’s not a bad thing for the market, Gavzie said. ‘This is what has to happen,’ he said. ‘It will help absorb quite a bit and will do the adjustment and reset that’s needed.’”
From Bisnow. “Two and a half years after listing it for sale seeking a $700M-plus return, SL Green and Ivanhoé Cambridge are selling a Midtown Manhattan office property for tens of millions less than they hoped. The joint venture is under contract to sell the 674K SF office condominium at 1745 Broadway to an institutional owner. The building’s decline in price might have been a result of poor timing; in 2015, New York City investment sales hit record levels in pricing and volume, but those numbers dipped slightly in 2016 before plummeting last year. The market has since picked up, but, as experts have told Bisnow, that is more of a result of sellers being willing to drop their asking prices than any underlying change in investing conditions.”
