NYC Free Market Buildings Get Boost From Looming Rent Stabilization Change
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On June 15, the laws surrounding approximately 1 million rent-stabilized units in New York are scheduled to expire, setting the stage for a landmark moment when landlords and tenants will see significant changes to current rent laws.
The Hodges Ward Elliott investment sales team has been following the multifamily market, particularly in advance of the expiration date. Bisnow caught up with New York Commercial Investment Sales Team Managing Director Daniel Parker and Managing Director and Chief Operating Officer Paul Gillen to discuss the effect that the expiration is having — and will continue to have — as the date nears.
Bisnow: With significant reforms on the table, there are a lot of eyes on the New York State legislature. What is happening right now?
Daniel Parker: As uncertainty has grown in the rent-stabilized market, more capital is flowing to assets that don’t have that risk. This has improved both pricing and liquidity for free-market as well as 421-a tax-abated buildings. We’ll look back and say 2019 was a great moment to sell a free-market apartment building.
Bisnow: Do investors still view multifamily as a stable and safe investment?
Parker: We remain very bullish on New York City multifamily because it isn’t exposed to negative tech disruption like other asset classes. Also, our data science research shows rent growth is highly correlated to job growth, so we keep a close eye on job reports. Between April 2018 to April 2019, New York City created almost 120,000 new jobs — that averages 13 new jobs per hour. We aren’t surprised that most landlords are starting to report stronger rent growth and fewer concessions in 2019.
Bisnow: What is Hodges Ward Elliott’s view of the broader marketplace?
Paul Gillen: The availability of capital, both debt and equity, is still very strong, and the overall cost of capital has not materially changed. That said, underwriting has grown a bit more conservative, partially due to the duration of the cycle, and outlier bids are difficult to find. It’s become more difficult to close transactions, but we are getting deals done. 2019 is on track to be our best year yet.
Bisnow: And what kind of deals are getting done?
Gillen: As Daniel mentioned, we have seen great demand for free market multifamily deals, having sold or put under contract approximately $600M over the last six months. On the office side, we have had success in the $100M-$300M size range where we are seeing pricing and demand hold steady, whereas pricing is down a bit on larger deals. According to Real Capital Analytics, for deals less than $300M, pricing increased 9% on a price per SF basis comparing 2017-2019 sales versus 2014-2016. During the same time frame, deals exceeding $300M were down approximately 9%.
Bisnow: How has this played out for Hodges Ward Elliott?
Gillen: We’ve had great success on midsized office transactions such as 31 West 27th St., which we sold for about $900 per SF; 430 West 15th St. at approximately $1,700 per SF for a leasehold interest; and we are currently negotiating a contract on 45 West 45th St. at competitive pricing.
Bisnow: Back to the multifamily market, what do you envision taking place after the regulations expire?
Parker: Rent-stabilized investors have been sitting on the sidelines for months, which has created pent-up demand. In the next few weeks, we’ll have a lot more clarity on the regulation changes. Owners and investors should be able to reliably adjust their financial underwriting and we’ll see increased liquidity in the market after the changes take place. That said, it may take a few months for the market to digest the new regulations.
This feature was produced in collaboration between Bisnow Branded Content and Hodges Ward Elliott. Bisnow news staff was not involved in the production of this content.