Despite weakness in the ultra-luxe segment of the market and fears that the current cycle might be cooling off, some market watchers think multifamily in NYC still has several strong years on the horizon.
Peter Von Der Ahe, the top-producing multifamily agent in Marcus & Millichap’s Manhattan office is, unsurprisingly perhaps, particularly bullish on the asset class, especially in the event of a plateau in the market.
“I think what we’re going to see happen going forward is that different asset classes will start to separate out and behave differently,” he says. “For the past few years, everything’s been in lockstep while the market’s been going up and up, but now that’s changing.”
Predictions of a slowing market aren’t just idle talk either. A recent survey by the Urban Land Institute of dozens of CRE heavy hitters predicted the years ahead will be slower than the last few, but still steady, as Bisnow previously reported.
Peter’s not the only one who thinks multifamily—excepting luxury condos—might outperform other asset classes in a slowing market.
“Multifamily’s always the last [asset class] to go down,” Steven Cox (shown on the right along with Marcus & Millichap's Richard Katzenstein), a managing director at Hunt Mortgage Group, says.
“So I’d certainly be bullish on financing it, even if I might not necessarily be bullish on buying it myself," he says. "Because the extremely low cap rates means you have plenty of equity ahead of your debt."
Steven says Hunt, which is a Fannie Mae and Freddie Mac dealer, is currently “very aggressive in New York, especially if it’s got an affordable component.”
He adds that his competitors, the big banks, are doing the same thing. Speaking of which, those big banks have roughly the same view as Steven when it comes to multifamily in New York.
While he doesn’t address the prospect of a slowing market, BankUnited’s CEO John Kanas recently told American Banker that they “continue to see strength in our primary markets—that is, New York and Florida—with the only exception being the high-end condos in Manhattan.”
While oversupply in the ultra-luxe segment has hit that sector hard, the “middle and the bottom, and where we operate, remain very firm, and in fact are improving,” John said.
In general, most lenders in NYC seem to have roughly the same take on multifamily as Steven and John, for now at least.
The longer we go without a replacement for 421-a, the greater the uncertainty, but the impact of the tax credit’s absence will likely be restricted to new construction. Some lenders have even suggested a lull in multifamily financing could be a good thing, after a red-hot 2015 left some with fears of overexposure.
Peter says regardless of financing, the fundamentals are in multifamily’s favor going forward. Retail faces headwinds like a strong dollar and global volatility, while hospitality faces those as well as an ongoing supply boom and competition from Airbnb, he says.
“With multifamily on the other hand, you’ve got a diversified income stream, low interest rates, an economy that’s slow but steady… All that’s generally a pretty good recipe in terms of fundamentals,” he says. “For that reason, I think you’ll start to see that multifamily stands out from the pack going forward.”
Ron Solarz, an investment sales broker and executive managing director at Eastern Consolidated, is quick to point out that New York in general often outperforms the rest of the country in a slowing market. He says he’s seeing strong demand for multifamily, retail and office.
“As long as it’s a quality property and there’s a story as to why it’s quality, I haven’t really noticed a drop-off in demand” for one asset class relative to another, he says.
While he says it’s too soon to tell whether one asset class might outperform another going forward, he thinks it is safe to say that pure land deals will definitely be the hardest hit.
“If you do see things start to slow down, I think pure land will certainly be harder to finance, and those deals will start to require more equity,” he says. “Cash flow is king right now.”
Peter agrees, saying that “if you look at development sites or land, investors are being a lot more skeptical these days about those opportunities.”
“For both equity and debt, anything with development characteristics is going to be a harder sell going forward,” he adds.
