Multifamily, long a prized asset class in New York City, is showing signs of improvement after several challenging years.

Multifamily sales reached $2.6B during the second quarter, triple the first-quarter volume. Rents are expected to rise by 2.2%, and 33,000 units are expected to be delivered by year-end — the most of any U.S. city. The Federal Reserve’s interest rate cut of 25 basis points yesterday is expected to bring a renewed sense of optimism to the sector.

New York-based lenders such as Popular Bank have taken notice of this uptick and are diving headfirst into deals. Popular Bank is the U.S. mainland subsidiary of Puerto Rico-based Popular Inc., a publicly traded, full-service financial institution. Popular Bank has been serving the greater NYC area for more than six decades.

“We’ve been a trusted multifamily housing lender for many years, witnessing firsthand the positive impact that access to housing, especially affordable housing, has on communities around the city,” Popular Bank New York Metro Commercial Real Estate Director Greg Miedrzynski said.

While multifamily housing units in New York City remain in high demand, there have been vast changes in the city’s housing landscape over the past several years, Miedrzynski said.

Construction materials prices have soared by as much as 40% since before the pandemic, creating thinner profit margins for developers and slowing the rate of construction.

Last year, developers in the city filed permits for 15,500 apartment units, the fewest since 2016, due to a combination of lofty construction costs, unsteady capital markets and general market uncertainty. This trend has also spurred a wave of conversion projects not only in NYC but also nationally, Miedrzynski said.

Labor shortages have also impacted the Empire State, with only 87 workers available for every 100 jobs.

In the construction industry nationally, it is estimated that 500,000 more workers are needed to keep up with demand. New York’s construction sector, one of the nation's largest, experienced massive layoffs in 2020, eliminating 70,000 positions. The state expects to reach prepandemic employment levels by 2025, but hiring skilled labor still poses a challenge, Miedrzynski said.

In February, New York’s multifamily vacancy rate dropped to 1.4%, the lowest figure since 1968. Alongside record vacancy, rental rates have remained strong — estimated to be 17% higher than before the pandemic. Transactions are also up significantly since the beginning of this year.

All of these factors signify that there is still an insatiable appetite to live and work in the Big Apple, Miedrzynski said.

“New York’s housing shortage has been a hot topic in recent years, especially as the supply pipeline has slowed down, driven by the expired tax incentives and the overall cost to build,” Popular Bank New York Metro CRE Team Leader Joe Farrauto said. “But the demand for housing has remained stronger than ever.”

There has been legislative movement in New York to generate more multifamily construction activity and drive more deals to pencil, Farrauto said.

Last month, the NYC Planning Commission voted to move forward with the City of Yes housing initiative, making it easier to convert underutilized office buildings to residential units. The proposal would also create a universal affordability preference tool, allowing developers to create 20% more housing units as long as they are affordable, lift parking mandates and relegalize housing above commercial businesses.

“The data is clear: The demand to live in our city is far outpacing our ability to build housing. New Yorkers need our help, and they need it now,” Mayor Eric Adams said in a statement.

Farrauto added that other legislation is being introduced to move the market forward, including replacing the expired 421-a tax abatement with 485-x, or the Affordable Neighborhoods for New Yorkers Tax Incentive program.

Under the new incentive program, more stringent affordability rules will apply. Affordable units will be available to those making between 60% and 80% of the area median income, as opposed to 421-a’s 130% of AMI. The tax exemption period for developers will also increase from 35 years to 40 years, while units deemed affordable will be permanently designated as such and companies will have to pay their workers according to the wage structure determined by the state.

“485-x is a new program, and the adoption will take time,” Farrauto said. “But it is a step in the right direction that should boost multifamily housing development in our city, and we are looking forward to helping our customers when they are ready.”

These proposed initiatives aim to make New York a more affordable place to live while also reviving the city’s multifamily construction pipeline, Farrauto said. In 2022, when 421-a expired, permit applications to build new multifamily units dropped 78%.

Even as Gov. Kathy Hochul created 485-x to replace 421-a, developers still harbored a sense of uncertainty after the incentive they so heavily relied on since the 1970s no longer applies to their projects, and 485-x has not been finalized yet, Farrauto added.

“We’ve seen some of our clients shift focus to the nearby commuter towns in New Jersey,” Farrauto said. “Cost to build is slightly lower, and some of the areas also have tax abatement programs in place.”

This year, Popular Bank has financed multifamily housing projects in northern and central New Jersey, including a $16.5M construction loan for 342 Johnston Ave. in Jersey City, a $30M loan for a project on McWhorter Street in Newark, and a $55.7M loan for a project on Anderson Street in Hackensack.

Miedrzynski said Popular Bank is seeking multifamily construction opportunities in the market. Deals this year include a $9.8M construction loan for 50-plus units on Ryer Avenue, a $51M construction loan for a 247-unit project on Jerome Avenue in the Bronx, and an $18M construction loan for a project on Nostrand Avenue in Brooklyn.

Providing access to capital for ground-up multifamily construction projects and offering more than one loan option to better meet the financing needs of developers set the Popular team apart from the competition.

“As new tax incentives take effect and the interest rates come down, developers will need a banking partner that knows and understands the market,” Miedrzynski said. “Popular Bank has been working with local developers for many decades, and we truly know how to support the project from blueprint to completion.”

Contact Greg Miedrzynski, director of commercial real estate, at gmiedrzynski@popular.com.

Contact Joseph Farrauto, commercial real estate team leader, at jfarrauto@popular.com.

This article was produced in collaboration between Popular Bank and Studio B. Bisnow news staff was not involved in the production of this content.

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