New York multifamily investment sales to boom in 2022: Ariel

Photo illustration of 8 Spruce Street and 616 First Avenue (Getty, Google Maps)

New York’s multifamily housing market was buoyant in 2022, but higher interest rates are likely to slow things down this year.

The sector racked up $16 billion in total dollar volume last year — numbers last seen in 2016, according to a report by Ariel Property Advisors. Multifamily deals account for nearly 42 percent of the city’s $38.4 billion in investment activity.

Residential buildings with at least 10 units accounted for $13.2 billion in investment sales, a 57 percent increase from 2021. About 506 deals for 809 multifamily properties closed last year, up 27 percent and 5 percent, respectively.

Transaction volume peaked last May when more than 60 deals were completed, and dollar volume peaked in June at nearly $2 billion.

About 76 percent of the money spent was on market-rate properties or those that qualified for the expired 421a tax break, which was seen as a hedge against inflation.

The explosion in dollars and transaction volume was consistent across Manhattan, Brooklyn, the Bronx and Queens. Three of the four regions saw a peak in both indicators in the second quarter of last year.

Manhattan racked up $7.21 billion in transactions last year, a 154 percent jump from 2021 and its best year since 2015. The borough had 137 multifamily transactions, just a 17 percent increase from the previous year, indicating that the average size of the deal in 2022 was much bigger.

The city’s two biggest multifamily transactions last year were in Manhattan: Blackstone bought the 899-unit, 773,000-square-foot luxury condominium at 8 Spruce St. in the Financial District for $930 million, and Josh Gottlieb’s Black Spruce Management acquired a pair luxury apartment buildings at 616-626 First Avenue in Murray Hill for $837 million.

Black Spruce and Blackstone were two of the top three buyers of multifamily housing by dollar amount last year, acquiring nearly 3,000 units for a combined $2.98 billion.

Brooklyn had a record $3.78 billion in multifamily sales — $150 million more than the record set in 2021. The area’s 161 deals were the most since 2016 and represented a 45 percent increase from the previous year.

Leading the way in Brooklyn was Avanath Capital Management’s $315 million purchase of 38 Sixth Avenue and 535 Carlton Avenue in Prospect Heights. In second place is A&E Real Estate Holdings’ $249 million acquisition of LeFrak’s 14-building, 1.2 million-square-foot, 1,200-unit portfolio in Gravesend and Sheepshead Bay.

A&E was one of the most active multifamily players in the city last year, buying more than 3,100 units in 21 properties for $1.07 billion.

The Bronx had $1.1 billion in dollar volume and 89 multifamily transactions, representing increases of 16 percent and 10 percent, respectively. It was the neighborhood’s best year in both categories since 2018.

The Bronx had the largest affordable housing deal in the city, as a joint venture between Gilbane Development, Systima Capital Management, ELH Management and TerreAlto acquired four Section 8 projects and a development site for $107.5 million.

Queens had $700 million in multifamily housing volume, a 45% increase from 2021 and the highest amount since 2018. The area saw a record 71 multifamily transactions, up 65% from the previous year.

A&E once again set the pace with the $130 million acquisition of the four-building, 1,060-unit, 820,000-square-foot Cunningham Heights complex in Queens Village.

The past year has highlighted the trend for private equity firms to invest in multifamily properties. Along with Blackstone, companies such as KKR and Carlyle Group were active in the sector.

KKR picked up 651 units for $415 million, including the 365-unit rental tower at 80 DeKalb Avenue in downtown Brooklyn for $190 million. Carlyle acquired 13 properties in seven deals last year as part of a strategy to build a $500 million portfolio of small multifamily buildings in Brooklyn.

But the second half of 2022 showed that the city’s multifamily market could face a slowdown in deals. Dollar volume in the second half of last year fell 12 percent and transaction volume fell 23 percent from the first half as the cost of debt doubled in just one year.

The multifamily housing market may struggle more this year than last, according to the report, as mortgages on mostly stabilized properties issued before New York’s 2019 rent law changes near maturity — meaning borrowers they will have to sell or refinance.

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