Despite 421-a Uncertainty, NYC Multifamily Market Remains Bullish
With the regulatory uncertainty in the wake of 421-a’s expiration and land prices on the rise, developers are in a holding pattern when it comes to new rental developments. Many at Bisnow’s 7th Annual Multifamily Rundown were asking what all these changes meant for New York commercial real estate. A panel of developers and investment services executives—including World Wide Group COO David Lowenfeld, L + M Development Partners development president David Dishy, Greystone Bassuk EVP Drew Fletcher, The Moinian Group SVP Natasha Vardi, Eastern Consolidated principal Matthew Sparks and Berdon Real Estate Services Group tax partner Maury Golbert (who moderated the panel)—sought to give some clarity.
Here are the eight biggest, best insights we took away from the panel.
The panelists agreed that NYC remains a dynamic market and the safest place to invest, but had divided opinions of how things would play in the short term.
While Matthew pointed out that investors continue to include local operators and more than 50% of activity continues to come from foreign capital, Drew was more reserved in his optimism, saying new rental development will “slow down dramatically” until the 421-a incentive is resolved—which may not occur until 2017—or new incentives are introduced. David Dishy agreed, suggesting developers needed a coordinated, programmatic approval process.
But, as Maury pointed out, not a single panelist or audience member could name a multifamily rental project developed in the past 10 years that was paying full real estate taxes when placed in service. This struck an interesting note on how much of a role 421-a played in the market, and how it may not be as easily adapted to as some think.
Existing properties, especially rent-stabilized properties, continue to be strong investments. David Lowenfeld described multifamily as “the most favorite investment class in the world,” adding that the current market—with its lower purchase prices and cautious investors—is perfect for condominium buyers seeking long-term investments.
Another hotbed of opportunity is the Financial District, which has become a dynamic live/work/play destination in Manhattan. And while Brooklyn continues to become a “thriving metropolis,” Long Island City has begun to impress with its bargain prices.
The panelists discussed the increasing sophistication of the Manhattan renter, who now desires more control and choice. In order to appeal to these new renters, new properties are incorporating a variety of high end-amenities to differentiate themselves. Natasha pointed out that Moinian’s Sky development included 70k SF of amenities, including three pools, a pet spa and a regulation-size basketball court. Renters also have the option to select from one of two finish packages on their units, giving them a greater sense of ownership.
Micro-unit apartments have been gaining significant popularity in the US over the last few years. NYC’s first micro-unit development—Carmel Place in Kips Bay—opened in late 2015. A hot topic, Matthew said these developments have the potential to provide a “super fit, apartment-like hotel experience” at affordable rates, regardless of whether they're constructed as stand-alone projects or incorporated into larger multifamily buildings.
Another discussion revolved around the growing reliance on (and desire for) technologies, with Natasha mentioning that new technologies provide renters with the ability to take virtual tours and get internal and external views of units without ever stepping foot inside the building. In addition, some developments are incorporating new technologies, like electronic concierges, to stand out. She also discussed the new trend of developments working to create a community within the building, saying that tech and communication are instrumental in doing so.
Matthew sparked a discussion about the quality of life and need for convenience as major influences in purchasing and leasing decisions. Affordable communities with a drugstore, dry cleaner or grocer close by could attract more buyers.
David Lowenfeld, however, stressed the need for attention on the unsustainable model that exists, where some Manhattan renters spend approximately 40% of their net income on rent. This model, he notes, could lead to the creation of affordable communities that provide mixed-income and affordable housing coupled with affordable neighborhood conveniences.
Despite the challenges that both developers and renters face in the New York market, the panelists agreed that now is still “the greatest time to live in New York City” for a number of reasons. Not only is the economy strong and diverse, with job creation in all sectors, but development has continued to be strong and even evolve in a number of regards. Downtown has emerged as a 24/7 community, the Bronx offers great investment opportunities, luxury rentals have come online outside of Manhattan and, with banks still lending and low rates, financing is available.
“The best is yet to come,” David Lowenfeld says.
