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Upper Manhattan Multifamily Market Review 



Upper Manhattan Multifamily Market Review

 

 
 
Tags:  manhattan mortgages  investment  multifamily 
Views:  1028
Published:  June 10, 2010
 
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Slide 1: INWOOD A Look At The Upside RO OS Multifamily Investment In Upper Manhattan Presented By Shimon Shkury May 2009 EV EL TI SL AN D 14
Slide 2: Ta b l e O f C o n t e n t : • U pp e r M a n h attan Ov erv i ew • U pp e r M a n h attan Mul ti fami l y • Multifa m il y P roperty A nal y s i s • Mar ke t Ou tlook
Slide 3: Upper Manhattan Overview I n w o o d & Wa s h i n g t o n H e i g h t s working class residential neighborhoods, remarkable architecture Central Harlem gradually has become extension of UWS East Harlem characteristics of East Village / Lower East Side Morningside Heights & Hamilton Heights Columbia University and its expansion is key
Slide 4: Upper Manhattan Overview Key Investment Factors • Significant public and private investment • City focused on rezoning initiatives: • 125th Street rezoning • Columbia University Expansion • Commercial corridors along Frederick Douglass Boulevard and East Harlem Avenues • Upcoming retail • Strong transportation networks
Slide 5: Upper Manhattan Overview New Developments • East River Plaza - 500,000 square foot retail project with an attached 1,248-space parking facility spanning 3 city blocks • Anchor Tenants Include: • Affordable housing projects: • Fortune Academy Project • The Tapestry • East Harlem Media, Entertainment & Cultural Center • “W” Hotel on 124th Street & Frederick Douglass Blvd. • Educational Institutions: Hunter College, Touro College, Yeshiva, Columbia Presbyterian
Slide 6: Upper Manhattan Multifamily Building Stock Overview 63% of properties in Northern Manhattan are Multifamily Buildings Wa l k - U p s 45% Other* 37% 4% Mixed-Use 14% Elevatored • Upper Manhattan is primarily a residential neighborhood • City mostly eliminated industrial/ manufacturing zones • Office & hotel markets practically non-existent • Retail is developing, but there are more immediate opportunities in managing regulated assets *City Properties, Vacant Lots and Vacant Buildings, Commercial, Office, Factories, Garages, Hotels
Slide 7: Upper Manhattan Multifamily Unit Breakdown Overview • While NYC greater area has 50% of owner occupied and market-rate units Upper Housing Stock Composition of CD 311 versus New York City (2005) Manhattan has about 20% 7) CD 311 • Upper Manhattan has about 80% less market rate rental apartments and a much Owner Occupied greater proportion of public and regulated housing when comparing to greater NYC area Market-rate Rent New York City Rank Public Housing Housing Stock Stabilized – Rent Control / Composition of CD 311 versus New York City (2005) 7) 311 1 Northern Manhattan 311 CD cup ed 18O w n e r O cOtheriRent Subsidized 100% Owner Occupied 49M a r k e t - r a t e R e n t P u b l i c Education Graph Title Goes Here H oMarket-rate Rent using New York City New York City 11R e n t C o n t r o l / S t a b i l i z e d CD 311 Public HousingNYC 1O t h e r R e n t S u b s i d i z e d 80% Rent Control / Stabilized 8% 40 Other Rent Subsidized 100% 60% 44 40% 35% of the housing stock Here Education Graph Title Goesin CD 311 is made up of public housing 1 20% CD compared to only 5% NYC units,311 Source: State of New York City’s Housing & Neighborhoods 2008citywide. Only 8% of the housing stock 12 8% 80%
Slide 8: Upper Manhattan Multifamily Upside Rent Stabilized vs. Free Market Rent: Rent Stabilized: $18.67 per Sq. Ft. Free Market: $27.62 per Sq. Ft. $34 $28 Implied Upside: 32.40% $ / Sq. Ft. Trend 2002 - 2009 Rent Regulated $ / Sq. Ft Free Market $ / Sq. Ft. $19 $20 $12 2009 2007 Source: Massey Knakal Realty Services Northern Manhattan Residential Rental Report 2002
Slide 9: Multifamily Asset Analysis Strengths: • Steady cash flow • Availability of financing Weaknesses: • Capital intensive • Management intensive Opportunities: • Rising cap rates • Upside with limited downside • In Place Financing (Mortgage Resets, • Acquisition prices well below replacement costs Threats: • Changing legislation • Real Estate Taxes • Rising energy costs Distress, Work-Outs, Assumable Financing)
Slide 10: Multifamily Asset Analysis Threats - Changing Legislation Critical Points Current Legislation MCI increase Individual apartment improvement increase Registered rent threshold for ‘free market’ unit High income threshold Vacancy bonus Preferential Rent 1/84 1/40 $2,000 $175,000 20% At lease renewal Pending legislation Makes MCI increases a temporary surcharge Increases payback period for individual apt. improvements from 3 1/2 years to 7 years. $2,700 $240,000 10% Prohibits owner from returning to the legal regulated rent from the preferential rent until vacancy instead of the time of lease renewal. Requires Section 8 and Mitchell Lama projects to enter rent stabilization upon withdrawal from section 8
Slide 11: Multifamily Asset Analysis Strenghts & Opportunities Case Study - East 108th Street 2004 Annual Rent: Expenses: NOI: Rental $ / SF: Value: Financing: $769k $295k $474k $19.2 $7m $4.5m 2009 $1.2m $365k (est.) $835k $30 $11m $7.5m Property Highlights: Two (2) 6-story, elevatored buildings, located on East 108th Street between 1st & 2nd Ave. Combined Sq. Ft.: 45,192 Units: 84 2004 vs. 2009 Income Summary Net Income Expenses $769,000 $474,000 $1.2 million $835,000 2009 2004
Slide 12: Multifamily Asset Analysis Current Financing Environment • Development financing dried up • Multifamily properties are coveted assets to regional balance sheet lenders Underwriting criteria 2007 Debt Service Coverage Ratio (DSCR): Loan To Value Ratio (LTV): 1.05 - 1.15 75% - 90% 2009 1.2 - 1.3 60% - 70%
Slide 13: Multifamily Asset Analysis M u lpiea mM y n h ak e t I n d i c a t os s o r t a t i o n U p t f r i l a M a r t t a n Tr a n r p • First significant increase in cap rates in over 5 years 8.00% • Price vs. replacement costs trending down • Where are these opportunities? 7.00% $ / Sq. FT. $300 $250 $200 $150 $100 $50 $0 ‘00 ‘02 ‘04 9.00% $ / UNIT 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% ‘08 ‘06 2.00% 6.00% CAP RATE gRM 14 12 10 8 6 4 2 $250k $200k $150k $100k $50k $0 9.00% 5.00% 8.00% 4.00% 7.00% 3.00% 6.00% 2.00% 5.00% 1.00% 4.00% 0.00% 1998 3.00% 2.00% ‘03 ‘04 2002 ‘06 2004 ‘08 2006 ‘05 ‘07 2000
Slide 14: Multifamily Asset Analysis Case Studies Address: Date: Price: # of Units: $ / SF: $ / Unit: Cap Rate: GRM: $/SF (rental): West 137th Street March ‘09 $2,465,500 24 East 100th Street April ‘09 $12,200,000 92 $144.93 $132,609 $88.66 $102,729 2.99% 11 . 6 3 $8.96 5.67% 10.06 $16.94
Slide 15: Multifamily Asset Analysis M u lpiea mM y n h ak e t I n d i c a t os s o r t a t i o n U p t f r i l a M a r t t a n Tr a n r p • Drop in volume more a function of restricted supply than low demand • Owners are holding back supply as they cling to 05-07 prices • Those with property on the market right now have a good motivation to sell that isn’t dictated by price (retirement, management, leverage, partnership disputes, etc.) • Many buildings sold between 0507 are due for 5 year mortgage resets - higher interest rates could lead to more defaults and more opportunities. # OF BUILDINgS SOLD 250 200 150 100 50 0 250 $$$ VOLUME 1800000000 1600000000 $1.8B $1.4B $1B 200 1400000000 1200000000 150 1000000000 800000000 600000000 Series Series 100 $600M 50 400000000 200000000 $200M ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 0 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Slide 16: Market Outlook W h e n W i l l Vo l u m e C o m e B a c k U p ? Volume will increase as downward pricing pressure builds, owners recognize this, and begin to capitulate. Several factors contribute to this, including: • Rising mortgage rates • Rents will bottom when unemployment peaks, which hasn’t happened yet • Expenses vulnerable to rising energy costs – oil has increased 80% since hitting a January ‘09 low at $32 per barrel • Mortgage resets are expected to kick-in starting in 2010 • Changing legislation is expected to take effect by year end
Slide 17: Market Outlook Key Players • Moving from institutional high IRR capital into long term hold investors • Multifamily operators and families with existing management platforms • Owners/investors have access to private international money
Slide 18: Market Outlook Summary Upper Manhattan’s Multifamily Upside: • Transportation • Opportunity to convert current stock to free market and ownership • Average rental units are at 66% of market • Excellent long term buying opportunity as market forces soften prices
Slide 19: THANK YOU Yo u r N o r t h e r n M a n h a t t a n Te a m : Shimon Shkury Investment Sales M i c h a e l To r t o r i c i Victor Sozio Christopher Lefferts Investment Research Ivan Petrovic Brent Rance

   
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