NEW YORK 2018 REPORT


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Most reports written in the last 5 years about the performance of the NY real estate market usually start with the words: “ New York City is the best place to invest in real estate in the world”. However, today in 2018, it won’t be an accurate representation of what is happening in the market, taking into consideration the new environment and changes, both in the macro and micro perspectives in the financial-market, for example, many of the commercial banks are tougher on giving out loans compared to 2016-2017 due to shifting prices and overall uncertainty.

As a result, the whole condo market is being affected from these changes, for example, financing a condo project these days proves to be a tasking effort due to the fact that many banks aren’t willing to provide loans to condos in the same manner they have done in the past.

Banks have toughened their positions on handing out loans to developers and now require a much stronger financial back-up than before. Up until just a few years ago, you would see banks providing loans to people without checking of any development track record they may have had, now-days, the requirements for loans have changed immensely and it is getting harder to receive one.    

Foreign direct investment (FDI) in the U.S. commercial real estate market fell short of the record numbers in 2015 and 2016, however, it remained relatively stable and attractive throughout most of 2017.  With the implementation of new tax reform in the U.S., foreign investors are seeing tax liabilities decrease, leading to increased profitability on their investments.

Investor demand and capital availability are viewed by the local New York market as definite strengths for the current year. We believe some of the softness towards the end of 2017 was attributable to uncertainty regarding tax reform, as investors and buyers awaited the final language of the reform. That being said, we strongly believe in the growth of Downtown Brooklyn, Lower East Side of Manhattan and the stability of areas such as the Upper West Side of Manhattan.

Brooklyn is currently experiencing an economic revitalization that positions the borough as a major force in the U.S. economy and is attracting new residents and businesses to the area.  Downtown Brooklyn is known as a major hub for business and is the fifth largest business district in the US. There has been a 61% increase of rentals within the past year, further confirming the Downtown Brooklyn residential market being a primary market of choice as a residential neighborhood.  With strong hospitality and retail sectors, there will continue to be immense population growth of over 50% in Downtown Brooklyn of 50,000 residents by 2025.

Besides the emergence of Downtown Brooklyn, over on the East River Esplanade is the Lower East Side’s large swatch of development in the area known as Two Bridges - a neighborhood at the southern end of the LES, near the Brooklyn and Manhattan Bridges.  This East River waterfront of Lower Manhattan is a spectacular untapped asset. Its world renowned downtown backdrop and great vistas of historic bridges and the Brooklyn skyline, provide a unique opportunity for waterfront revitalization in a world class setting, providing birds-eye view of the entire tri-state area.

Overall, the average rental price in Manhattan experienced a 0.41% year-over-year increase. The most impressive year-over-year change was observed within doorman studio, one-bedroom, and two-bedroom pricing in the Lower East Side, which experienced increases of 11.6%, 4.6%, and 7.1%, respectively. As new developments come to market in the area, upward pressure is exerted on pricing.

It was a mixed first quarter for the Manhattan market with reduced sales, inventory on the rise and price statistics settling down.  

Early 2018 saw the start of construction on the Lower East Side’s new NYC Ferry landing. The dock is one of four new landings for two new ferry routes slated to open this summer, shortening commutes for thousands of New Yorkers traveling to and from the South Bronx and Lower East Side.  New York City’s waterways are a unique resource that provide opportunities to expand the transportation options available to New Yorkers.

The news for the past couple of quarters has been conflicting in the market.  Luxury residential apartment sales dropped off at the top of the market, while in contrast, the priciest condo-offering plan ever was approved. Manhattan office leasing was on fire, but retail was confounded by a generational shift in commerce.  On the one hand, people say it’s a slow market, yet on the other, cranes all around, map out the major developments going up all over the city.

The word on the street is that New York City’s real estate market is not in free fall; instead, it’s taking a cautious break.  But in business, as we all know, you stand still at your own peril.


Manhattan Sale Market

 

When it comes to Manhattan’s priciest neighborhoods to live in, Downtown outperformed Midtown and Uptown last year.  Of the top 10 most expensive neighborhoods by median sales price, seven were below 34th Street. While Soho, West Village and Chelsea had a year-over-year decrease in apartments’ median prices of -18%, -35% and -20% respectively,  the Lower East Side apartments experienced an increase of 4%.
 


Manhattan Rental Market

In contrast to Manhattan’s slowing residential sales market, the borough’s rental market was solid in 2017, pushing up rates.  An apartment renter in Manhattan must pay in average more than $4,100 per month in rent, an increase of nearly 3% from 2016. Vacancy rates across main neighborhoods remained tight, with an average of 2.1% vacancy rates for the eight core neighborhoods.

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Brooklyn Sale Market

While a lot of home buyers in Brooklyn turned their attention to Red Hook in 2017, Downtown-Fulton Mall came to be the runner up, in second place with a 255% increase in sales volumes between 2016-2017, and a median price for residential units increased by 79%.  Taking that into consideration and due to the fact that Brooklyn’s commercial market prices are exceeding some of Manhattan’s best neighborhoods, gives us, at Ackerman Development, a lot of confidence in the Downtown Brooklyn area, as it is becoming one of the central locations for businesses, schools and residents alike.

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Brooklyn Rental Market

Overall, the Brooklyn rental market weakened in 2017, as the average listing price for studios and 1-bedroom apartments fell.  However, as can be seen from the chart below, while prominent neighborhoods like Greenpoint and Williamsburg have decreased, Downtown Brooklyn not only  has remained steady, but had a slight uptake.

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Brooklyn Retail Market

The largest leases in Brooklyn were a mixed bag of retailers.  Burlington Coat Factory signed the largest lease of the year, taking 55,000 sq.ft..  Meanwhile, the company that brought Chelsea Piers to Manhattan is planning to open a fitness club on the border of Downtown Brooklyn and Boerum Hill.  Additionally, the discount retailer, Target, announced plans to expand into Brooklyn, signing for 20,400 sq.ft..

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Condo New Development

There is no shortage of condo development in Manhattan with projects on the way in almost every neighborhood.  When it comes to areas with the most condos currently on the market, the East Village/Lower East Side is at the top of the list: buildings with more than 1,500 units have been approved for sale. At the other end of the spectrum, Midtown East has nothing in the pipeline and only 189 units on the market.  Here is a full chart that shows data of other neighborhoods throughout the city.

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Currently, we are targeting projects that are a fit for the local buyer and renter instead of super ultra-luxury developments that rely on international money flows.  The benefits for foreign investment into U.S. real estate are numerous and include earning safe and stable returns in a supply-constrained market (NY & Miami). More importantly, it positions us to be able to take advantage of creative structures that mitigate taxes, property tax hikes, and high property taxes.