Mid-sized multifamily sales seize up, but smaller rental buildings remain active: Analysis

Monthly mid-sized multifamily sales fell to $88 million in September

By Adam Pincus

The impact of the June rent-regulation laws on the city’s sales market has been swift and plain to see. The starkest representation was the precipitous decline in mid-sized multifamily building sales recorded last month.

In the mid-sized segment in September, buyers recorded less than $90 million in trades, about 75 percent below the average of $421 million per month over the past 12 months, a PincusCo Media analysis found. Buildings between 10,000 square feet and 100,000 square feet were counted as mid-sized buildings in the analysis.

At the same time, buyers and sellers of small multifamily building of 10,000 square feet or less have been able to maintain a more active market that saw about $342 million in sales recorded in September, which was down only about 30 percent from the 12-month trailing average of just over $500 million.

Small building sales were 30 percent below the 12-month moving average

PincusCo Media analyzed all commercial sales of $200,000 and up based on the date the transaction was recorded. The data included all multifamily buildings with three or more units, which were grouped into three segments by size. The smallest was buildings were under 10,000 square feet, the mid-sized those between 10,000 and 100,000, and then those with more than 100,000 square feet.

Many of the rental buildings under 10,000 square feet have five or fewer residential units, making them exempt from rent-stablization laws, which generally only cover buildings with six units or more.

“The activity under 10,000 square feet is from the fact that people want to manage buildings with more free-market units, or, simply, they don’t want to take on bigger buildings,” said Amit Doshi, an investment sales broker with Meridian Capital Group. He said overall the new rent regulations have cut the value for a typical rent-regulated building by as much as 30 to 40 percent, in cases wiping out equity.

Overall, multifamily sales recorded in September came in at $697 million, which was 43 percent below the 12-month trailing average of $1.23 billion.

Overall multifamily sales recorded in September were $697 million, or 43 percent off the 12-month average of $1.23 billion.

Doshi said in part the sales market is being sustained by residual 1031 exchange money, but he expected that to dry up in the first or second quarters of 2020, putting additional downward pressure on sales volume at that time.

He also expected a new class of buyer to move in, those who had been on the sidelines for the past several years, who never understood why investors were buying at a 3 cap.

The largest mid-sized deal recorded last month told the tale of the anemic market better than any analysis. Meyer Orbach’s Orbach Group sold the 49-unit rental building at 50 Manhattan Avenue, to Florida investor Leon Agami for $15.7 million, for what appears to be a $10 million loss. Orbach bought the building, located at the corner of 102nd Street just a block from Central Park, in 2016 for $25.8 million.

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