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"More than 1 million Americans who have taken out mortgages in the past two years now owe more on their loans than their homes are worth, and Federal Housing Administration loans that require only a tiny down payment are partly to blame."
Manhattan Apartment Building Prices Reach Record as Rents Climb
2012-04-27 04:01:00.6 GMT
By Oshrat Carmiel
April 27 (Bloomberg) -- Real estate investors competing to buy Manhattan apartment buildings have sent prices to record highs as rental demand surges, reducing yields on the properties to the lowest in more than six years.
The capitalization rate, a measure of investment return that declines as prices rise, averaged 4.4 percent for Manhattan multifamily buildings in first three months of this year, the lowest since the third quarter of 2005, according to New York- based data firm Real Capital Analytics Inc.
“It’s the strongest of all asset classes,” said Doug Harmon, senior managing director at Eastdil Secured LLC, who brokered deals for six Manhattan apartment properties priced at more than $100 million in the past 13 months. “There is still plenty of room to run on rents, and I see absolutely no reason why this action will or should stop anytime soon.”
Investors including UDR Inc. and Kuwait’s social-security system are homing in on rental buildings as stricter mortgage- lending standards limit home purchases. Tenant demand for Manhattan apartments drove the median rent in the first quarter up 7.1 percent from a year earlier to $3,100 a month, the largest annual gain since 2007, appraiser Miller Samuel Inc. and brokerage Prudential Douglas Elliman Real Estate said. New leases jumped 14 percent.
The vacancy rate for borough apartments was 1.22 percent at the end of last month, brokerage Citi Habitats said. Landlords can expect rental revenue to climb as much as 6.75 percent this year from 2011 as occupancies rise, according to Axiometrics Inc., a Dallas-based multifamily research firm.
Gains ‘More Limited’
Apartment investors may have to rely solely on rent increases to profit from their deals as yields on the buildings approach the 2 percent return on risk-free U.S. Treasuries, according to Sam Chandan, a real estate economist.
“The gains are more limited going forward,” said Chandan, president of Chandan Economics LLC, a New York-based research firm. “That being said, the market is significantly supply constrained, and that’s one of the key factors that will support rent growth irrespective of market conditions.”
Institutional investors are willing to “stretch” what they will pay to acquire high-end property in Manhattan because of projected revenue growth and the limited supply of new units on the market, Harmon said. Many top-quality apartment buildings are held for decades by family owners, which limits how many become available for sale, according to Paul Leibowitz, executive vice president in the investment properties division of brokerage CBRE Group Inc.
Manhattan multifamily buildings sold at an average of
$493,980 per unit at the end of 2011, the highest in 11 years of record keeping, Real Capital data show. Before last year, the previous peak was in the first three months of 2007, when the average was $379,970.
Deals for new buildings this year have commanded much higher prices. In January, Wafra Investment Advisory Group Inc., an arm of Kuwait’s social-security agency, bought 2 Cooper Square in the Noho neighborhood for $134.1 million, or $993,403 per unit, according to Real Capital and New York City records.
The capitalization rate -- a property’s net income divided by the purchase price -- was 3.5 percent, the data firm said.
The 144-unit tower, which was completed in 2010, was Wafra’s first residential acquisition in Manhattan, according to Harmon, who brokered the deal.
UDR, the third-largest U.S. apartment real estate investment trust, and MetLife Inc. in January bought the five- tower Columbus Square complex on the Upper West Side for about
$630 million. It was the fifth multifamily deal in the borough for Highlands Ranch, Colorado-based UDR, which estimates the transaction at $887,000 per unit, according to Harry Alcock, senior vice president of asset management.
Driven by Profitability
The price for the complex, which began leasing in 2009, “was really just driven by the profitability of the apartment building,” Alcock said.
Columbus Square was acquired at an estimated initial cap rate of 3.9 percent, said Mark Biffert, senior REIT analyst at Bloomberg Industries. UDR estimates it can increase the yield to
4.5 percent over the next 12 months as the property becomes stabilized with 95 percent occupancy, higher market rents and the elimination of leasing concessions typical for new buildings, such as a month’s free rent, according to Biffert’s report on the deal.
In UDR’s four other Manhattan properties, leases are being renewed at average rents that are 9 percent to 14 percent higher than a year earlier, Alcock said. New agreements are commanding rates that are 9 percent to 13 percent more. The buildings are
97 percent occupied.
The company, which entered the New York market last year, owns about $1.5 billion of assets in the borough and “would be comfortable” adding others, even as limited deals draw more competitors, Alcock said.
“It’s not obvious to me that values have moved to a point where we simply will not be able to invest,” he said. “When you have a market where vacancies are so low, we just know we’re going to continue to move rents.”
About 3,000 new apartments are expected to be built in Manhattan within the next three years, the same as the annual average for the past 15 years, according to Leibowitz of CBRE.
“The lack of a supply pipeline makes a lot of investors comfortable with the market,” he said.
‘A Safe Bet’
Competition is heated even for older properties that require rehabilitation and upgrades. After Silverstone Property Group Inc. toured a 34-year old apartment building in the Kips Bay neighborhood, it took only three days to conduct due diligence, make an offer and sign a contract, said Martin Nussbaum, a managing member of the New York-based company.
Silverstone, through an affiliate, bought the 128-unit tower in February for about $53 million, or $414,063 a unit, according to Real Capital. It plans to gut-renovate the apartments as tenant leases expire, he said.
The cap rate at time of purchase was about 3.5 percent, according to Nussbaum.
“It’s a safe bet, but for taking the safe bet you’re arguably looking at lower returns,” he said, adding that he expects rents to increase by 35 percent to 40 percent when the improvements are finished in the next 18 months.
Prices of high-end multifamily buildings are also being pushed higher as investors begin considering properties for condominium conversions, now or as an eventual exit strategy, according to Leibowitz.
Of the 12 buildings that sold for more than $100 million last year, two are slated to become condos. One of those conversion plans is by developer Harry Macklowe, who paid about
$253 million, or $2.34 million per unit, to acquire 737 Park Ave., a property that had been owned by the same family for 65 years.
In a deal for a building that remained a rental, Leibowitz’s group arranged the sale of the Corner on West 72nd Street to retirement account manager TIAA-CREF for $1.1 million per unit in May. The lowest rent for a one-bedroom unit at the luxury tower, which includes a rooftop terrace and children’s playroom, was $4,475 in 2010 when the building first opened, according to Christopher Butt, a broker with Citi Habitats.
Today, the cheapest one-bedroom commands $4,800, he said.
The competition to acquire apartments means it’s harder to find Manhattan properties that are discounted because of financial distress, said David Schwartz, co-founder of Chicago- based Waterton Associates LLC. The company seeks “opportunistic situations” where a multifamily owner wants to reduce debt or has a loan coming due and can’t refinance, he said.
Waterton last year bought 88 Leonard in Tribeca, its first and only Manhattan apartment building, for about $207 million from Africa Israel USA, which at the time was working to restructure and refinance more than $1.5 billion in debt.
Waterton, which agreed to assume Africa Israel’s mortgage on the property and pay off its mezzanine loan, acquired the building at a cap rate of 4.6 percent, according to Real Capital.
“The distress is at the tail end,” Schwartz said.
“Things are being priced at full retail at this point.”
Yes, but those loans enabled homes to be sold and 6% commissions to be paid. Leave it to the gov't to come up with a "hair of the dog" mortgage cure.
Brooklyn Shelters Homeowners With Longest Foreclosures
By John Gittelsohn - Apr 27, 2012 12:01 AM ET .Facebook Share LinkedIn Google +1 1 Comment
Print QUEUEQ..New York’s Kings County, also known as Brooklyn, wears the crown as the U.S. community where it takes longest to foreclose on a delinquent homeowner.
Lenders took an average of 1,187 days -- more than three years -- to repossess a home in Kings County during the last three months of 2011, according to data compiled by Bloomberg. The protracted process led to just 32 fourth-quarter foreclosure completions in a borough where more than 27,000 homes got delinquency notices last year, New York Department of Financial Services data show.
Brooklyn Shelters Homeowners With Longest U.S. Foreclosure Time Spencer Platt/Getty Images
Brooklyn residents watch community activists and Occupy Wall Street movement members march to draw attention to foreclosed homes.
Brooklyn residents watch community activists and Occupy Wall Street movement members march to draw attention to foreclosed homes. Photographer: Spencer Platt/Getty Images
Attachment: Ranking of Foreclosures .The 10 U.S. counties with the longest foreclosure timelines were all in New York and New Jersey. While delays give some struggling homeowners time to renegotiate loan terms and limit supply on the market, they eventually depress housing values by postponing the inevitable for borrowers who can’t pay their mortgages or maintain their properties, said Jonathan Miller, president of New York appraiser Miller Samuel Inc.
“You aren’t doing anybody any favors in the long run,” he said in a telephone interview. “In markets where it takes longer for the foreclosure process, it takes longer to recover.”
New York and New Jersey are two of the 26 states that require judicial review before lenders can seize a property. New York’s Nassau, Bronx and Suffolk counties followed Brooklyn, with Queens ranking No. 8, according to a Bloomberg Rankings analysis of the data from RealtyTrac Inc., a real estate information service based in Irvine, California. New Jersey’s Essex, Somerset, Passaic, Hudson and Mercer counties filled out the top 10.
Foreclosure Time Triples
For the top eight counties, foreclosures averaged more than 1,000 days after a default filing, also known as a lis pendens, was recorded with the courts against a borrower, according to the data. In the quarter ended March 31, the average U.S. foreclosure took 370 days, triple the amount of time in 2007, according to RealtyTrac. Fourth-quarter data is the latest available for individual counties.
The New York statewide average to repossess a home was 1,056 days in the first quarter, while New Jersey averaged 966 days, according to an April 12 report by RealtyTrac.
Texas, where court approval isn’t required, has the shortest foreclosure timeline. During the first quarter, banks seized homes an average of 87 days after the first foreclosure notice was filed. In Guadalupe County, Texas, banks repossessed 49 homes in the fourth quarter, seizing them an average of 46.6 days after the filing of the first notice, the fastest pace of any U.S. county, according to data compiled by Bloomberg.
Northern New Jersey
Court foreclosure filings in the New York metropolitan area, which includes northern New Jersey and Long Island, fell 41 percent in the first quarter from a year earlier, RealtyTrac reported yesterday. One in 981 New York metro area homes received a filing, such as a notice of default or sale at auction, compared with the U.S. average of one in 230. Stockton, California, had the highest filing rate of any metro area, at one in 60 homes.
New York state’s time to foreclose has quadrupled since 2007. A 2009 state law required court-refereed settlement conferences for homeowners to negotiate payment modifications, which usually take six to eight meetings over 12 to 16 months, said Meghan Faux, director of the foreclosure prevention project at South Brooklyn Legal Services.
Loan servicers often drag out the process by misplacing paperwork and refusing to offer affordable mortgage modifications, driving homeowners deeper into debt, she said.
“They’re not negotiating in good faith,” Faux said in a telephone interview. “Delays aren’t good for most homeowners.”
Making Home Affordable
Homeowners in the greater New York City area have received 49,949 payment plan modifications as of February under the U.S. Making Home Affordable program, making it second only to the Los Angeles area, according to an April 6 report by the Treasury Department.
Bank of America Corp., which has the most housing-related writedowns of any U.S. bank, strives to “provide our customers timely and accurate decisions so they can move forward with their lives,” Sheila Sellers, senior vice president for lender’s National Mortgage Outreach program, testified at a March 19 Congressional hearing on mortgage servicing and foreclosures that was held in Brooklyn.
“Our goal will be to help them stay in their home whenever possible,” she said. “Where that is not possible, we will explore all other options available to help them avoid foreclosure.”
Bank of America has agreed to sell more homes for a loss through short sales than any U.S. lender, according to RealtyTrac. In March, the Charlotte, North Carolina-based bank announced a pilot program to enable 1,000 delinquent borrowers to stay in their homes as renters after it reclaims the title. Bank of America will start the program in Nevada, Arizona and New York, states with the first, third and 46th highest rates of foreclosure filings, respectively, according to RealtyTrac.
“New York is the judicial state and the other two are non- judicial,” Rick Simon, a spokesman for Bank of America, said in a telephone interview from his office in Calabasas, California. “We wanted to try it in diverse areas.”
Homeowners in Brooklyn last year received 27,311 pre- foreclosure delinquency notices, which alerted borrowers their lender plans to file a lis pendens after 90 days, according to an analysis by the Neighborhood Economic Development Advocacy Project, a Manhattan-based advocacy group. Those notices outnumbered eventual default filings 14 to 1, according to the study.
The number of court filings dropped after an October 2010 ruling by New York State Chief Judge Jonathan Lippman required bank lawyers to affirm they have documents to prove their right to seize a house, said Alexis Iwanisziw, a researcher at the advocacy group.
“The decline in foreclosure filings is largely attributable to banks’ inability to produce documentation required to initiate foreclosure cases, as New York courts heighten their scrutiny of banks’ foreclosure filings,” Iwanisziw and her colleague Sarah Ludwig wrote in a January report on New York City foreclosures.
Almost two-thirds of the 2,201 Brooklyn homes affected by foreclosure filings in the fourth quarter were investor-owned, not owner-occupied, according to estimates in a March 28 report by the Furman Center for Real Estate & Urban Policy at New York University.
“There are definitely downsides to the delays,” Josiah Madar, a research fellow at the Furman Center, said in a telephone interview. “Any blight the property is causing is likely to continue.”
Brooklyn Home Prices
Brooklyn’s median home price fell to $450,000 in the first quarter, down 5.3 percent from a year earlier, Miller Samuel reported on April 19. By contrast, prices in cities such as Miami (SPCSMIA) and Phoenix, where the inventory of foreclosed homes has shrunk, have begun to recover. Miami’s median price was $141,300 in the first quarter, up 1.1 percent from a year earlier, while the median price in Phoenix rose 2.8 percent, according to an April 25 report by Zillow Inc. (Z)
The Phoenix metropolitan area had the ninth-highest foreclosure rate, Miami ranked 13th and New York was 181st in the three months ended March 31, according to RealtyTrac.
“Most of the efforts that have been done on the state and local level have actually extended the crisis,” said Miller of appraiser Miller Samuel. “In New York, you can have someone who stops paying their mortgage for three years. How does that help the housing market recover? It doesn’t.”
glad I own in manhattan
brooks talking about bushwick again
with all do respect macro, it's creeping it's way toward manhattan. You might want to build a moat.
Very few in NYC own with less than 20pct down. This is thanks to coop restrictions which make up the majority of our owned housing stock. While not immune it is certainly an edifice around the citadel of the NYC housing mkt.
humm 20% px decline.. IO mortgage(yes-- plenty of co-ops in Manhattan approved this financing).. all of a sudden you have not equity.. get a pay cut, spouse loses a job, your bonus sucks....... you stop paying your mortgage....same thing happens to a few of your neighbors.. you .. they burn through savings.. you.. they stop paying the mortgage. because of no equity.. px's continue to decline.. you, they have have no faith the the market will recover.... how many of your neighbors are having this discussion.... it creeps to your hood.. the facade cracks....
yikes.... take the keys I found a cheaper place!
"Very few in NYC own with less than 20pct down. This is thanks to coop restrictions which make up the majority of our owned housing stock"
Are you talking about NYC or Manhattan?