With the city facing a housing shortage, it’s no surprise that investors are looking to New York City multifamily real estate as a safe and stable asset class. New York City is the top-performing multifamily market in the country.
Investors are also finding more demand for buildings with free-market units, which can be considered an inflation hedge as annual rents can be raised to offset rising expenses.
Supply & Demand
Supply is tight in the NYC multifamily real estate market as demand for affordable housing is strong, with new construction projects putting pressure on existing inventory. In 2022, developers received a record number of permits to convert commercial buildings into residential units, which can alleviate the rental inventory shortage.
However, converting large office buildings into apartments can be complex and expensive. It also requires coordination with state and city zoning laws.
The city’s strict tenant protection laws make it difficult to evict tenants, and landlords face high costs for labor and maintenance. This makes the city’s apartment market an unattractive investment option.
The Syracuse area is a good choice for investors, which offers cheaper property with a higher return on investment and a less hostile legal environment. In addition, investors can benefit from tax benefits and subsidized rents. Investors can choose from various financing options, including conventional mortgages, HUD loans, and other government-backed loans for homeownership.
Rents & Prices
The NYC multifamily real estate market has seen several highs and lows. During the Covid-19 pandemic, rents declined, and property owners offered attractive concessions to tenants.
While this was an extremely volatile period, the city has finally rebounded, and rents have gone back up to their pre-pandemic levels. This trend can be attributed to a number of factors.
For starters, New York has some of the toughest tenant protection laws in the country. In fact, about half of its private rental market is protected by rent stabilization and rent control regulations.
Moreover, the recent enactment of the Housing Stability and Tenant Protection Act of 2019 made rent regulation a permanent feature of New York’s housing law. This means that property owners will be unable to take apartments out of these programs, and tenants can pass down their preferential leases to their heirs.
In addition, the influx of people who have returned to New York City after working remotely during the pandemic is contributing to increased demand and higher rents. This can be a great opportunity for investors to pick up properties at lower prices and make some great returns on their investments.
Vacancy & Lease Rates
The multifamily market is experiencing strong demand, even as the vacancy rate slightly increases. However, it is important to note that this demand is a result of favorable demographics, continued job growth, rising wages, and increasing renter household formations.
Despite these factors, New York City is still experiencing a shortage of affordable housing options. This has led to a rise in rents across many neighborhoods in Manhattan, Brooklyn, and Queens.
In an effort to keep their apartments filled, owners are offering one or two months of free rent to attract tenants. Employed renters, in particular, have a lot of leverage in the NYC market because they’re able to negotiate better lease terms than non-employers.
Vacancy rates in most markets remain low, with the exception of tertiary and luxury markets. This is a positive for investors as national rent growth has stabilized as Midwest and gateway markets continue to grow.
Capital Expenditures
Capital expenditures (CapEx) are big-ticket repairs and projects that improve the property’s overall condition or extend its lifecycle. These can come with high price tags, so it’s important to budget for them when creating your real estate investment budget.
Multifamily investors that don’t include CapEx costs in their rent pricing may end up shortchanging themselves, especially when purchasing properties with significant defects that need repair.
As the Covid-era market continues to reshape the multifamily landscape, institutions have retooled their investment strategies. They are now focused on free-market buildings, which offer a hedge against inflation and the prospect of higher interest rates.
The city’s free-market buildings continue to attract interest from investors looking to maximize the value of their assets while enjoying a 35-year tax abatement. In addition, newly constructed 70/30 properties built under the Affordable Housing NY Tax Program are attracting attention from investors who see an upside in these units. But interest rates will likely play a large role in these buildings’ value growth.
