2024 Multifamily Highlights
Growth in Transaction Activity
- In 2024, the multifamily market recorded $8.9 billion in transaction volume, reflecting a 14% increase from 2023. Although initial forecasts predicted more than six federal funds rate cuts, the year ended with only three. This had little impact on U.S. Treasury rates, which serve as a more reliable benchmark for multifamily interest rates. Notably, the 5-year Treasury rate remains at one of its highest levels in the past 15 years.
Free Market: Where Every Investor Wants to Be
- Strong Fundamentals: Manhattan rents have risen over 20% in the past three years and nearly 4% in the last year alone. In 2024, the predominantly free-market multifamily segment represented 63% of total dollar volume.
- Pricing Stabilizing: Multifamily pricing grew slightly compared to 2023, showing signs of recovery, with buildings now selling below replacement costs. Values have notably declined from their 2015 peak, particularly in Manhattan. For instance, 210-220 E 22nd St recently sold to Canvas Investment Partners for $104.5 million, 15% below its 2015 sale price of $123 million.
- Key Transaction Drivers: Prime locations, strong fundamentals, mortgage maturities, and a lower basis.
Rent-Stabilized: Regulation Implications
- The 2019 Housing Stability and Tenant Protection Act (HSTPA) notably impacted rent-stabilized properties, limiting rent adjustments despite rising property taxes, insurance, and maintenance costs. These properties now represent 29% of dollar volume and 47% of transaction volume.
- Investors are increasingly scrutinizing documentation for past Individual Apartment Improvements (IAIs), Major Capital Improvements (MCIs), and vacancy bonuses that deregulated units. Properties with incomplete or questionable records face higher cap rates due to the risk of regulatory scrutiny, which could lead to re-regulation at lower rents and costly remediation.
- Investors in this sector, primarily family offices and private individuals, are drawn by significantly reduced valuations—35-60% below the 2017-2018 peaks—and the belief that current NYC housing legislation is unsustainable. With long-term strategies in mind, these buyers often acquire properties using all cash or minimal leverage, banking on potential regulatory changes in the future.
- Recapitalizations and capital stack restructurings for rent-stabilized assets have risen sharply. High interest rates and declining asset values have further reshaped capital structures, as new debt often falls short of prior high-leverage loans. For example, the $286 million recapitalization of the nearly 2,000-unit Bronstein Portfolio—spanning Brooklyn, Queens, and Northern Manhattan—saw Parkoff Properties assume JP Morgan Chase Asset Management's equity position. The deal, at $160/SF and $146K/unit, likely involved assuming and paying down portions of nearly $300 million in existing debt.
Affordable Housing: Collaboration and Preservation
- Notable Transactions: L&M's acquisition of Knickerbocker Village, along with Beacon Mews at 34 W 139th St and 226 & 259 W 144th St—both brokered by Ariel Property Advisors—highlighted activity in the affordable housing sector. In 2024, this sector accounted for just 8% of total dollar volume and 5% of transaction volume. Preservation remains a primary focus for mission-driven investors and operators, who continue to show strong interest in this space.
- Key transaction drivers include in-place assumable financing and potential collaboration between the city and state to preserve affordable housing. This could involve providing subsidies, extending benefits, and incorporating Section 610 of the Private Housing Finance Law into regulatory agreements. Some transactions involve interest sales or entity transfers, enabling investors to assume longterm affordable housing loans or, in some cases, agency-subsidized financing with favorable terms unavailable to market-rate properties. These opportunities offer attractive risk-adjusted returns, further incentivizing investment in the sector.
WATCHLIST:
- Local Law 97: Owners of non-rent-regulated multifamily buildings over 25,000 square feet must submit annual greenhouse gas (GHG) emissions reports to NYC's Department of Buildings by May 1. To avoid penalties, owners must adopt energy efficiency measures such as improved insulation, HVAC upgrades, and renewable energy use.
- Capital Markets Liquidity: A decline in traditional bank transactions has been offset by the growth of private debt, which is filling the financing gap, reshaping capital stacks, and influencing deal structuring. Private debt has grown significantly, expanding from $1.2 trillion in early 2022 to a $1.6 trillion asset class. Looking ahead, balance sheet lenders are expected to become more active as regulatory pullbacks enable increased lending activity in the multifamily market.
- Insurance Rates: Insurance rates have surged in recent years, with RGB research showing a 50% increase for properties built before 1974 over the past four years. This trend warrants close attention, especially as the rising frequency of natural disasters nationwide could further drive up insurance premiums for multifamily assets in NYC.
