As part of staying on top of the state of our markets, Admiral performs regular reviews of recent multifamily real estate investment sales activity in Westchester County, along with market fundamentals, including analysis of capitalization rates and sales volume.
Multifamily real estate has a long and established track record as a preferred asset class among investors due to lower risk and volatility. However, lack of available product makes sales of multifamily buildings a fairly rare occurrence, relative to the significant demand.
To give some examples of the few transactions that have taken place in the past year or so, below are notable multifamily property sales in Westchester County that closed in 2016/2017, with prices ranging from $6 million to $35 million:
Notable 2016/2017 Multifamily Property Sales in Westchester County
As we have mentioned in previous articles, Westchester is a non-homogenized market and values vary depending on town or city, location and quality of the physical plant and the tenancy.
Average Capitalization Rates
Multifamily Real Estate Sales ($2M-$40M) in Westchester County
Over the last 2-3 years, capitalization rates for multifamily buildings have reached levels not seen since 2007-2008 market peak. In 2016/2017, for instance, capitalization rates of multifamily real estate assets have touched as low as 4.25%. To be clear, these especially low cap rates are predominately for well-located elevator apartment buildings, particularly near Metro-North stations, as well as for garden-style units in the smaller villages.
For the best buildings in the strongest markets (such as the ones outlined in the notable sales table above), the vast majority of transactions have occurred at cap rates closer to 5%.
For walk-up properties and properties located in less vibrant markets, capitalization rates have been in the 7.0% – 8.5% range depending on size of the property, location and any deferred maintenance issues.
As capitalization rates moved lower, more discretionary sellers have entered the market to take advantage of strong pricing. This, in turn, has increased velocity, or the number of buildings available for sale in the market at a given time.
It takes sellers time to respond to changes in the market, so although average capitalization rates first dropped below 5.0% in 2014, sales volumes did not begin to see a rise until 2016, as shown in the chart below.
Sales Volume in Millions
Multifamily Property Sales ($2M-$40M) in Westchester County
High Price per Unit
In the past, gross income multipliers were prevalent. Now, deals are driven almost exclusively by net operating income and capitalization rates. Price per unit is being used almost as a “check valve”, to make sure that the price is not completely out of line with the local market.
Because of this primary focus on capitalization rates, in recent years, we have seen some transactions occur with extremely high price per unit costs. These haven generally been on large institutional level deals, as well as mid-market transactions in the 40-unit range.
Even some smaller buildings had high price per unit points, including two of the notable recent sales in Bronxville and Rye. Communities with excellent school systems such as Bronxville and Rye are attractive to tenants who are willing to pay higher, non-regulated rents for access to the local school system.
Outlook for Multifamily Real Estate
As a preferred asset class, multifamily real estate has enjoyed a long, strong market, particularly as investors fled to safer asset classes after the 2008 financial crisis. This is confirmed by our own experience. There was a period after 2008 when investors of all types took a step back to re-assess the market. Since that time, we’ve continually received calls from investors looking for multifamily properties in Westchester.
Due to continued lack of available product, the Westchester market still has more buyers than sellers. This dynamic has sustained the value of multifamily properties here. Going forward, prices may begin to soften just a bit, as high pricing encourages additional owners to sell and competition for buyers increases. Of course, the wider economy will also play a role in our local market, and capitalization rates are likely to increase as interest rates rise.
For a complimentary confidential valuation of your property portfolio,
please contact John Barrett at 914.779.8200 x114.
Admiral Real Estate Services exclusively represents owners of commercial properties in the sale, repositioning or recapitalization of their buildings or land in the NY Metro area.
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The information contained within this report is from sources considered to be reliable, but may contain errors or omissions. No representations or warranties, express or implied, are made as to the accuracy thereof.