Have We Hit Bottom in Multi-Family Sales?

Flickr/Koos_Fernhout

We are investors and developers of residential real estate and therefore pay close attention to the local Brooklyn multi-family market. Sales volume has dropped significantly as compared to turnover between 2005 and 2007, what we think of as the peak years. According to Massey Knakal’s First Half 2010 report volume for all property types Brooklyn-wide is projected to be approximately 0.82% of total building stock and perhaps significantly less in early 2011 as capital gains and inheritance taxes are scheduled to be increased. This would effectively steal some volume from first quarter 2011 and roll it forward into the last quarter of 2010. Bob Knakal touches on this in his recent blog post, one of the more sober observations of current market conditions I have seen him make.

Our local, brownstone Brooklyn, observation is that inventory is indeed very thin–accounting for the lack of sales–and some smaller multi-family properties are being positioned as redevelopment opportunities–i.e. condo conversions. While this is nothing new, we think current pricing doesn’t reflect the absence of the lending market that allows developers/investors to execute such transactions. Furthermore, asking prices for redevelopment opportunities are verbally being pinned to one local sale. One sale is not an indicator of market value. It is also our observation that competition for multi-family investment, even the kind that is presently cash flow positive, is light. The only multi-family properties that appear to be performing well in regard to demand are the ones that work as owner-occupied, two to four family buildings. It is only this segment of the market that may have found a bottom.

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