A recovering economy and urban population growth is fueling demand for new housing, spurring a reinvigorated multifamily commercial real estate market.
Strong demand, low vacancy rates and rising rents have made the multifamily commercial real estate market a compelling option for equity and debt investors.
Despite a recent slight rise in interest rates, the cost of debt remains low, and both banks and life insurers are competing aggressively for borrowers.
While the multifamily investment boom is occurring nationwide, Boston and New York City have emerged as two of the most competitive markets in the country.
Both cities are attracting large numbers of college students, new graduates and young professionals, as well as immigrants, middle-class families and empty nesters.
And they all need a place to live.
New York’s population is expected to increase by 1 million residents by 2040, but the city has enough existing capacity to house only 700,000 of them, according to a recent report by Columbia University’s Center for Urban Real Estate. In July 2012, Mayor Bloomberg announced a design competition to develop a new housing model for the city’s growing population. The adAPT NYC competition has requested proposals for a rental building composed primarily of micro-units, or apartments smaller than what is currently permitted under current zoning regulations.
Boston’s population increased by about 5 percent from 2000 to 2010, according to the Census Bureau, and is one of the fastest-growing urban areas in the country. Mayor Thomas Menino recently announced a goal of constructing 30,000 new housing units by 2020. New construction is already surging in Boston, with 7,800 residential units a year in the works over the next three years.
Changing Skyline
Major multifamily projects in Boston scheduled for completion this year include the 286-unit Victor at North Station; the 381-unit Kensington and the 256-unit Millennium Place in the Theatre District, and 222 units at 319 A St. and 49 Melcher St. near Fort Point Channel.
Next year, 14 multifamily developments are scheduled for completion, including Waterside Place (237 units) and Pier 4 (369 units) in the Seaport District; 45 Stuart St., (404 units); and just across the river in Cambridge – 22 Water St. (392 units); and NorthPoint (350 units).
Recently approved projects range from a 196-residence development on the East Boston waterfront to a 320-unit residential tower in the Fenway.
Investment Opportunities
Multifamily housing investment opportunities in both cities extend across a range of price levels, providing entry points for first-time buyers willing to renovate, or investors turned developers seeking a better return on their investments.
In New York City, there is new construction underway, including the “far” west side of Manhattan, the fringe neighborhoods of Brooklyn and Queens and across the river in Jersey City, New Jersey. In Brooklyn and Queens, in significant part because of their proximity to extensive transportation hubs and overflow from nearby established neighborhoods, Bushwick and Ridgewood are now blossoming. Even some Bronx neighborhoods with mass transit access hubs are being eyed for new development.
In Boston, as Banker & Tradesman recently reported, developers are snapping up distressed properties in Dorchester for quick fix-and-flips, with prices reaching heights last seen in the mid-2000s.
While Class A assets will continue to lead the way in multifamily investment in Boston, CBRE/New England predicts that value-add, pre-sale and alternative multifamily investments – including affordable housing properties – will be on the radar of investors looking for higher yields.
The market in New York has heated up with new, alternative options, such as rent-regulated buildings, where researching the property’s regulatory history and assessing issues relating to the building’s purchase and deregulation are strongly advised. The effort can be worth it. A developer who makes improvements and increases the rent after de-regulation adds tremendous value to the property, particularly in the current low-interest rate environment.
Transit, Climate Issues
While the current multifamily housing market is a success story in both New York and Boston, long-range smart growth and sustainable development strategies are needed in both cities.
The New York housing study’s authors have recommended the creation of large-scale, mixed-income, transit-oriented development, primarily along the East River corridor.
In Boston, development in the Seaport District is already transforming the once industrial waterfront neighborhood into a high-rise haven. But heavy traffic, shrinking parking availability and jammed Silver Line buses are already creating headaches.
Structures and neighborhood infrastructure on the waterfront must be able to withstand the impact of climate change-induced flooding. Along with vastly increasing public space areas and bike sharing programs, the Bloomberg administration established an ambitious agenda and Mayor Menino created a “Green Ribbon Commission” to coordinate the efforts of industry and government to devise strategies to mitigate, adjust and adapt to the effects of climate change.
New York and Boston are fierce rivals on many levels. But when it comes to housing, they are both amidst a boom.
Hugh P. Finnegan is a partner and co-director and Cyril M. Derzie is a senior associate and member of Sullivan & Worcester’s real estate department in New York. Emails: hfinnegan@sandw.com; cderzie@sandw.com
