Major residential real estate brokerages firms are reporting a nearly 90% increase in closing in the 1st quarter of 2010 as compared to the same period in 2009. It must be noted, however, that the 1st quarter of 2009 was disasterous for apartment closings as the after effects of the Lehman Brothers collapse, and the effects of the Madoff debacle brought the residential real estate market in NY to a stand-still. Prices have also shown to be turning up from the dramatic lows seen in the 1st half of 2009 as demand has increased, albeit at prices far below the high’s of 2007 and much of 2008.

All of the signs point to a steadily strengthening residential real estate market. That would be good for everyone.

Multi-family residential is the most stable and liquid of commercial real estate investments in Manhattan where rental apartments constitute approximately 65% of the entire housing stock.  Manhattan multi-family properties provide reliable current cash flow with embedded long term upside potential due to systemic supply constraints (ensuring demand), and residential rent regulations which generally hold apartment rents below market but permit predictable, annual rental increases.  However, investments made during this period will further benefit from a rare, recession induced 10% – 20% drop in Manhattan rents experienced over the last year.  These declines are now approaching bottom as we have recently seen landlords reducing and, in many cases, eliminating incentives that had become commonplace in order to get a tenant to sign on the dotted line of a lease.  Thus, investors who take advantage of the current market will see a window of lower prices due not only to increased yield requirements, but also lower NOI’s (net operating income) from reduced market rents.  As the more secular demand and supply trends reassert themselves and rents begin to rise again, this added window will close.

Finally, multi-family residential properties are traditionally and currently the most liquid of any asset class in commercial real estate.  This is especially true today with the U.S. Government Sponsored Entities such as Freddie Mac, Fannie Mae and HUD, as well as numerous commercial banks providing a steady stream of inexpensive debt capital to the multi-family markets.  This liquidity enables reliable reversion expectations for investors through refinancings or asset sales.  When valued on a rental basis, Manhattan multi-family properties purchased today should provide total returns in mid to low teens with current (pre-tax) cash-on-cash returns in the mid to high single digits.  When the condominium market re-emerges at some point in the future, increased market prices could create conditions for significantly outsized returns on investments.

I have also taken some time to discuss my hobbies and share share some images.

I will do my best to update the site as often as i can.

I hope you enjoy your visit.

Steven Kirschenbaum

April 2010