Manhattan Housing Market Smart for Long-Term Investors

The Manhattan residential market is a good place to invest for those who don’t mind holding onto property for a long time.

“The residential market right now is very strong,” New York billionaire John Catsimatidis, the chairman and chief executive officer of New York-based Red Apple Group Inc., said today at the Real Estate Briefing hosted by Bloomberg Link in New York. “But the world of doubling your money in five years has come to an end.”

Trading volume of Manhattan apartment properties totaled $1.63 billion in the third quarter, up 231 percent from the prior year, according to Real Capital Analytics Inc., a New York-based real estate research company. The average price per unit in Manhattan was $273,833, a 9 percent increase from the third quarter of 2009, the company said.

Manhattan apartment buildings sold at an average cap rate, or yield, of 6 percent in the third quarter, an increase of 53 basis points from the same period last year, Real Capital said in an Oct. 21 report. A basis point is equivalent to 0.01 percentage point. The cap rate is a property’s net operating income divided by its purchase price; rising prices push cap rates lower. The average U.S. apartment cap rate in the quarter was 6.5 percent, a drop of 28 basis points from the prior year, according to Real Capital.

Think Long-Term

“When you’re buying property in Manhattan, you should really be thinking long term -- financing it intelligently and planning on holding it as long as possible,” David Levinson, the chairman and chief executive officer of L&L Holding Co., a private real estate company that redevelops underperforming office buildings, primarily in Manhattan, said at the briefing.

The high cost of entry into the New York residential market translates into long-term rewards, developer Richard LeFrak, the chairman and chief executive officer of the LeFrak Organization Inc., said. Limited building space and the cost of renovating old structures ultimately work in investors’ favor, he said.

“Here we have these restrictions, so New York is unique,” he said. “It’s a place people want to be. They want to spend their money here, and they’re going to get price appreciation over a long period of time.”

World Trade Center

In a city of primarily old, converted construction, building new properties may be a good investment, Levinson said. Buildings such as the World Trade Center complex under construction have the potential to change the city’s landscape and give developers more freedom, he said.

“Being around the New York City market for 35-plus years, I’m really excited about what’s happening downtown for the first time because of the World Trade Center,” he said. “I think that a new residential rental building, not a converted one, where you can actually lay it out properly, is a good bet.”

L&L Holding is in negotiations to build its first new apartment structure, which will have about 400 units covering about 300,000 square feet, Levinson said. He said the complex would be downtown, without specifying the exact location.

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