July 17 (Bloomberg) -- Northern Manhattan and Brooklyn are leading gains in New York City commercial-property deals this year as apartment buildings in the areas attract investors, brokerage Massey Knakal Realty Services said today.
Sales of properties in upper Manhattan -- above 96th Street on the east side and 110th Street on the west -- totaled $441 million in the first half, triple the number for the same period in 2011, the New York-based firm said in a report. Brooklyn transactions rose 60 percent to $1.53 billion. For the entire city, deals climbed 14 percent to $14.4 billion.
“Northern Manhattan has been on fire,” Paul Massey, Massey Knakal chief executive officer and founding partner, said at a briefing for reporters. Almost 3.4% of the properties in the market changed hands during the first half, the most of any section of the city and the highest percentage in five years.
Real estate buyers are turning to apartments in upper Manhattan and Brooklyn as prices stagnate for offices, the biggest portion of the market. Office values in Manhattan have remained at about the same level since the middle of last year, Newport Beach, California-based Green Street Advisors Inc. said in a July 6 report.
Apartment buildings, in contrast, have had declining capitalization rates -- a measure of return on investment that falls as prices rise -- over the last four quarters in both Brooklyn and northern Manhattan, Massey Knakal said. Almost $300 million, or 68 percent, of upper Manhattan sales in the first half were for elevator or walk-up apartments. Such properties accounted for about half of deals in Brooklyn.
Sales in upper Manhattan -- primarily the Harlem, Washington Heights and Inwood neighborhoods -- are rising in part because major investors such as AREA Property Partners LP are selling real estate they acquired near the market’s peak five years ago, said Robert Shapiro, first vice president for sales at Massey Knakal.
“Institutional investors who bought during the peak in 2006 and 2007 are now being forced to take their medicine,” he said. “We’re seeing a return of the local mom-and-pop investors who’d been on the sidelines now being able to scoop these property back up.”
AREA, the New York-based private-equity firm led by investor William Mack, sold 3915 and 4455 Broadway in June for a combined $15.7 million to Alma Realty, a Long Island City, New York, firm led by Efstathios Valiotis, according to data compiled by Real Capital Analytics Inc. Those were part of a group of northern Manhattan properties AREA and partner Vantage Properties LLC sold last month, including the 1,800-unit Savoy Park apartment complex in Harlem.
Valiotis, which Shapiro described as a “local operator,” has acquired close to $100 million of upper Manhattan properties in the last 18 months, he said.
Most of Manhattan’s 130 multifamily property sales in the second quarter were in upper Manhattan, where prices tend to be lower than in other parts of the city, according to a separate report from brokerage Eastern Consolidated. The average sale price fell to $380 a square foot from $440 in the first quarter, according to the New York-based company.
Eastern Consolidated agents brokered the deal between the AREA partnership and Valiotis.
Brooklyn is also seeing a disproportionate interest in development sites, accounting for about 17 percent of deals. Of that amount, about three-quarters is concentrated in Williamsburg, Greenpoint and downtown Brooklyn, said Michael Amirkhanian, Massey Knakal director of sales.
Demand appears to be centered around the Atlantic Yards area, where the National Basketball Association’s Brooklyn Nets’ new arena will open later this year, Amirkhanian said.
“In the outer boroughs, clearly there’s more opportunity in terms of where cap rates are,” said Garrett Thelander, managing director of Massey Knakal Capital Services. “If you add to that the fact that they’re not paying that much more for the cost of debt in the outer boroughs, it makes it doubly more accretive. I’m sure there are lots of investors out there who appreciate that dynamic.”
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