Housing, especially rental housing in New York City, exists with two purposes: to provide homes for people and families, and to be bought, sold and rented as commodities. Yesterday in Part One, we looked at the situation faced by the families that call the multifamily rental properties home. Today in Part Two, we focus on prices and profitability of housing from the investor side, and a huge surge (perhaps another bubble) in the market.
We are in the midst of another dramatic rise in sales prices in the Bronx multifamily rental market. Just six years after the bottom fell out of the housing market, prices have eclipsed highs from the 2005-2008 period by 15%, adjusting for inflation. The average price per unit for Bronx residential buildings in 2014 was just over $110,000. Prices have skyrocketed 42% in just two years.
Data from the Rent Guidelines Board, on the other hand, does not show a corresponding rise in Net Operating Income (NOI). Building income, primarily rents, have increased, and so have operating expenses, especially the cost of water. NOI has increased very modestly in the last 25 years. (Data for 2013 will be released later this Spring.) While interest rates are partly responsible for increased sales prices, there is no way to rule out speculation as a driving force in the market.
Bi-Annual sales price data shows a steady increase over the last two and a half years, and a spike in sales volume for the first half of 2014 when a number of large portfolios sold. Volume was heavier during this period than any point since the first half of 2007. While there has been a substantial drop in volume for the second half of the year, sales data for 2014 was only available through mid-November and incomplete.
About two years after the last housing crash, we saw a dramatic increase in the number of physically and/or financially distressed properties in our Building Indicator Project. Since then, we have seen a steady improvement. Our most recent run of BIP data, using violations from HPD and DOB, as well as tax, water and emergency repair liens, shows the lowest number of buildings that score above our distress indicator of 800 points yet.
The 1,213 high scoring properties represent about 2% of the nearly 62,000 multifamily properties in the BIP database.
By borough, about 3.5% of properties in the Bronx score above our distress index, while the percent in Brooklyn is about 2.5%. Distressed buildings in Manhattan are larger, on average, than in other boroughs. And the percent of apartments in distressed multifamily properties is at 1.6% for the City.
This map shows the concentration of high scoring and borderline properties with scores above 500 points by building size. Middle and larger properties are concentrated in upper Manhattan and the West Bronx, while small buildings are concentrated in central Brooklyn. A few large distressed properties are scattered throughout Queens, Staten Island, and other parts of Brooklyn, Manhattan and the east Bronx.
Many distressed buildings have very high scores, and they are also concentrated in the west Bronx, upper Manhattan and central Brooklyn.
Finally, we analyzed the buildings listed in the Rolling Property Sales data from Department of Finance that were sold between November 2013 and October 2014 in New York City. We matched this with BIP data to uncover who financed these properties and grouped them into 5 categories. We did this for all of the buildings in BIP and for buildings that scored above 800 points in October 2014. We found that high scoring buildings are much less likely to be financed by banks and much more likely to be financed by non-bank entities or have no current mortgage. Not as dramatic, yet still significant, we found that lenders who subscribe to BIP data are less likely to have financed recently sold buildings with high scores than lenders who do not subscribe to BIP. After our meeting last month, we were able to increase the share of lenders who utilize BIP.
We leave you with a number of questions to consider:
- How much does the decline in high scoring properties accurately represent real property conditions?
- Given we may likely be in another housing bubble in New York City, how can lenders partner with the City and groups like ours to ensure the physical and financial health of our City’s multifamily rental housing stock?
- Where is the money coming from?
- What kind of regulatory hook could there be on non-bank entities financing many of these purchases?