Lenders are becoming less patient with owners on mortgage payments adding more pressure to a market where roughly 10–15% of loans on NYC’s rent-stabilized multifamily units are expected to come due soon, potentially deepening the distress in the market.

Distressed sales, lower property values, and the potential for buildings to fall into disrepair pose a threat to both landlords and tenants. Finding solutions to ensure liveable conditions and stability in the housing market is crucial to mitigate the impending crisis for rent-stabilized apartments in NYC.

Image Credit The Real Deal

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But the peninsula is still no picnic for homebuyers, as the market there and on the East End remains tight and rife with bidding wars, according to a quarterly report published in the Real Deal.  But the Long Island peninsula is still no picnic for homebuyers, as the market there and on the East End remains tight and rife with bidding wars, according to the report,

Sammuel Miller stated in the report, “The market is levelling off as it’s coming out of the pandemic-era housing boom.”   He when on to say “When we look at median pricing, [it’s] 27.8 percent higher than pre-pandemic, which in three years shows you how much housing prices have expanded on Long Island.”

The median and average sale prices on the North Fork were $935,000 and $1.2 million, respectively, the third highest in history. Listing inventory surged year-over-year but remained down more than 50 percent from before the pandemic, leading to 28 percent of homes undergoing a bidding war. That’s down from nearly 41 percent last year, but still high.

“Supply is still struggling to keep up,” said Miller. “We need to see inventory pick up faster to enable more activity to occur.”

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The impacts to both the residential and commercial real estate markets have been material as borrowing costs have increased significantly. It is expected that “rescue equity” will be needed to replace the capital shortfalls as values decline and cost of debt rises. Further, negative leverage is occurring as mortgage rates trend above capitalization rates which is unsustainable.

Transactions have slowed, deals have stalled and there has been a lack of current data points which has reduced clarity with respect to price discovery and valuations. The majority of investors surveyed by PwC expect capitalization rates to increase over the next six months. 

Cost of Capital 

The increase in base interest rates directly affects financing rates. Various debt sources are quoting and achieving mortgage interest rates 6% and above. This is creating a situation where debt coverage ratios are too low based on existing cash flows and this, in turn, is forcing lower leverage and greater equity positions. 

Capitalization Rates 

In the 3Q2022 PwC Real Estate Investor Survey, it was noted that “The current rising-interest- rate environment has many investors in the commercial real estate (CRE) industry using the words selective, tentative, and cautious to describe their approach to acquisitions today.”

The majority of investors surveyed by PwC expect capitalization rates to increase over the next six months. This translates to slowing transaction volume but also directly impacts pricing expectations. 

Investors expect, and the data is showing, that capitalization rates are increasing. We have also heard of specific transaction examples including repricing of deals and simply offers at lower levels owing to the increased cost of capital.

Property Values 

The next question is whether these capitalization rate increases are translating to property value declines.  We must continuously keep our ears to the ground and talking to investors and brokers which is a must in this environment. 

• Investors have become selective, cautious, and tentative as cost of capital has increased.
• Volatility in the market has led to the disconnect between buyers and sellers thus reducing transaction volume – both in number of sales and overall price volume.
• Although the number of transactions has dropped precipitously, market participants are saying that price discovery is demonstrating that values are trending lower.
• Negative leverage is present in the market and this cannot be sustained which is putting downward pressure on values.
• Brokers report re-trades are occurring at lower pricing and higher indicated capitalization rates. 

Photo by Chris Liverani

Photo by Blogging Guide

Content courtesy of NewMark

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The ongoing war against inflation: Last week, the Fed hiked the key federal funds rate by 75 basis points to battle 40-year high inflation. It was the sixth rate increase this year, and it raised short-term borrowing rates to their highest levels since the Great Recession. “As large as the decline in pricing has been, I don’t think we’re out of the woods,” said Peter Rothemund, co-head of strategic research at Green Street.

Story courtesy of CRE Daily

Image Credit #SeanPollock

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“If you are not working, if you are working only part-time, we’re going to have the banks and financial institutions waive mortgage payments for 90 days,” he said at a news conference Thursday. “That will be a real-life economic benefit. It will also be a stress reliever for many families.”  To listen to his announcement click here.

Recently he placed a moratorium on evictions for tenants.  

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A few days ago Governor Cuomo’s Administration stated the following:
This Administration is focused on preventing the displacement of New Yorker’s facing sudden financial hardship due to Covid-19. The Courts are critical partners in this work, and today they announced a temporary moratorium on evictions in New York City and suspended the issuance of new eviction warrants when a tenant fails to appear in court. This means that more people will be able to remain in their homes during this health emergency.

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Image Credit Architectural Digest

It might not be a second headquarters in Long Island City, but Amazon is far from done taking up office space in New York City.  However, Amazon’s new office space will not be receiving massive tax breaks from the city or state according to the report.

Amazon’s new Hudson Yards comes just weeks after Facebook picked up 1.5 million square feet in the Hudson Yards complex itself. The Real Deal took a deep dive into the rising importance of tech tenants in New York’s office leasing industry in its December issue.

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According to a story in the NY POST, Stefan Soloviev — the 44-year-old son of real estate mogul Sheldon Solow — is buying the Peconic Bay Winery in October a 53-acre winery in Cutchogue, Long Island— adding to the roughly 150 acres of planted vines he already owned on the North Fork, located on the tip of Long Island. He owns 1,000 total acres in the region.

Randy Frankel, an ex-Goldman Sachs managing director and part owner of the Tampa Bay Rays, bought Croteaux Vineyards in July in partnership with Kristen and Daniel Pennessi, owners of the new boutique Menhaden hotel in Greenport.  It was Frankel’s second foray into North Fork wines. In 2017, he bought the Shinn Estate Vineyards in Mattituck.

Last year, Mexican mining mogul José Antonio Rivero Larrea and his daughter, Maria Rivero Gonzalez, bought the Martha Clara Vineyards in Riverhead for $15 million. They have since rebranded the 205-acre property, which includes 85 planted acres, RGNY.

Image courtesy of Bloomberg News

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While City landlords were infuriated by these provisions of the recently enacted Housing Stability and Tenant Protection Act which predominantly apply to long term urban rentals, North Fork and Hampton landlords should be aware that important aspects of the legislation apply statewide and effect them directly.

Buried away in the final bill signed by Governor Cuomo are two provisions that will significantly affect real estate rentals on the East End of Long Island.   The first item pertains to the amount of security deposit a landlord could hold.   “No deposit or advance shall exceed the amount of one month’s rent under such contract.”  Historically landlords have collected rent in advance for a seasonal rental and now it is not possible with the new legislation.  One article I read suggested that landlords could use Letters of Credit to work around this.

The other troubling item effecting the East End is a provision requiring deposits to be returned to tenant within 14 days.  “Within fourteen days after the tenant has vacated the premises, the landlord shall provide the tenant with an itemized statement indicating the basis for the amount of the deposit retained, if any, and shall return any remaining portion of the deposit to the tenant. If a landlord fails to provide the tenant with the statement and deposit within fourteen days, the landlord shall forfeit any right to retain any portion of the deposit.

Landlords must be aware of these new regulations so as not to violate the law or their pockets.  Click here to read a summary about the NYC Rental law of 2019

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