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NYC Multifamily Permits Hit 10-Year Low in May
NYC’s housing crisis is at a breaking point with a 1.4% rental vacancy rate. Rising living costs and slowed development due to high borrowing costs are to blame.
Jordan B. & Han-Gwon Lung
July 03, 2024
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Market Snapshot
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Grinding to a Halt
NYC Multifamily Permits Hit 10-Year Low in May
New Yorkers face a deepening housing crunch with a 1.4% vacancy rate and soaring costs. High borrowing rates, aimed at curbing inflation, are stalling development citywide.
Dramatic decline: The number of permits for multifamily buildings in May plummeted to just 36, the lowest monthly count in a decade, excluding the pandemic period of 2020. Last year saw permits for only about 15,500 apartment units, the smallest annual total since 2016, according to the NYC Department of Buildings and Department of City Planning.
Affordability crisis: High interest rates and cautious lending have frozen many housing projects, heightening concerns that New York may soon become unaffordable for all but the wealthy. This could further strain NYC’s $315 billion taxable commercial real estate market, which is already under pressure from a post-pandemic shift to remote work and an underfunded public transit system.
Ambitious goals: In response, Mayor Eric Adams has set a bold goal of adding 500,000 housing units over the next decade—50,000 units per year. This target is ambitious, given that from 2012 to 2022, the highest number of units approved in any decade was 297,000 under former mayors Bloomberg and de Blasio. In 2023, only about 16,300 units were proposed for perspective.
Zoom in: Since 2010, Long Island City has seen the most significant development, adding 18,500 units as it transformed from an industrial area to a bustling residential neighborhood. This surge in housing has attracted more residents, doubling the local population. However, it has also driven up the median asking rent by 56% from April 2010 to April 2024.
A possible (but costly) solution: Converting commercial spaces into residential units is one strategy being pushed by city and state officials. Since 2010, nearly 6,000 units have been added in the Financial District. Governor Hochul's housing law offers tax breaks for conversions starting by mid-2031, including affordable units. As of late June, 69 buildings are participating in the city’s program.
➥ THE TAKEAWAY
Big picture: The expiration of the 421-a tax exemption in 2022 has stalled development, and its replacement, 485-x, hasn't yet proven effective due to new wage requirements. Experts argue NYC must think bigger and tackle its housing crisis with a multi-faceted approach, including government subsidies, regulatory changes, and diverse housing types, to prevent further displacement.
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✍️ Editor’s Picks
Ups and downs: Construction spending slipped 0.1% in May, reaching $836.3B in the first 5 months of 2024.
NAV it your way: Blackstone's BREIT will honor all June repurchase requests, exceeding its quarterly withdrawal limit for the third time in four months, as investors seek to withdraw funds.
Labor landscape: According to the latest June job report, 200K new jobs are expected with a 4% unemployment rate and 3.9% wage increase. Recession concerns persist.
Royal investments: Saudi developer Dar Global plans to invest $300M in luxury US real estate by year's end, targeting international buyers.
Scramble for cash: Weeks before his misappropriation of investor funds became public, Elie Schwartz sought a $1 million loan from an old friend, who is now suing him for non-repayment.
🏘️ MULTIFAMILY
Elevated living: Luxury rental developers are attracting residents with amenities like cold plunges and dog-washing stations, customizing offerings to suit local preferences.
Swift permitting: San Francisco is the first city in California to miss its housing goals, and may soon streamline approvals under SB 423, which would cut entitlement time.
Legal housing: A Miami tower project in Brickell reserved 26 units for affordable housing for—get this—Miami-Dade attorneys.
Texas terrors: Tides Equities faces foreclosures on two more Dallas properties, making it five multifamily properties in the DFW area that have faced foreclosure or been returned to lenders.
Dorm to transform: Breaking Ground purchased a former dorm in NYC for $172M for low-income housing redevelopment, with $163M funded by city and state agencies.
From the ashes: Developer Sean Mousavi will replace a fire-damaged Boyle Heights bank in LA with a 123-unit apartment complex, including 13 low-income units.
🏭 Industrial
Industrial strength: Despite challenges like elevated interest rates, the average industrial sale price rose 15.4% in May, nearing office market prices, driven by a sustained industrial boom.
Deere dreams: Venture One is set to build a 1.2 MSF, $125M John Deere facility in Lowell, IN, that could support up to 1.2K union jobs.
AI arms race: Amazon (AMZN) plans to invest $100B in AI data centers over the next decade to support Amazon Web Services as competition ramps up from tech competitors.
🏬 RETAIL
Reviving elegance: A Texas developer is investing $275 million to renovate the historic Country Club Plaza in Kansas City, Mo., aiming to attract high-end brands and restaurants to the century-old shopping center.
Shaking things up: Ikea acquired a one-third stake in the 570 Fifth Ave. project, which features 80 KSF of retail. It’s set to be the largest new construction on Fifth Avenue in over 60 years.
Retail rumble: Net lease investors should heed drug store struggles as major retailers like Walmart (WMT), Rite Aid (RADCQ), and Walgreens (WBA) contract operations.
Mystery buyer: A mystery buyer purchased a fully leased 39.35 KSF Malibu retail center anchored by a Whole Foods (AMZN) at an undisclosed price.
🏢 OFFICE
WFH impact: Work-from-home trends are expected to impact office demand by up to 14%, causing a projected 24% vacancy rate by 2026.
Tenant exodus: The vacancy crisis in DC's office market grows, with more than 920 KSF emptied in 2024, hitting a record 22.4% vacancy rate.
Investment insights: Swift Real Estate Partners purchased a fully leased Palo Alto office building for $56M, at around $690 PSF.
🏨 HOSPITALITY
Ski standoff: The DOJ is examining Alterra's acquisition of A-Basin, one of its 18 ski destinations in North America, due to fears surrounding the deal’s consumer impact.
Debt relief duo: Investment firms 1907 Capital and Crestline Investors injected $35M to save a Chicago hotel from foreclosure, helping pay off a staggering $100M debt.
📈 CHART OF THE DAY
The NAHB construction spending index shows that single-family construction spending has grown since May 2023 due to supply chain issues and high interest rates. Multifamily construction spending has slowed down since its peak in May 2023, and improvement spending has been slowing down since mid-2022.
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