(NEW YORK, NY) -- During the first half of 2009 (1H09), the Manhattan building sales market (south of 96th St. east of Central Park and south of 110th St. west of Central Park) had 95 closed transactions consisting of 122 properties.
The number of transactions was down 74.06% from 1H08, and 84.08% from the 1H07, the most active half year. Volume is running at 0.73% of the total stock of properties on an annualized basis.
To put this number in perspective, the lowest turnover we have seen in the last 25 years was 1.6% in 1992 and 2003, both of which were years at the end of recessionary periods and cyclical highs in unemployment. Transaction volume for the second quarter of 2009 has remained flat when compared to the first quarter.
The aggregate sales consideration in 1H09 was $1,900,689,724. This figure was down 82.8% from 1H08 and down 93.8% from the peak half year of 1H07. The trend has certainly been toward smaller transactions, with 84 of the 95 transactions being less than $25m.
While the volume figures above reflect activity across all property types, below we examine pricing trends based on product type.
Walk-Up Apartment Buildings
The average capitalization rate for walk-up apartment buildings was 4.58% in 1H09, showing an upward shift of 38 basis points from 2H08 and 58 basis points from its low of 4.00% in 1H07. The average gross income multiple (GIM) dropped to 14.6 in 1H09 from 15.2 in 2H08 and its peak 15.9 in 1H07. Correspondingly, the median price per square foot ($/SF) was $494, down 22.7% from its 2H08 peak of $606 per square foot.
Elevatored Apartment Buildings
Elevatored apartment building cap rates in 1H09 averaged 4.08%, up 58 basis points from 2H08 and up 128 basis points from its low of 2.80% in 1H06. The average GIM dropped to 14.5 in 1H09 from 17.4 in 2H08 and its peak 18.4 in 1H06. Moreover, the median $/SF was $468, down 13.7% from its 1H08 peak of $532 per square foot.
Mixed-Use Apartment Buildings
Mixed-use properties produced average cap rates during 1H09 of 6.64% up 194 basis points from 2H08 which tied the low point of 4.70% from 1H06. Median $/SF was $535, down 52.9% from its 1H08 peak of $1,135 per square foot. This drop is due to the stresses in the retail markets as the recession has hit consumer spending quite hard, delivering a body blow to retail value.
Other Property Types
In other property types, median $/SF for 1-4 family homes was $1,484 per square foot in 1H09. Office buildings came in at $392 per square foot, hotels at $997 per square foot and retail at $1,071 per square foot. It should be noted that there were only 2 hotel sales in 1H09, so this is statistically insignificant.
In general, the Manhattan building sales market has seen a reduction in activity and value. The trend has certainly been toward smaller transactions, for which there is plentiful debt available from community and regional banks. We have also seen a resurgence of high net worth individuals and old-line families who had been overpowered by operators backed by institutional capital for the past several years.
We have also seen a noticeable impact on the market by high net worth, private individuals from overseas. We have not seen foreign investors in these numbers since the mid-1980s.
We anticipate the volume of sales increasing slightly as we move past the paralysis in the market which we witnessed after the failure of Lehman Brothers on September 15, 2008 and the dismantling of Wall Street as we knew it. Based on current market activity, we expect volume to increase as prices drop in 2H09 due to eroding fundamentals and increasing unemployment.