Queens Real Estate Market May Be Picking Up

Swain Weiner; Vice President of Sales, Massey Knakal Realty Services. Licensed Associate Broker

Long Island City, New York September 14, 2010 -

By OurLIC Contibutor: Swain Weiner

Vice President of Sales | Massey Knakal Realty Services

Could this, contrary to conventional wisdom, be a good time to sell your building? Conceivably, yes, depending on a number of conditions that might affect the market in general and your property specifically.This might be the closest thing to a “sweet spot” for sellers in the middle of a generally slow market. There is pent-up desire for real estate, and banks want to lend money into solid assets that are well-leased to credit tenants. Deals are still getting done – but they’re taking longer. If you’ve been thinking about selling your property, and if you’re patient, and willing to wait for the right deal, now might be the time to put your building on the market.

This is particularly true of multifamily residential property. Apartments don’t go through the extreme highs and lows of office property; they’re not as risky or as labor-intensive as hotels; they can often be combined effectively with retail. For that reason, banks usually like to lend on apartment buildings. Another reason why banks look favorably on apartment buildings is that apartment rents are much more stable and predictable than office rents—and a quality apartment building will always have a high rate of occupancy.

Multifamily properties in Queens tend to do well when the economy is weak, because people have to live somewhere, and they’re more likely to rent than to buy when their job status is uncertain and banks have tightened their standards for home mortgage lending. This is a good time to own rental apartment buildings, and a lot of investors know it.

These factors have positively impacted the pricing structure in the county. Vacancy rates are low and many tenants desire longer leases This only helps increase cash flow Many areas such as Astoria, Sunnyside and Jackson Heights offer outstanding amenities to renters As a matter of fact, New York Magazine recently noted that these communities are included the “Ten Best Neighborhoods” to live in

Values, Interest Rates Line Up

Many observers of the market are saying that this is a bad time to sell because prices are low. It’s true that prices have fallen dramatically from the levels we saw in 2006-2007, but the numbers can be deceiving. Real estate values were inflated in most markets at that time, so a sharp drop from those levels is not so much a depression as a normalization. If you look at some recent sales and consider the capitalization rates as well as the final sale price, you’ll find that the bottom line is not all that different from what it would have been three or four years ago.

In Queens County, supply is very limited as of this writing only six properties have sold this year. Queens is not a boom-and-bust market, so it won't attract the highly speculative investor. But it is a good place to invest your capital if you are a buy-and-hold investor who is looking for a steady, dependable return. It is an ideal investment option for "patient money."

For example, my team recently sold one apartment building, and we’re in contract on another. The property 90th Street in Jackson Heights sold for $8.3 million, at a cap rate of 6%. The building in contract is in Sunnyside and is at a 5.8% cap. Our office also sold an apartment building on 72nd Avenue in Forest Hills. This had a capitalization rare of 5.8%. Another property in Astoria was recently sold for 6% return. These are fairly aggressive numbers, and the seller certainly isn’t taking a beating on any of those transactions.

Our office has seen an up tick in requests for mulit-family property evaluations and we are now advising owners that the supply is low and that translates in higher pricing. As a matter of fact, two building that we have been marketing have received over twenty offers

Now, prices are creeping back upwards, and we may be on the point of the best possible combination of price and interest rate.

Interest rates are historically low, but current conditions indicate that they’re about to rise, and could rise considerably. When debt becomes more expensive, the pool of potential buyers is reduced, limited to people who can afford to put a lot of equity into the deal.

Finally, there’s talk in Washington about introducing legislation that will make investment in existing real estate more attractive from a taxation point of view, allowing buyers to take enhanced depreciation on a property.

We’ve been hearing, for the past couple of years, that real estate transactions have slowed down because owners are pricing their buildings too high for today’s market, and have refused to come down to “realistic” levels. There’s some truth to that. Owners who’ve been asking 2007 prices have had to adjust their expectations downward. On the other hand, it’s easy, in a weak market, to be talked into pricing your building too low. A good broker can – and should, if he’s worth his salt – ensure that your property is priced right when you enter the market. You don’t want to have to lower your price later, or (if the property sells right away) wonder whether you should have asked more.

Pricing: A Tricky Science

In a slow market, when few transactions are getting done, it can be difficult to price a building. The usual practice is to base a building’s market value on what’s being paid for comparable properties. But the fewer properties are sold, the fewer comparisons you’ll be able to make. Moreover, it’s likely that some of the buildings that have sold lately have been under-priced. Some might have been foreclosed properties that the lenders sold for a song.

In some cases, a broker will advise you to base your asking price on a building’s cash flow, rather than on comparable transactions. In a slow market, it sometimes makes sense to say, “Yes, other buildings may be selling for less than what we’re asking, but they’re not as well tenanted as we are; they’re not making the money that our building is making.”

The question is not whether it’s better to price according to comparable sales or according to cash flow. The question is, does your broker have the flexibility to consider various options and evaluate (and perhaps combine) different pricing systems to arrive at the right number?

At Massey Knakal, we have a flexible and time-tested business model that allows us to price a property using the methods that are most appropriate to the situation – considering its location, amenities, tenant rolls, current leasing terms, and many other factors. We also have an exceptionally large and well-organized data base of prospective buyers. When you bring your property to us for sale, we’ll know whom to reach out to. We stay on top of legal and legislative events at the local, state, and federal levels, so we can advise buyers and sellers on how to structure a deal to their best advantage.

Our brokers operate on a territory system. Each Massey Knakal broker knows his or her neighborhoods inside and out. New York Magazine recently ran an article about New York City’s best neighborhoods to live, work, and invest in, and five of them were part of my territory in Queens: Astoria, Corona, Jackson Heights, Sunnyside, and Woodside. These are areas where we can expect rents to grow, and real estate prices to rise. Even if you’re not thinking of selling your property there anytime soon, it can’t hurt to stay in touch with a broker who can keep you informed of sudden opportunities and changing market conditions.

For more information, please contact OurLIC Contributor:

Swain Weiner; Vice President of Sales, Massey Knakal Realty Services. Licensed Associate Broker Go to OurLIC Featured Profile
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Queens Real Estate Market May Be Picking Up