The opportunity to invest in multifamily housing in New York City has never been greater, according to Lazer Sternhell, CEO and co-founder of one of the tri-state area’s fastest-growing commercial multifamily real-estate firms, Cignature Realty.
This may come as a surprise, since recent headlines have emphasized a downturn in housing markets nationwide. “Housing Market Activity is Crashing,” Fortune announced on October 25, the same day that Forbes declared a “Housing Market Collapse.”
For Sternhell, however, falling prices signal opportunity. “Prices are dropping daily,” he said. “They are the lowest I’ve seen personally in the last 15 to 16 years, and they’re down about 60 to 65 percent from where they were four years ago. Some investors who can see the long-term opportunities are now getting more active in the market, taking advantage of these lower prices.”
The top market: Manhattan
Manhattan tops Sternhell’s list of top multifamily housing markets for 2023. “Manhattan has always had the most value,” he said, “so logic would dictate based on historical data that my number one pick will be Manhattan.”
Why does Manhattan consistently end up on top?
First of all, Sternhell points to the neighborhood’s prestige. “Manhattan has an unparalleled reputation around the world,” he said. “Living in Manhattan is a statement that you have arrived.”
He also credits trendy neighborhoods, specifically naming Greenwich Village, Gramercy Park, and Hudson Yards. “There’s a unique vibe to these neighborhoods, and they have good restaurants,” he said.
According to Sternhell, potential investors in multifamily housing should consider Manhattan in particular because it has more free-market apartments — as opposed to rent-controlled units — than the other boroughs.
“That allows more turnover,” he explained. “If someone is in a rent-stabilized apartment, they try not to vacate. With free market apartments, when the lease is up, the owner has the ability not to renew that lease. So, there’s always more turnover, which translates into increases in rents in Manhattan.”
Second place: Brooklyn
According to Sternhell, while Brooklyn’s multifamily housing market may have taken off more recently, it now constitutes a “close second” to Manhattan.
“Several years ago, the people who were priced out of these trendy neighborhoods in Manhattan started moving over to Brooklyn,” Sternhell observed. “Brooklyn has developed its own vibe with a strong food atmosphere and nightlife. Young people and single professionals are building a community there.”
In addition to offering less expensive housing than Manhattan, Brooklyn offers myriad virtues, including a family-friendly atmosphere, ample parks, less crowded public transportation, and majestic views of Manhattan from across the East River — all important selling points for prospective tenants.
The bronze medal goes to Queens
Sternhell had many compliments for Queens, which he ranked third.
“Queens has an interesting dynamic to it,” Sternhell said. “It’s very diversified with different people from around the world. Many ethnicities and types of communities are there, so lots of people feel comfortable moving to Queens. We call it the United Nations.”
Queens is also an important transportation hub. “Queens offers good transportation routes to Manhattan,” Sternhell remarked. “Most people work in Manhattan, so that’s another reason why people like to live there — it’s easy to get back and forth. This makes Queens quite convenient. It also has good housing stock and nice buildings that tend to be larger,” he added, “so the apartments can be larger, as well.”
Finally, Sternhell noted that Queens tends to be less expensive than both Brooklyn and Manhattan.
Factors to weigh while considering investment
For Sternhell, the most important factor for potential buyers of multifamily housing to consider is the purchase price. “It’s all about the price,” he said. “Now that prices are down, things are making more sense. If you can pay your mortgage and expenses and still have some money left over at the end of the month, then you’re in business, and businesses make attractive investments.”
Despite recent concerns about the effects of rising interest rates on mortgages, Sternhell emphasized their continued role in commercial real estate.
“As a business, real estate leverages mortgages,” he explained. “Let’s say you buy a $1 million building, and the bank gives you $750,000. When you sell it next year for $2 million, you make a million dollars, $750,000 of which came from the bank. That money didn’t even come out of your pocket.”
Sternhell recommends considering the stock market’s performance and other possible investments when deciding how much to invest in multifamily housing.
“Usually, when someone buys a multifamily investment property, the bank will lend them 60 to 75 percent of the purchase price, and they will have to come up with the remainder,” he explained. “If you’re going to buy for 100 percent, this asset will make money, but if the bank is willing to lend you 75 percent, you would only have to invest 25 percent in the property. Then, you can use the other 75 percent to buy other deals or to put into the stock market.”
When asked if any markets in the tri-state area are likely to cool in 2023, Sternhell answered in the negative. All things considered, he is bullish on New York City’s multifamily housing markets.
“Traditionally, the markets are cyclical,” he said. “They rise and dip, but they always go back up. Every time they do, they go back higher than they were before.”
As a result, investors who choose multifamily housing in 2023 can expect to reap significant profits in years to come.