{"id":3922,"date":"2011-03-20T22:56:37","date_gmt":"2011-03-21T02:56:37","guid":{"rendered":"http:\/\/www.renthop.com\/news\/?p=704"},"modified":"2011-03-20T22:57:20","modified_gmt":"2011-03-21T02:57:20","slug":"manhattan-cap-rates-and-real-estate-investors","status":"publish","type":"post","link":"https:\/\/www.renthop.com\/blog\/manhattan-cap-rates-and-real-estate-investors\/","title":{"rendered":"Manhattan Cap Rates and Real Estate Investors"},"content":{"rendered":"

Bloomberg Businessweek reports today Manhattan<\/a> Apartments Lure Investors Seeking Market Foothold. Down in the rental trenches, we’ve seen a lot of building transactions as the 2008 financial crisis dislocated REIT balance sheets across the country. One notable includes Longacre House<\/a> in Midtown<\/a> West, one of RentHop’s<\/a> original landlords. In the middle of 2009, they transitioned from a Macklowe, famous among brokers for generous OP and free-rent incentives, to ownership under EQR, one of the largest REITs with a strong Manhattan residential presence (and sadly very few OP payments).<\/p>\n

An interesting paragraph in the Blomberg piece stood out:<\/p>\n

Demand for Manhattan apartment properties has pushed up prices and lowered the yield for investors. Capitalization rates on multifamily buildings in the borough averaged 5.1 percent in the fourth quarter of 2010, compared with 6.6 percent nationally, according to Real Capital.<\/p><\/blockquote>\n

The capitalization rate<\/a> is the real estate equivalent of the P\/E ratio in equity fundamentals, except that it is quoted as the percentage of the property purchase price earned each year in net operating income. In simpler terms, for every $100 used to buy real estate<\/a> in most of the country today, a building owner expected to earn $6.60 per year. \u00a0In Manhattan<\/a>, a building only expects to return $5.10 per year, almost 23% less income for the same price!<\/p>\n

Of course, when evaluating any investment, the cash flow yields are not the only concern. After all, a cap rate doesn’t consider the cost of financing, and when was the last time anyone bought a stock solely because of its high dividend yields? (I’m assuming value\/income mutual fund managers are not RentHop blog readers)<\/p>\n

I suspect there are a few reasons to be bullish on highrise landlording in Manhattan:<\/p>\n

Financing rates are near an all-time low.<\/h2>\n

After almost three years of large real estate deals gone bust, banks are finally taking on a bit more risk and that includes providing attractive financing to experienced real estate investors.<\/p>\n

Manhattan Cap Rates Traditionally Trade Below the Nation.<\/h2>\n

In 2007, cap rates for luxury high-rise residential buildings are comparable to what they are now. \u00a0Keep in mind that Manhattan rental prices during the 2002-2007 boom rose at a much greater pace than the nation. \u00a0The cap rate only captures a snapshot of net-operating-income the year prior to the purchase divided by the purchase price at closing. \u00a0If the investors can rely on rents to rise at rates significantly faster than inflation, then the actual returns over a multi-year holding period can be significantly higher than the cap rate (couple that with low borrowing costs and you’ve got a recipe for a great cash-on-cash return). \u00a0Unfortunately for renters and brokers, that also means we should expect rent increases in the coming years.<\/p>\n

Plain and simple, Investors like to Bet on Appreciating Assets<\/h2>\n

It’s a sad truth in real estate, but the primary concern for owners is not quality property management and reliable tenants. Most landlords know that the real money in real estate comes from flipping a property at appreciated prices. The icing on the cake are annual cash flows and yields. Professional real estate investors<\/a> obviously care about maintaining healthy income statements, but in the end the balance sheet is king. Other than a few distressed opportunities such as Florida, Vegas<\/a>, and Michigan; Manhattan is one of the best metro areas due for a real estate turnaround. It’s definitely a gamble on a large rebound in the financial sector and Silicon Alley bidding up housing demand, but year over year rents are quite encouraging.<\/p>\n

As always, we do our best to follow the NYC Apartments<\/a> market and watch with great interest as the Manhattan recovery develops.<\/p>\n

Editor’s Note: We updated this article to enhance readability.\u00a0<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Bloomberg Businessweek reports today Manhattan Apartments Lure Investors Seeking Market Foothold. Down in the rental trenches, we’ve seen a lot of building transactions as the 2008 financial crisis dislocated REIT balance sheets across the country. One notable includes Longacre House in Midtown West, one of RentHop’s original landlords. In the middle of 2009, they transitioned […]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"yes","_lmt_disable":"no","footnotes":""},"categories":[154],"tags":[],"class_list":{"0":"post-3922","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-market-trends"},"yoast_head":"\nManhattan Cap Rates and Real Estate Investors - Real Estate Topics, Tips, and Guides<\/title>\n<meta name=\"description\" content=\"According to a recent study, Manhattan cap rates came in lower than cap rates across the rest of the country.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.renthop.com\/blog\/manhattan-cap-rates-and-real-estate-investors\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Manhattan Cap Rates and Real Estate Investors\" \/>\n<meta property=\"og:description\" content=\"According to a recent study, Manhattan cap rates came in lower than cap rates across the rest of the country.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.renthop.com\/blog\/manhattan-cap-rates-and-real-estate-investors\/\" \/>\n<meta property=\"og:site_name\" content=\"Real Estate Topics, Tips, and Guides\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/renthopapartments\" \/>\n<meta property=\"article:published_time\" content=\"2011-03-21T02:56:37+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2011-03-21T02:57:20+00:00\" \/>\n<meta name=\"author\" content=\"Lee Lin\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@renthop\" \/>\n<meta name=\"twitter:site\" content=\"@renthop\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Lee Lin\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/www.renthop.com\/blog\/manhattan-cap-rates-and-real-estate-investors\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/www.renthop.com\/blog\/manhattan-cap-rates-and-real-estate-investors\/\"},\"author\":{\"name\":\"Lee Lin\",\"@id\":\"https:\/\/www.renthop.com\/blog\/#\/schema\/person\/5877a1d4b27a98e84d9840c6aea99af7\"},\"headline\":\"Manhattan Cap Rates and Real Estate Investors\",\"datePublished\":\"2011-03-21T02:56:37+00:00\",\"dateModified\":\"2011-03-21T02:57:20+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/www.renthop.com\/blog\/manhattan-cap-rates-and-real-estate-investors\/\"},\"wordCount\":619,\"publisher\":{\"@id\":\"https:\/\/www.renthop.com\/blog\/#organization\"},\"articleSection\":[\"Market Trends\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.renthop.com\/blog\/manhattan-cap-rates-and-real-estate-investors\/\",\"url\":\"https:\/\/www.renthop.com\/blog\/manhattan-cap-rates-and-real-estate-investors\/\",\"name\":\"Manhattan Cap Rates and Real Estate Investors - 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