Manhattan isn't the only borough that's experiencing an uptick in multifamily pricing. The 1Q11 Queens pricing improved for both elevator and walkup apartment buildings over the previous quarter. Their cap rates compressed to averages of 5.2% and 6.3% respectively. These caps were within 100 basis points of the 1Q11 Manhattan caps.
One might ask why an investor would go outside Manhattan for this small increase in yield. For starters, you can buy three times the amount of bricks in Queens. The Queen's average $/SF in 1Q11 was $171 for elevators and $168 for walkups, whereas Manhattan's was $518 and $592.
However, rents can be almost triple in Manhattan. In a prewar building, Manhattan rents can range from $60-$75/SF, whereas Queens rents are generally in the mid $20s/SF. With similar operating expenses, the future upside case for Manhattan is pretty strong; but if you want stability, Queens product is hard to dispute.
Our firm recently sold an elevator apartment building at 82-67 Austin Street. The property was located on an entire blockfront of Austin Street between 82nd Drive/Mowbray Drive and Lefferts Boulevard in Kew Gardens, Queens. The property was sold in an all cash transaction valued at $19,525,000.
The nine-story property is approximately 124,343 square feet and sits on a 200' x 100' lot. There are 144 residential units which include 92 rent stabilized units, 48 fair market units, and four rent controlled units. The building has been meticulously maintained with many recent improvements. The building is conveniently located directly across the street from the LIRR Kew Gardens Station.
The sale price equated to $157 per square foot or $135,590 per unit. The rents in the building averaged $20/SF, so it was close to market. “Due to the limited supply of available large elevator apartment buildings in close proximity to public transportation, coupled with the meticulous condition of the building with zero violations, we were ultimately able to sell Austin Street for a 5.2% cap rate,” said Brian Sarath who exclusively handled this transaction with CEO Paul J. Massey Jr.
With all this in mind, how do these apartment buildings compare to treasuries? When looking at the 10 year treasury rate, it shifted from 4.29% in 2005 to 3.16% today. Meanwhile, the Queen's elevator cap rates stayed steady from 1H05's 6.2% to 6.4% in 2H10. Thus, it seems like this product is a pretty safe bet with a more attractive yield to boot.