Manhattan property investment performance

Posted by Wei Min Tan on March 18, 2019

Manhattan property investment performance from 1997 to the most recent Q4’2018 shows that price per square foot increased from $480 to $2,152 during the 19 year period.

Property downturns

There were two downturns during this period and those were during the recession of 2009/2010 and the current correction from Q4’2017 through Q4’2018 which was driven by changes in the tax law, uncertainty from global trade wars and rising interest rates. In 2009 and 2010, prices were down by 12 percent and 4 percent respectively. In context, the rest of the U.S. went down by 35 percent during the 2009 recession. From 2017 to Q4’2018, price per sqft was flat while transaction volume in Q4’2018 decreased 13 percent.

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Manhattan investment performance over time

The average appreciation per year during the 19 years is 8 percent, which is a very healthy return. Since property is often purchased with leverage, an 8 percent appreciation can be leveraged to twice or 3X that return depending on the equity invested in the property and financing used.

Graph Data: Miller Samuel

Rental yield

The current rental yield for a Manhattan condominium is around 2.5 percent. This is based on the gross rents less common charges and property taxes as a percentage of property price. An analysis by Streeteasy talks about this rental yield. Meanwhile, Bloomberg has an article that says Manhattan condos barely yield more than government treasuries.

Manhattan property is for stability, not yield.

The reason investors globally invest in a Manhattan condo is for the stable appreciation and not for the rental yield. “Barely yielding more than treasuries” (the Bloomberg article) is not a good comparison because treasuries do not appreciate like Manhattan property. A lot of safe and liquid investments would yield more than a Manhattan condo. For example, savings accounts in certain countries or stock dividends can easily exceed 3 percent in yield.

Global investors buy Manhattan condos for portfolio diversification. Manhattan and London have the most desirable property in the world. In Manhattan, merely 10 percent of housing units are condominiums which partly explains the consistent appreciation. Seventy percent of housing inventory comprise of rental buildings and the other 20 percent are Cooperatives (which are not investor friendly).

Investors buy a Manhattan condo property for asset diversification, preservation and as a badge of pride in owning a piece of Manhattan.

Manhattan property prices appreciate with inflation

The appreciation in Manhattan is driven by inflation. About 40 percent of the CPI (inflation) index is attributed to housing cost. Prices increase because of inflation (labor and material costs go up over time). In Manhattan, appreciation is not because of speculative activity. In fact, investors make up only about 30 percent of buyers in Manhattan.

When clients ask whether Manhattan is at its “peak,” I answer that as long as there is inflation, there can never be a peak. Having a ceiling to property prices is like saying prices of goods and services must have a ceiling as well. We all remember how much goods, services and property costed 20 or 30 years ago and know what the same items cost now.

Key is getting the right property

While the above are market-wide trends, the investor buyer needs to select the right apartment in the right building in the right location. This is where local expertise becomes critical.

We serve global investors who are buying Manhattan condominiums to rent out and we track every condo building in Manhattan. The analysis on which is a good buy goes into the micro level details such as which apartment line is more desirable, has a view, has a “wow” factor etc. These are the details that play a very important role in the long term investment performance of a Manhattan property.

What We Do

We focus on global investors buying Manhattan condos for portfolio diversification and long term return-on-investment.
1) Identify the right buy based on objectives
2) Manage the buy process
3) Rent out the property
4) Manage tenants
5) Market the property at the eventual sale

Wei Min’s media interviews by CNBC, CNN, New York Times on the subject of investing in Manhattan property

Deal Examples

1) The Sutton, Turtle Bay, Midtown East. This Toll Brothers development only required 10 percent reservation deposit. Represented multiple buyers at the $2 million price point. Location, classic style windows and luxury finishes make this a good investment. Close to United Nations, Citigroup Center, Blackstone, Blackrock. Rented to quality tenants from the beginning.

Manhattan property investment performance

2) 200 Chambers Street, Tribeca. Top quality building in Tribeca. Convenient location next to Whole Foods. Building is priced at premium but rents are also at a premium. This corner unit has dual exposures, maximizing sunlight. Purchased at around $1 million and has appreciated substantially since then.

3) Parc Vendome, Midtown West. Purchased at a great price and renovated entire apartment. Buy factors were south exposure with plenty of sunlight and proximity to Central Park. The photos below are the Before/After. Rented immediately after the renovation was completed.