2Q14 PAYROLL TRENDS AND FORECAST
NYC payrolls continued to grow at a robust rate as employershired workers at a 1.7% or faster year-on-year rate for the 18thconsecutive quarter. In this case, establishments added employ-ees at a 78,200-job, 2.0% rate, in line with the previous quarters82,100-job, 2.1% advance. Skilled services industries were theprimary drivers as the business services, education and healthcare sectors hired at a 44,400-job, 3.1% annual pace, with roughlyhalf the gains attributable to professional, technical and educationservice industries. Consumer-driven sectors also expanded at abrisk rate, especially retail trade and leisure services, which
together added workers at a 24,100-job 3.3% rate.
The BLS seasonally-adjusted-data series were consistent, showing
a net gain of 27,700 jobs during 2Q14, up from 12,400 and 23,600jobs in the prior and year-earlier quarters, respectively. The thirdquarter got off to a flying start, as payrolls grew by 20,800 jobs in
July and August, up from 15,300 in the same period of 2013.
The RCR NYC payroll model employs only two lags of the depend-ent variable, along with U.S. payroll growth, GDP and the BAA bondindex as independent variables to achieve a 95.9% A-R2. Themodel suggests that the New York City boom has plenty of life leftin it. Employment growth is projected to rise from 84,600 jobs in2014 to a record 102,700 in 2015 as the U.S. recovery hits itsstride. Growth will slow thereafter but not before New York posts
a sixth consecutive 80,000+ job vintage in 2016.
Space demand was relatively steady in 2Q14: renters net leased 796vacant units, up from 670 in the year earlier period. Supply wasmoderately higher as developers received final C.O.s on 870 newunits, up from the prior year periods 839-unit tally, leaving
occupancy unchanged sequentially but down 50 bps y-o-y at 97.3%.
Supply was concentrated in Brooklyn, Queens and the UWS. TheOuter Boroughs readily digested new inventory, achieving 10 and 20bps sequential occupancy gains, respectively. Demand wasnt asrobust in the higher rent (=$4,459) UWS, however, where average
occupancy tumbled 100 bps sequentially (200 bps y-o-y) to 96.0%.
Axiometrics surveys of 291 larger, stabilized properties foundaverage 2Q14 occupancy of 96.8%, up 10 bps y-o-y. Conditions wereseasonally stronger than last year as 68% of properties surveyedrecorded 2Q14 sequential quarter gains, up from 55% in 2Q13. Themean sequential change was +56 bps, up from +49 in 2013. Class-Aand B properties maintained the highest occupancy (about 97.0%),
while class-C properties lagged wit a 95.7% average.
The RCR occupied stock growth model achieves a 95% A-R2 usingmetro supply, payroll and income and S&P 500 return variables.The model projects 2.3% average annual growth, sufficient to
maintain NYC occupancy in the 97% - 98% range through 2018.
Reis report average NYC rent of $3,152, up 3.9% year-over-yearand 0.8% sequentially, representing a seasonal recovery from1Q14s moderate 0.4% quarterly advance. Nevertheless, the y-o-ycomparison dropped to 15th rank among the RED 50, down materi-
ally from 1Q14s peer group 9th ranked 4.3% annual rent increase.
Axiometrics street rent surveys of stabilized properties found a unitweighted average effective rent metric of $3,307, up 2.9% sequen-tially and 4.2% y-o-y. Much of the impetus came from stabilizedrecent construction properties. By contrast, 51 properties continu-ously surveyed since 2006 recorded only a 1.4% y-o-y gain. Class-Aproperties chalked down the fastest y-o-y growth (6.3%), benefiting
from the influence of the addition of new stabilized assets. Class-Cproperties notched a healthy 4.6% advance, but class-B rentsincreased only 2.9%, down from 3.3% in 1Q14. Strong demand andminimal supply helped push Midtown West rents up more than 5% y-o-y, but supply pressures resulted in flat to moderately lower rent
levels on the Upper West Side and in Brooklyn neighborhoods.
RCR specified a 96.6% A-R2 rent forecast equation using payrolland home price growth rates, S&P 500 returns and 10-year USTrates as independent variables. The model projects faster averagerent growth through 2016, peaking at about a 6% y-o-y rate before
decelerating to the high-4% range in the last year of the forecast.
Sales declined for the second consecutive quarter as Investorsclosed 23 apartment buys valued at $5 million or more during thesecond quarter for total proceeds of $744 million, down from 43transactions for proceeds of $2.5 billion during 4Q13 and 41 tradesfor total value of $1.4bn during 1Q14. The average price per unitmetric also declined, dropping to $181,612, down from $319,680 and
$240,987 during 4Q13 and 1Q14, respectively.
Moderate sales velocity persisted over the summer. Sales of 23$5mm properties were recorded by the third week of September,on par with 2Q14. But the group included nine properties valued at$65mm or more, pushing total proceeds over $1.7bn, doubling thesecond quarter aggregate. The average unit traded for $388,813,
the highest total observed since 2012, boosted by acquisitions of
four Manhattan high-rises at prices exceeding $700,000 per unit.
Cap rates for institutional quality high-rises were universally in thelow-4% range. Smaller Manhattan properties traded at yields inthe mid to high-4% area. A handful of non-institutional quality
assets in the Outer Boroughs were valued to 5% to 6.5% yields.
For valuation purposes RCR chose to increase the generic cap rate10 bps to 4.1%. Using model derived rent and occupancy forecastsand a 4.7% terminal cap rate, we estimate that an investor wouldexpect to generate a 9.1% 5-year unlevered IRR, RED 46 #3. New
Yorks risk-adjusted index of 5.02 ranks #15 among the group.
$5mm+ Sales 23
Approx. Proceeds $763mm
Avg. Cap Rate (FNM) 6.4%
Avg. Price/Unit $181,612
Expected Total Return 9.1%
RED 46 ETR Rank 3rd
TRADE & RETURN SUMMARY
RED 46 RAI Rank 15th
Risk-adjusted Index 5.02
Mean Rent (Reis) $3,152
Annual Change 3.9%
RED 50 Rent Change Rank 15th
RCR YE14 Forecast 3.7%
RCR YE15 Forecast 5.2%
RCR YE16 Forecast 5.9%
EFFECTIVE RENT SUMMARY
RCR YE17 Forecast 4.9%
Occupancy Rate (Reis) 97.3%
RED 50 Rank 6th
Annual Chg. (Reis) -0.6%
RCR YE14 Forecast 97.5%
RCR YE15 Forecast 97.5%
RCR YE16 Forecast 97.7%
OCCUPANCY RATE SUMMARY
RCR YE17 Forecast 97.8%
Total Payrolls 4,046.6m
Annual Change 78.2m (2.0%)
2014 Forecast 84.6m (2.1%)
2015 Forecast 102.7m (2.5%)
2016 Forecast 91.6m (2.2%)
2017 Forecast 69.7m (1.6%)
PAYROLL JOB SUMMARY
Unemployment (NSA) 6.9% (Aug.)
NEW YORK, NEW YORKMARKET OVERVIEW & MULTIFAMILY HOUSING UPDATE
2Q14 ABSORPTION AND OCCUPANCY RATE TRENDS
2Q14 EFFECTIVE RENT TRENDS
2Q14 PROPERTY MARKETS AND TOTAL RETURNS
RED Capital Group | 2Q14 | September 2014
NOTABLE TRANSACTIONS
RED Capital Research | September 2014
MARKET OVERVIEW | 2Q14 | NEW YORK, NEW YORK
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2010 2011 2012 2013 2014 2015f 2016f 2017f 2018f
Un
its
(T1
2M
on
ths)
ABSORPTIONS COMPLETIONS
New York Absorption and Supply Trends
Source: Reis History, RCR Forecasts
6.1%5.9%
5.5%
6.4%
5.6%5.9%5.9%
5.3%
4.7%5.0%
5.5%5.4%5.3%5.3%
4.5%
5.0%
5.5%
6.0%
6.5%
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
Av
era
ge
Ca
pR
ate NORTHEAST REGION NEW YORK CITY
New York Cap Rate Trends
Source: eFannie.com, RCR Calculations
Property Name (Submarket)Property Class/Type
(Constr.)Approx. Date of
TransactionTotal Price /(in millions)
Price /per unit
EstimatedCap Rate
Curling Club Apartments (Hoboken, NJ) B- / MR (2004) 7-Jun-2014 $125.5 $522,917 4.0%
Manhattan Park (Roosevelt Island) B- / HR (1989) 1-Jul-2014 $173.3 (50%) $156,548 4.1%
Avalon Chrystie Place (SoHo / Bowery) A- / HR (2005) 15-Sep-2014 $300 (Approx.) $831,025 4.2%
Post Toscana (Gramercy / Stuyvesant) A- / HR (2003) 23-Sep-2014 $160 (Approx.) $804,020 4.3%
Post Luminaria (Upper East Side) A- / HR (2002) 23-Sep-2014 $110 (Approx.) $797,101 4.0%
The Metro (Financial District / Downtown) B+ / HR (1920) 4-Sept-2014 $79 (Approx.) $708,528 3.5%
97.9%97.8%97.7%97.5%97.5%97.3%
91%
93%
95%
97%
99%
2010 2011 2012 2013 2014 2015f 2016f 2017f 2018f
Avera
ge
Occu
pan
cy
91%
93%
95%
97%
99%RED 46 AVERAGENEW YORK (REIS/RCR)
New York Occupancy Rate Trends
Source: Reis History, RCR Forecasts
![New York New York [Big Band]](https://img.pdfslide.us/doc/110x75/55cf9017550346703ba2dc98/new-york-new-york-big-band-56499fb54c27d.jpg)
