“We’re excited to have both Dans joining us,” said Jotham Sederstrom, editor of The Commercial Observer. “The depth of knowledge they bring as experienced reporters will certainly make our publication even more of a ‘must-read’ for the commercial real estate industry.”

Prior to joining The Commercial Observer, Mr. Rosen worked in "The Shack" at 1 Police Plaza for the New York Post and Newsday. He has also worked as a reporter for the Daily News and has written about crime, sports and business for The New York Times, The Daily, and Dow Jones.  He will occasionally write stories for its sister publication, The New York Observer.

For the past seven years, Mr. Geiger has been the head staff reporter and online editor for Real Estate Weekly, where he improved the paper's breaking news and exclusive content. He has moderated real estate speaking panels featuring top industry professionals.

How has this market been performing recently? Let's take a look at the statistics with regard to both volume and value. 

Over the past two years, we have seen significant increases in the sale of multi-family properties: In 2009, there were $1.25 billion sale transactions in New York City, consisting of 433 buildings with a total 9,839 apartment units. These sales included both elevator and walk-up properties. Unlike anywhere else in the country, buildings with or without elevators are two very distinct types of assets that are tracked separately and perform differently. 

Sales volume rose to $2.33 billion in 2010, an 86 percent increase. If we annualize the activity thus far in 2011, activity in the multi-family is expected to be $2.36 billion, up just slightly from 2010 figures. Since 2009, the dollar volume of multi-family properties has represented 31 percent of all property sales citywide. 

We believe that first quarter activity was muted by a tremendous 4Q10 which "stole" some activity that normally would have occurred in 1Q11. (Lenders wanting to clean up balance sheets by year's end, and discretionary sellers who were trying to beat an expected increase in capital gains rates created the frantic year-end activity.) Therefore, we expect 2011 total volume to exceed 2010 volume by 30 percent to 40 percent. 

Clearly, in the multi-family sector, there has been a trend toward larger transactions as the average price of an apartment building in New York has gone from $2.9 million in 2009 to $4.3 million in 2010, a 48 percent increase. Thus far in 2011, the average price has risen to about $4.7 million. 

In 2009 there were 433 multi-family buildings sold. This figure increased by 25 percent to 543 in 2010. Thus far in 2011, there has been a disappointing 127 buildings sold which, if annualized, would produce a reduction of 6 percent below last year's totals. With dollar volume increasing the way it did, this reduction in the number of buildings sold reinforces that more expensive properties are being sold. Since 2009, the number of multi-family buildings sold has represented 17 percent of all properties sold citywide. 

The number of total units in the buildings that have sold has increased from 9,839 in 2009 to 16,208 in 2010, a 65 percent increase. Similar to the number of properties sold, the number of units transferred in 1Q11 was 3,681 which, if annualized would result in 14,724 units sold, nearly 10 percent below 2010 totals. 

If we disaggregate the two main food groups within the multi-family sector, we see a significant difference in the performance of elevator and walk-up properties. 

In the elevator sector, we saw just $600 million of sale transactions in 2009 which increased to $1.54 billion in 2010, a 157 percent increase. Thus far in 1Q11, we have seen about $331 million in sales which, if annualized, would represent about a 14 percent reduction from 2010 totals. 

In the elevator sector, 87 buildings were sold in 2009 versus 126 sold in 2010, an increase of 45 percent. In 1Q11 there have been 26 sales which, if annualized, would produce 104 sales this year, a 17 percent reduction from 2010 totals. 

In 2009, the properties sold contained 4,801 apartment units. This figure increased to 8,848 in 2010, a whopping 84 percent increase. In 1Q11, there were 1,833 units sold which, if annualized would produce a 2011 total about 17 percent below 2010 levels.

The average price per square foot of elevator properties sold in 2009 was $165. In 2010, this average increased by 6 percent to $175. In 1Q11, the average has been $227 per square foot. 

The average price per unit in 2009 was $164,000. In 2010, this average decreased to $132,000. This average exploded to about $273,000 per unit in 1Q11, primarily due to some remarkable sales in the Manhattan submarket. 

Capitalization rates, while varying widely submarket to submarket, averaged 6.19 percent in 2009 and expanded to a 6.4 percent average in 2010, an increase of 21 basis points. This is consistent with our theory that value bottomed in 2010 (not 2009 as many casual and not-so-casual observers of the market believe) and is now poised to correct. Thus far in 2011, in the elevator sector, cap rates have averaged 5.53 percent, a compression of 87 basis points from 2010 averages. We expect this trend to continue, particularly in Manhattan where condo conversion underwritings are beginning to take place again (more on this below). 

On the gross rent multiple front, which also vary greatly submarket to submarket, the average GRM in 2009 was 9.83 citywide which decreased to 9 in 2010, a decrease of nearly a full multiple. Thus far in 1Q11, the average GRM has been 10.9 citywide, representing an increase of nearly two multiples from the 2010 average. It is clear that values are rising in this sector aided by a significant supply/demand imbalance and an interest rate environment which is at or near historic lows. 

In the walk-up sector, we saw activity in 2009 hit $653 million in sales volume with 346 buildings selling containing a total of 5,038 apartment units. The $653 million in sales volume increased to $788 million in 2010, a 21 percent increase. In 1Q11, there were $260 million in sales which, if annualized, would show a total volume in excess of $1 billion, representing a 32 percent increase over 2010 totals. 

In terms of number of units sold, there were 5,038 units sold in 2009 which increased to 7,360 in 2010, a 46 percent increase over the 2009 total. Thus far in 1Q11, there have been 1,848 units sold which, if annualized, will be approximately the same number of units sold that we saw in 2010. 

The average price per square foot in the walk-up sector was $218 in 2009 which increased to $220 in 2010, a one percent increase. Thus far in 2011, the average has been $241 per square foot reflecting an increase of 10 percent over 2010 levels. 

The average price per unit sold in 2009 was approximately $176,000. This decreased to $153,000 in 2010, a 13 percent reduction. In 1Q11, the average price has rebounded to $176,000, a 15 percent increase over 2010 levels and back to where it was in 2009. 

With regard to capitalization rates, in 2009 the average cap on a walk-up building citywide was 6.66 percent. This grew to 7.05 percent in 2010, a 39 basis point increase. Thus far in 2011, the average cap on a walk-up building has compressed to 6.7 percent, a decrease of 35 basis points from 2010 levels. 

With regard to gross rent multiples, the average in 2009 was 9.83 which dropped to 9.08 in 2010, a decrease of three-quarters of a multiple. Thus far in 2011, the average GRM has surprisingly dropped to 8.6 reflecting nearly a half multiple reduction from 2010 levels. We believe this drop is due to the composition of properties sold relative to location, not necessarily reflecting a value shift. 

While demand remains very high for multi-family properties in New York City and the availability of financing is very strong, there are several things to keep an eye on as rent regulation comes up for renewal on June 15th of this year. 

Legislators are busy trying to craft an agreement that would include addressing several key housing issues in addition to the existing rent regulation laws. These include the expiration of 421-a tax benefits and the uncertainty caused by the recent Roberts decision regarding the deregulation of units in buildings receiving J-51 tax benefits. 

Most observers of the multi-family market believe that rent regulation will be renewed on essentially the same terms presently in place. While Governor Andrew Cuomo has called for a "strengthening of the rent laws," he has provided no specifics on what strengthening actually means. 

The New York State Assembly (with the overwhelming support of the City Council) has passed several bills which would, among other things, increase the levels for high-rent deregulation from $2,000 per month to $3,000 per month and would increase the level that a regulated tenant would have to earn for high-income or "luxury" deregulation from $175,000 annually to $300,000 annually. 

No matter how you view it, it is comical to think that the same policy makers within the City Council and State Assembly who believe that the "millionaire's tax" on anyone making over $200,000 per year should remain in effect are the same people who need to be protected by rent regulation which is, effectively, a form of public assistance. 

As I have stated in many articles I have written about rent regulation, it is a horrible system that inefficiently misallocates our housing stock. Most elected officials refer to rent regulation as an "affordable housing program" and it so obviously nothing of the sort. It simply hands a taxpayer funded subsidy to people who happen to be in the right place at the right time. There is no means testing involved and no one knows how much people who are receiving rent subsidies are actually earning or what their economic availability actually is. 

At a time when elected officials are scouring budgets for government waste, fraud and abuse, it is a joke that the subsidies continue to get handed out without any qualifications necessary to receive the benefits. There is no way to make rational sense of such a system. Why not hand out welfare checks to anyone whose last name begins with "W"? That would make about as much sense. 

As I have written in this column previously, reinstituting of the 421-a tax benefit program,  in one form or another, is necessary to continue to have our much-needed new housing stock delivered to market. There has been a substantial decline in the creation of affordable units due to the elimination of this program. While the headlines of articles containing misguided perspectives may refer to wealthy ballplayers or captains of industry that are receiving these benefits, the articles always fail to mention that at some point the recipients of these temporary benefits will be paying the full amount of taxes. In many cases, these new developments would not have proceeded in the absence of the 421-a program. 

Additionally, thousands of units of affordable housing units have been created in neighborhoods in desperate need of such housing based upon the demand for the certificates which are created when these buildings are developed. Reinstating the 421-a benefits program, in one form or another, is critical. 

The other item which is likely to get rolled into the rent regulation extension negotiation is a solution to the J-51 issues. The Roberts decision, essentially, said that even though 13 years of standard operating procedure ratified by two governmental agencies had been in effect, they were incorrect in their interpretation of the rules. 

The Department of Housing and Community Renewal ratified the decontrolling of units in buildings receiving J-51 benefits and the department of Housing Preservation and Development, which enforced the J-51 program, agreed that it was correct to deregulate units in buildings receiving J-51 benefits. The court's decision in the Roberts case stated that deregulating units in buildings receiving these tax benefits was not legal. 

The decision disastrously, however, did not give any other direction in terms of how to deal with these units. That question will likely be settled by years of litigation and several other courts, or a legislative solution is required to remove this uncertainty. The most reasonable and equitable solution would appear to be allowing the owners who received these benefits to pay them back to the city and continue to rent the decontrolled units to the tenants who signed up for, and are able to pay, the new free market rents. 

Doing this would allow the city to recoup a significant sum of money at a time when this resource is desperately needed. It would also eliminate a senseless, random windfall for tenants who do not need it.

As we can see, the multi-family market is one which is highly dependent upon legislation and regulation. Generally, market dynamics are looking very positive in terms of volume and value. Both have been trending in the right direction. Let's hope that policy makers don't throw a wrench into the system with legislation that could have significantly negative implications for the market.     

rknakal@masseyknakal.com

Robert Knakal is the chairman and founding partner of Massey Knakal Realty services and in his career has brokered the sale of more then 1,125 properties, having a market value in excess of $7 billion. 

The apartment sector's proponents argue that recent gains reflect a structural shift in the housing landscape, with millions of young American families now disabused of the notion that homeownership is always preferable to renting, and embodied in a long-term policy retrenchment from mortgage subsidies and market-making. In support of this thesis, advocates can point to data showing a surge in rental households and a corresponding decline in the homeownership rate. Between early 2006 and late 2010, the renter pool in the United States increased by more than 10 percent, at a faster pace than household formation or rental supply.

The descriptors of the apartment rebound offer a compelling but ultimately incomplete picture of an exceptionally mutable housing market. There is no doubt that national apartment trends are outdistancing an ownership market that remains mired in its own localized recession. Still, investors must proceed deliberately, remaining cognizant of risks to their baseline expectations. While conditions in the apartment sector warrant a sanguine assessment, investors and lenders alike must guard against the potential for unabated enthusiasm to inflate prices and erode lending standards to the detriment of long-term stability.

A Cyclical or Structural Shift in Demand

Underpinning apartment investment gains, fundamentals have improved markedly from their lows during the depths of the recession. Axiometrics reported last month that effective rents increased by 0.8 percent between February and March, 5 percent higher than a year earlier. Driving rent growth, occupancy has tightened across the country, reaching 93.5 percent in the March report. Major markets - New York, Long Island, San Francisco and Boston among them - each now enjoy occupancy rates above 95 percent.

The fundamentals gains in the apartment sector are a function of exceptional growth in the number of renter households and a relative paucity of new inventory. In some markets where the shadow inventory of condos for rent or reconversions might have threatened a sharp expansion of the supply curve, rising demand has nonetheless resulted in positive net absorption. Miami is a case in point, where Axiometrics reports a vacancy rate below 4 percent, while Las Vegas and Phoenix attest to the more basic intuition, with condos undermining the apartment sector.

With the exception of a few markets where particularly weak employment trends and the weight of the housing market have limited household formation, apartment markets are performing well even if removed from the coasts. Will the current tightness in rental outcomes persist, justifying further increases in prices? On one side of the equation, there is little question that supply will respond to rising cash flow; an increase in development, however small, is already a factor in the apartment market. As new units come online, some of the upward pressure on rentswill ease. The potential for overbuilding may be kept in check by more cautious bank lenders and by their regulators, who will invariably point to still-record high default rates on banks' construction loans.

While the supply response lags the market, the demand side of the fundamentals equation is the more challenging source of uncertainty. Rental demand has been very strong as compared to the rate of job growth during the recovery. But charting its forward path introduces a degree of forecasting error. At the heart of the projection, housing tenure bias involves a complex interaction between the availability of credit and equity, expectations of relative rental and ownership costs,

and behavioral factors. While a complete discussion of tenure choice is outside the scope of this column, suffice it to say that households will tend towards renting if there is an expectation that real house prices will decline in future periods, as has been the case in  recent years.

Whether the relative bias in favor of renting will persist once house prices normalize will depend in large part on the availability and cost of mortgage credit and the behavioral characteristics of younger households on the cusp of ownership. The former is in the realm of policy; the latter, a dimension of the American psyche that economists will struggle to forecast. While housing finance reform suggests that homeownership will become a more costly proposition in the coming years, investors must also concede a cyclical element to the current strength of renter demand.

In a continuation from this week's column, next week's Lead Indicator will address the implications of housing finance reform for the apartment outlook.

schandan@rcanalytics.com 

Sam Chandan, Ph.D., is global chief economist of Real Capital Analytics and an adjunct professor at the Wharton School.

The asking rent was in the low $20s, although Ken Fishel of Legacy Real Estate, who repped the tenant, literally jumped up and down before telling The Commercial Observer that a tenant with sufficient worker density could end up taking space in Dumbo for free due to a city relocation tax break.

Caroline Pardo of Two Trees represented the landlord in-house.

lkusisto@observer.com

Crown Art Gallery, noted for its collection of Picasso and Warhol prints, is opening its second store, in 2,100 square feet at 421 West Broadway. The gallery has had another location at 1609 Broadway for the last 20 years.

The tenant signed a 10-year lease and the asking rent was $195 a square foot, Sierra Realty's Peter Levitan told The Commercial Observer. "Prices are coming down on West Broadway, so they're more affordable for a gallery," he said, estimating that rents on West Broadway are probably 20 to 40 percent less than what they were in 2007.

He said that three galleries have signed deals in the area in 2011. "It's not as intimidating as Chelsea," he said of the faded art hub, and added that it's good "for sales that are more reliant on traffic and tourism."

Mr. Levitan is marketing two neighboring spaces, at 423 and 425 West Broadway. The former space is currently occupied by boutique luggage and handbag retailer DeNavi Italia and features 950 square feet of selling area on the ground floor and 600 square feet on the lower level. The asking rent for the ground-floor space is $284 a foot. The other space is currently home to a Detour clothing and the asking rent is $214 a foot.

The landlord has a short-term deal in place with one tenant and is negotiating with several others for a long-term lease, he said.

The 421 West Broadway deal was negotiated by Mr. Levitan and Peter Braus, representing both the landlord and the tenant.

lkusisto@observer.com

Wilson Elser Moskowitz Edelman & Dicker has signed a 17-year lease for 37,000 square feet in Mack-Cali's budding nonprofit hub, Studley's Howard Nottingham told The Observer. While most companies are consolidating their space these days, the firm is instead splitting its office in two, said the tenant's rep.

Wilson Elser is currently located at 150 East 42nd, where it will keep part of its offices. The move downtown will help it save money, according to Mr. Nottingham. The asking rent was $37 a foot and they were "pleased with the overall economics of the package," he said.

Good luck deciding which associates are heading south, but at least the 500,000-square-foot building features a serious harbor view and some outdoor seating that might look appealing six weeks from now. The new neighbors include the AIDS Vaccine Initiative, which took a floor in October, and a jobs crier, which took another floor in November.

The tenant was also represented by John Mambrino of Studley, along with Greg Gerber of The John Buck Company. CB Richard Ellis represented Mack-Cali, which declined to comment.

lkusisto@observer.com

The burger chain has opened three other New York locations since 2003. It does face some stiff compeition from Goodburger, at Broadway and 17th Street, which has to its name both a glowing Times review ,not to mention, this Chowhound gem: "Goodburger should change their name to Excellentburger."

The restaurant includes 3,570 square feet of ground-floor space, as well as a full basement. "This prime corner has laid fallow for the past five years. 5 Napkin Burger will undertake a full reconstruction of the building and turn it into a wonderful gem," said Winick Realty Group's Tatiana Jung-Voevodina, who repped the tenant along with Richard Smith. Landlord Solil Management was represented in-house by Judy Brener.

The joint is expected to open in April 2011. Its other locations are on Ninth Avenue in Hell's Kitchen, Broadway and 84^th Street on the Upper West Side, and in Astoria.

lkusisto@observer.com

"We've got half a dozen places that are of real interest," chief executive Michael Smith told The Commercial Observer when we caught up with him, addressing rumors that the company was hunting for a larger office. "Everything that we've gotten excited about has been in either Soho or Noho, mostly." In addition to Silicon Alley, the techies are also eying a couple of spaces in the Village or Union Square.

Their current office is located above the Equinox at Broadway and 20th. "We have looked in Union Square because everybody is used to being there," Mr. Smith said. "But it wasn't our first choice."

The residential market has slowed to an agonizing crawl, but the appetite for the perfect apartment and juicy celebrity gossip continues unabated: StreetEasy was the most Googled term in New York City in 2010, according to a recent celebratory piece in Real Estate Weekly. 

Now, as the firm grows from eight employees to 14, and plans to expand again to 20, they're looking for between 6,000 and 9,000 square feet of fab loft space. The search began a few months ago and is led by Janet Liff of J. Liff & Co.

"We like old better than new," Mr. Smith said. "We're generally looking for open space. We've looked at very little Class A office space." The neighborhood is really important, too. "We want a real New York neighborhood," he said, adding, "We care a lot about eating." 

That sounds exactly like the swinging (but not-too-swinging) Union Square of the early 2000s. "Union Square is a great neighborhood, but it's a little overdone," Mr. Smith said. "It's gone from foodie to corporate foodie. It's great for companies who want to move from midtown to the new midtown. We were never interested in being in the old midtown, and we're certainly not interested in being in the new midtown."

The firm is, thus, headed "to downtown," Mr. Smith said, referencing the Soho area. (That should be music to some brokers' ears.)

Mr. Smith, a Web entrepreneur, not a real estate guy, has assembled a band of mostly outsiders to bring order to the chaos of residential real estate listings. Nonetheless, he proved himself perfectly capable of dishing about the commercial real estate market. "It's wonderful to have choices," he said. "We've definitely looked for office space when 'How far west do you want to go?' is the only question that they'll ask you."

While landlords still have a lot of power, tenants can hold their own in terms of rents and concessions. But isn't it supposed to be a landlords' market again? "That's bull," said Mr. Smith, adding, "There's been a lot of leasing activity and the commercial market responds really quickly to that, but let's not kid ourselves: There's a lot of property that's sitting on the market."

lkusisto@observer.com

Heidi Klum and Tim Gunn may have strutted into 1407 Broadway last winter, but the building has proven that it's no prisoner of fashion tenants.

In late 2009, high-end TV pageant Project Runway leased 12,000 square feet in the garment district building for six weeks-even though the Lightstone Group had planned to transform the 42-story tower from a ladies' fashion hub into plain old office space. But the landlord ditched that idea and spiffed up the building and its lobby in time for its glamorous cameo.

Now, 1407 Broadway has recently closed 14,091 square feet of deals, each at $42 a square foot.

Creations Metaphores, a division of Hermes, signed a five-year lease for 1,521 square feet. Grant Greenspan, Michael Heaner and Sommer Scafidi of the Kaufman Organization, the building's listing agents, represented Lighthouse; Peter Berti of Cushman & Wakefield represented the tenant.

DreamWorks signed a three-year lease for 5,786 square feet of office space formerly occupied by Millionaire Matchmaker. Mr. Heaner represented the landlord; Bob Stella and Ed Wartels of Cressa Partners represented the tenant.

Marr International Group signed a seven-year lease for 3,223 square feet of showroom and office space featuring luxury eyeglass brands Celine, Chopard, Givenchy and Furla. Mr. Heaner represented the landlord and Richard Spana of Metropolitan Property Group represented the tenant.

Shoe seller DSP Brands signed a five-year lease for 1,500 square feet. Mr. Heaner represented the landlord; Michael Beyda and Joseph Jemal of Benchmark Properties represented the tenant.

And Venezuelan denim maker DJ Jeans signed a two-year lease for 2,061 square feet for its first showroom in New York. Ms. Scafidi represented both the landlord and tenant in the transaction. 

lkusisto@observer.com

Wells Fargo is consolidating its Manhattan offices into at least 300,000 square feet at 120 Park Avenue.

The Midwestern bank's Manhattan office space is currently spread across Tower 49, Grand Central Tower, 1211 Sixth Avenue and 40 West 57th Street. The new deal will allow the tenant to give up most of that space, according to Real Estate Weekly, which first had news of the deal.

It could include expansion rights to 400,000 square feet.

The tower is the former headquarters of cigarette maker Phillip Morris, whose parent company, Altria, sold it to Global Holdings in 2007 for $525 million, The 640,000-square-foot building has sat largely vacant since.

Sources say that Wells will likely pay rents in the $50s per square foot.

Eastdil Secured, led by chief executive Ben Lambert, represented the tenant. Wells Fargo owns Eastdil. Paul Glickman of Jones Lang LaSalle represented the landlord.