Multifamily apartment sector leads market recovery Stock Exchange sale.
On February 2, the City Council passed significant changes to New York's Zoning Resolution.
These changes were undertaken in response to a lawsuit brought against the city in connection with a small matter, a curb cut for a garage for a single car on the Upper East Side. The result of the lawsuit was anything but small, overturning an aspect of the long-established interpretation of the definition of "development" in the Zoning Resolution.
That term had been interpreted since the enactment of the Zoning Resolution in 1961 to include new buildings, but also existing buildings that had been developed at any time in the past. The court stated that the term could not include all existing structures, but only new construction. Confronted with the court decision and its potentially wide-ranging effects, the Department of City Planning quickly reacted by proposing to change the definition of "development" and, necessarily, of "building."
Since those terms are found throughout the Zoning Resolution, the Department examined every provision in which those terms were found to see to what extent they would be affected by the definitional changes.
Where appropriate, those provisions were changed to be consistent with the intent of the Zoning Resolution. In the process, the City Planning Department also took the opportunity to revise other zoning provisions to correct and clarify zoning text known to be confusing or inconsistent with other provisions or requiring modification to conform to the new definitions.
Clarifying "Development" The definition of "development," unchanged since the enactment of the Zoning Resolution in 1961 until now, has had several meanings, including a single new building or multiple new buildings or all existing buildings on a zoning lot.
The definition has been amended to make clear that it applies only to construction of a new building or a new use of a tract of land.
When a zoning regulation is intended to apply to all buildings on a zoning lot without regard to when they were constructed, the terms "building" or "zoning lot" replace the term "development."
Furthermore, the zoning has been amended to establish that once a building is developed pursuant to the then applicable zoning regulations, it continues to be subject to those regulations after it is no longer considered a "development."
Another clarification resolves the confusion regarding "development" as the use of a tract of land for a new use, which now applies only to new open uses, except accessory uses (associated with the existing principal use), not new uses within an existing building.
The distinction between substantial alterations and developments, not always clearly delineated, has been clarified.
The distinction has significance for requirements, such as tree planting, retail continuity, and subway stair relocation, that are triggered when developments, but no enlargements, occur.
The term "building," a seemingly straightforward concept, has been amended because a part of the current definition states that a building is any structure which, among other things, is bounded by the lot lines of a zoning lot.
Many zoning lots contain multiple buildings, particularly when zoning lots (as distinguished from tax lots) are merged to make possible a transfer of development rights.
As a result, multiple buildings on a single zoning lot have until now considered to be one building for certain purposes, which has had significant implications for how zoning regulations are applied, sometimes with results that were not intended. In the updated Zoning Resolution the definition of "building" has been revised to recognize a building as a free-standing functional entity, particularly from a fire safety standpoint.
The definition still states that a building is a structure permanently affixed to the land, with floors and a roof, and is located within the lot lines of a zoning lot, but the definition has been expanded to state that a building is bounded by fire walls, has at least one primary entrance, provides the vertical circulation and exit systems required by the Building Code without reliance on other buildings, and contains the fire protection systems required by the Building Code without reliance on other buildings.
Changing the definition of "building" required that a number of other zoning provisions be amended. For example, in certain commercial zoning districts, commercial uses in a building were required be located at a level below residential uses.
This rule, applied to multiple buildings on a zoning lot (but considered to be one building for certain zoning purposes), meant that commercial uses on the upper floors of a functionally independent building, could effectively prohibit residential uses on the upper floors of other buildings on the same lot.
The changed definition of "building" also means that construction of a new building on a zoning lot containing other buildings, previously considered to be an "enlargement," will now be considered a new building, with important zoning consequences.
Likewise, the new definition will change the way in which the "sliver" rule (limiting the height of narrow build: hags) is applied.
These widespread changes to the Zoning Resolution will bring welcome clarity. They were forged in a process which had the input of several practicioner organizations.
Hopefully, this process will be repeated regularly as the inevitable need arises to clarify and correct the Zoning Resolution.
After weathering one of the most difficult economic storms in modern history, the multifamily sector has emerged as the clear leader in the investment real estate sector.
Apartment fundamentals, which improved last year, will gather even greater momenturn this year, according to the 2011 National Apart by Marcus & Millichap Real Estate Investment Services, the largest real estate investment services firm.
"Apartments staged an incredibly strong comeback in 2010, despite weak job creation and stubbornly high unemployment," said Hessam Nadji, managing director, research and advisory services at Marcus & Millichap.
"Absorption of multifamily units increased significantly due to to release of -pent-up renter demand as renter households de-bundled in the wake of the recession and home ownership continued to decline.
The expiration of the first time homebuyer tax credit, displaced foreclosed homeowners entering the renter pool, immigration and lower unit turnover also boosted absorption levels nationwide."
All 44 of the markets surveyed in the NAR are expected,to post employment growth, vacancy declines and effective rent gains this year, confirming a sweeping recovery.
The supply-constrained markets of New York City, Washington, D.C., and Boston earned top spots in this year's National Apartment Index (NAI), a snapshot analysis that ranks 44 markets based on a series of 12-month forward-looking supply and demand variables, including forecast employment growth vacancy construction, housing affordability and rents. Meanwhile, Detroit, Las Vegas and Jacksonville ranked at the bottom of the NAI.
Although debt availability increased substantially last year, Fannie Mae and Freddie Mac still dominated the market, providing apartment investors an advantage over other property types.
"Underwriting is still very tight and low-risk, higher quality assets in primary markets are preferred by lenders," explained William E. Hughes, senior vice president and managing director of Marcus & Millichap Capital Corporation.
"Assets priced above $20 million will continue to receive the majority of debt capital, as will class A and stable class B assets, leaving class C properties with fewer financing options.
"The CMBS market also began to improve in 2010, a trend we expect to continue, albeit with new requirements and far more conservative underwriting than at the peak of CMBS dominance in the early 2000s," said Hughes.
Despite the recent increase, the 10-Year Treasury yield will remain historically low, partly due to intervention by the Fed to keep the U.S. economy on a recovery track.
Multifamily sales and pricing in primary markets will increase again this year, according to the report.
ROBERT S. COOK, JR.
ANDERSON KILL & OLICK, P.C.
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|Title Annotation:||Insiders Outlook|
|Comment:||Multifamily apartment sector leads market recovery Stock Exchange sale.(Insiders Outlook)|
|Author:||Cook, Robert S., Jr.|
|Publication:||Real Estate Weekly|
|Date:||Mar 2, 2011|
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