One unlikely parallel to the instability in the stock market this past quarter was that Manhattan multifamily property sales soared. Third quarter volume climbed to a three-year high in the third quarter to $2.2 billion, from $1.5 billion in the second quarter and a low of $205 million in the first quarter of 2009. In all of 2009, multifamily sales volume was $1.3 billion. While this year’s sales are still far below the 2007 quarterly average of nearly $3 billion a quarter, it is safe to conclude that buyers and lenders believe that the multifamily market has turned the quarter in Manhattan.

Given the backdrop of the debt crisis in Europe, tepid economic conditions in the U.S. and exceptional volatility in the stock market last summer, one could argue that more and more investors are shunning stocks in favor of real estate. It’s a completely different asset type, but one in which the pros – stable cash flow – outweigh the cons of owning stock in a highly volatile and slow-growing economy. This recent quarterly increase could be a one-time fluke or the start of a real trend. While it would be premature to evaluate this question, a look at the historic data shows that from an investor’s point of view, Manhattan multifamily properties outperformed the stock market and other indices by a significant margin over the last ten years, regardless of the neighborhood.

After lagging the rest of the commercial property sales market in 2010 and the first quarter of 2011, the volume of Manhattan office property sales more than doubled in the second quarter to $5.5 billion1.

“At some point we knew office sales had to trend upwards,” said Peter Hauspurg, CEO of Eastern Consolidated. “Investor demand for Manhattan office assets has far outstripped supply for several years, and as a result, cap rates have dropped to historic lows for this class, that is 4% - 6%, which has finally drawn sellers into the market.”

While Wall Street was crashing and real estate was imploding from 2007 through 2010, one industry was expanding at a phenomenal rate: New York City’s hospitality industry. Put simply, New York City’s tourism and hotel boom over the last five years is one of the most remarkable success stories in decades mainly because it thrived despite both the national recession and European debt crisis.

Much of the draw to Manhattan and its immediate environs stemmed from not only strong demand but an overwhelming growth in the supply of hotel rooms. This new supply brought the cost of lodging in Manhattan much lower than had these rooms not been added. This study analyzes the tourism industry with details provided on the new hotels and how the supply of hotels likely induced growth in the number of visitors to New York.

The prices paid for development sites in Manhattan accelerated from the start of the last decade through 2007. Development site prices then plummeted in 2009 as did the volume of transactions. In fact, the 2009 land sales correction was sharper than for nearly every other property type. However, while the volume of transactions improved somewhat in 2010, the average price paid per buildable square foot soared back to its highs of 2007-2008 as did the average transaction size.

Estimating the price for the right to develop in Manhattan can be elusive due to the varying nature of development site sales and the difficulty in tackling the buildable square footage. Eastern Consolidated compiled a comprehensive list of all development site sales – including major conversions and air rights – in Manhattan over an eleven year period. This analysis took three years to compile and captured over 1,050 transactions. The analysis shows that the price for the right to build escalated over the last decade from a low of $75 per buildable square foot in 2002 to a high of $321 per buildable square foot in the first quarter of 2008.

Anyone who lives in New York City knows that neighborhoods with good elementary schools command higher real estate values. Quantifying this relationship has never been easy, but with the recent abundance of test score data, the impact on real estate prices from higher test scores can be determined and the results are compelling.

Eastern Consolidated compared the average prices for multifamily properties sold in 2009 and 2010 for Manhattan, Brooklyn and Queens to average test scores for elementary grades 3rd through 5th for both years. Both the average test score data, from the New York City Department of Education, and the multifamily sales data were averaged by zip code. The prices of multifamily properties were used because these prices are directly related to the properties’ rent rolls and serve as an accurate measure of property value.

New York City has long been dependent on Wall Street for much of its tax base, but few have been able to quantify this dependence.  In fact, tax revenue generated by New York City’s finance industry has changed dramatically over the last two decades.

Using data from the New York City Department of Finance, we were able to show the volatility in tax revenues generated by finance firms.  We also quantified how deeply the recent financial crisis hurt city tax collections in 2008 and 2009.

The correction in Manhattan’s office property sales market looks painfully obvious in retrospect. It was difficult to predict if or when the bubble would pop. But there are lessons that can be learned from the implosion in real estate values aside from the obvious evidence of too much easy money, overly generous loan-to-value ratios and other weak lending standards.