The first half of 2024 signaled ongoing challenges for Northern Manhattan development properties, following 2023's five-year low in dollar and transaction volumes. However, the second half marked a significant turnaround, achieving the strongest six-month performance since 2021 and a notable year-over-year rebound. This recovery was driven by key legislation, including the 485x tax exemption and the vested 421a extension, which incentivize rental housing development by requiring lowincome units in exchange for 35 to 40 years of tax benefits. Despite these gains, challenges persist. Average pricing per buildable square foot remained low at $160, matching 2022 levels, while property volume rose to 16 development site sales, a 14% increase from 2023's 14 sales. A standout transaction was Extell's sale of 167 East 124th Street, where the vested 421a development site with a FRESH Zone bonus will be loacted next to the soon to be expanded the Second Avenue Subway, which the MTA Financing Committee hailed as the "most critical improvement to public transportation for East Harlem residents in over 100 years." The December approval of the "City of Yes" zoning initiative promises to enable up to 82,000 new housing units citywide over 15 years, potentially boosting market activity as developers navigate the initiative's zoning changes. 2H'24 Featured Transaction East Harlem 167 West 124th Street Amount: $70,000,000 $/SF: $170 Buyer: JCS Realty Group, LLC Seller: Extell Development Company Sale Date: 11/25/2024

Bank Lenders Banks maintained a strategic focus on depository relationships to strengthen and optimize deposit, reserve, and liquidity ratios. There has been a noticeable shift in leadership as incumbent banks addressed or resolved legacy multifamily loan portfolios. Efforts have intensified in commercial, industrial, and bridge lending, with a reduced emphasis on multifamily term loans, particularly within the RS subasset class. Agency Lenders Agency lenders remained active in 2024, providing financing for market-rate, workforce, and affordable housing nationwide. However, recent market distress has prompted revised underwriting standards, emphasizing the physical condition of collateral and enhanced due diligence, particularly for older properties (pre-1970s multifamily) and assets in tertiary markets. Rate buy-downs enabled borrowers to secure financing below market rates, effectively increasing loan proceeds. CMBS Lenders The commercial mortgage-backed securities (CMBS) market sustained robust growth through the end of the year, driven by full-term interest-only payments and more flexible underwriting standards compared to FNMA and Freddie Mac. For multifamily assets, leverage reached up to 70% LTV at a 1.20x DSCR on interest-only payments, with a minimum 8.5% debt yield. Spreads have narrowed significantly. The 5-year product remains a preferred option for investors seeking shorter defeasance periods to minimize prepayment penalties. Debt Fund & Bridge Lenders Activity in the debt fund and bridge lending space increased significantly, bolstered by multiple Federal Reserve rate cuts and heightened scrutiny on regulated lenders. The narrowing rate gap between bridge and permanent financing, driven by falling short-term indexes (e.g., Prime, SOFR), has enhanced the appeal of bridge loans due to their higher proceeds, simplified underwriting processes, and prepayment flexibility. Preferred Equity & Mezzanine Debt Banks have adopted a highly selective approach to construction lending, prioritizing markets and sponsors with strong track records and established relationships. Bank construction loans are still available, with spreads starting at SOFR + 300 and underwriting increasingly focused on rental fallback scenarios. Many lenders view the current environment as an opportune time to support construction lending, particularly in supply-constrained markets where the development pipeline has significantly contracted. Non-bank debt funds have gained market share in the institutional $50M+ loan segment, as regulatory constraints limit depository institutions' exposure to HVCRE loans. Preferred Equity/Mezzanine Lenders Subordinate capital providers have exploded in relevance since the banking crisis and run-up in interest rates allowing for preferred equity and mezzanine debt investors to fill in the shortfall in the capital stack. Subordinate capital is available for both new acquisitions and recapitalizations for distressed opportunities. Senior lenders can often view a Preferred Equity or Mezzanine Lender as a "credit enhancement". furthering the likelihood that they consent to subordinate financing.

A number of macro-economic indicators affect the bottom line of commercial real estate investments in New York City and, in turn, the pricing and demand for these assets during any given period. Ariel Property Advisors' Research Division tracks national and local metrics to identify key market drivers influencing the real estate industry. A number of macro-economic indicators affect the bottom line of commercial real estate investments in New York City and, in turn, the pricing and demand for these assets during any given period. Ariel Property Advisors' Research Division tracks national and local metrics to identify key market drivers influencing the real estate industry.

Ariel Property Advisors has been a regular contributor for Forbes. Here is the list of the five latest articles. 12/17/2024: 'Yes' In My Backyard: NYC's Rezoning Ushers In New Era Of Housing Development Local lawmakers took a major step toward solving New York City's housing crisis by approving a rezoning initiative called the City of Yes for Housing Opportunity. 11/25/2024: One Million Reasons Rents Are High In New York City Rent regulations reduce the housing supply and push rents to new heights as newcomers, young people and others compete for NYC's 1.1 million free market apartments. 10/22/2024: New York City Office-To-Residential Conversions: Here's What We Know The sale of NYC office buildings suitable for conversion to housing accounted for approximately 25% of the $2.2 billion in development sales citywide in 1H 2024. 9/13/2024: New York City Transaction Volume Poised To Rise: Here's The Opportunity With mortgage maturities forcing sales, real estate prices falling and fresh capital entering the market, NYC is expecting a surge of trades at attractive prices. 8/7/2024: 3 Drivers Behind The Surge In New York City Investment Sales Three drivers contributed to a pickup in New York City investment sales in 1H 2024 resulting in $11.79 billion in trades, up 26% from 2H 2023.