Why Free Market Multifamily Is Winning In NYC

Free market buildings continued to dominate New York City’s multifamily market in Q1 2025 with the sale of these assets accounting for 88% of the city’s $2.21 billion in dollar volume, the highest share on record and up from 63% in 2024, Ariel Property Advisors’ research shows.

Multifamily sales activity was largely concentrated in high-income neighborhoods in prime Brooklyn and Manhattan below 96th Street with a focus on buildings that had fewer than 25% rent-stabilized units or benefited from a 421a tax exemption.

Brooklyn led all submarkets in Q1 2025 with nearly half of New York City’s total multifamily dollar volume. Year-over-year, the borough’s dollar volume jumped 138% to $1.06 billion, and transactions rose 9% to 139. The majority (96%) of the dollar volume came from free market sales, and the borough saw four of the city’s top five free market deals, all above $50 million.

Brooklyn Multifamily Sales Q1 2025

In one significant transaction, Steiner NYC bought back the 62% stake in 333 Schermerhorn Street in Downtown Brooklyn from JP Morgan for $259.5 million—$6.5 million more than its 2019 sale price—as part of a $420 million recapitalization. Another noteworthy sale was a 188-unit rental building at 395 Leonard Street in Williamsburg, acquired by Pacific Urban Investors for $127.5 million. Also, Michael and Edward Ostad of Flatiron Realty purchased the Pintchik Brooklyn Portfolio comprising 26 buildings along Flatbush Avenue and adjacent side streets in Prospect Heights and Park Slope for $102.5 million.

In Manhattan below 96^th Street, multifamily sales totaled $868.51 million, a 36% year-over-year increase, across 45 transactions. Of the dollar volume, 92% of the sales were for predominantly free market buildings.

Manhattan Multifamily Sales Q1 2025

Notably, Ares Management acquired a 75% interest from Mitsui Fudosan America in select tax lots within 525 W 52nd Street for $202.2 million. The transaction encompasses the market-rate condominium portion of the property, which includes 313 residential units benefiting from a 421a tax exemption, and a 1,678-square-foot retail space. The deal implies a total valuation of approximately $270 million for the assets. Additionally, A&E Real Estate acquired a 22-story, 179-unit apartment building at 501 East 87th Street for $116.5 million.

What these Deals Tell Us About Investor Demand

The first quarter transactions in Brooklyn and Manhattan signal robust investor confidence in free market multifamily, driven by the appeal of assets with minimal regulatory constraints and the city’s persistent housing shortage.

The major transactions indicate several key trends:

• High Confidence in Free Market Assets: Investors are willing to commit substantial capital to free-market properties, recognizing their potential for higher returns and more predictable income streams compared to rent-stabilized buildings.
• Focus on Prime Locations: Many of the notable deals involve properties in highly desirable areas, underscoring the importance of location in the New York City multifamily market.
• Long-Term Investment Strategy: The involvement of active institutional buyers like Ares Management, Pacific Urban Investors, Silverstein Capital Partners, The Carlyle Group, JW Capital Management, Island Capital, Stonehenge, Stockbridge, Fetner and Black Spruce Properties suggests a long-term investment horizon, with a focus on assets that will appreciate in value over time.

Jason Hart, Managing Director, The Carlyle Group, summed up his firm’s interest in the residential rental market in a 2024 article in PERE, “We’re leaning into multifamily now because the fundamentals are strong and the dislocation is creating real opportunity. Pricing is adjusting, but demand isn’t going anywhere.” Carlyle has aggressively purchased both small and large multifamily properties in New York City in recent years.

The Allure of Free Market Multifamily

The recent transactions demonstrate strong investor demand, which is closely linked to the distinctive attributes of New York City’s free market multifamily sector. Free market multifamily buildings have minimal to no rent restrictions and attract a diverse range of investors including institutions, private clients, and international capital. This heightened interest stems from several key factors:

• Limited Regulation: Unlike their rent-stabilized counterparts, free-market buildings offer owners greater flexibility in setting rents and managing their properties. This translates to potentially higher returns and a more predictable investment environment.
• Supply Constraints: New York City faces a chronic shortage of housing, a problem exacerbated by two main issues:

1. Regulatory Restrictions: Approximately half of the city’s 2 million rental apartments are subject to rent regulation, further squeezing the supply of free-market units.
2. Disincentives for Rental Construction: Before the approval of the 485x tax abatement and City of Yes rezoning initiative last year, developers lacked sufficient incentives to build new rental housing, leading to a sluggish supply pipeline.

• Demand Outstripping Supply: According to city statistics, New York City needs to produce 60,000 new housing units per year for the next decade to meet the growing demand. This imbalance between supply and demand continues to fuel the value of free-market properties.
• Strong Fundamentals: Rents in free market buildings continue to rise. In Q1 2025, the rental price in core Manhattan below 96^th Street rose to $89/SF, a year-over-year increase of 7.2%, and Brooklyn saw a rental price of $60/SF, a 9.4% year-over-year increase, according to the March 2025 Elliman Report.

Types of Free Market Buildings

The free market multifamily landscape in New York City comprises three primary categories:

• Newer Luxury Buildings: These well-located properties boast modern amenities and often benefit from existing or expiring property tax abatements. They are highly sought-after by tenants willing to pay a premium for upscale living.
• Prime Location Older Buildings: Situated in desirable neighborhoods, these buildings are predominantly free-market, though they may contain a small percentage of rent-stabilized units. Their prime locations and inherent value make them attractive to long-term investors.
• Smaller Free Market Buildings: This category encompasses a range of smaller properties with a majority of free-market units. These can provide stable returns and are often favored by private investors.

Investment Outlook

Q1 2025 investment sales figures highlight the significant role of the free-market segment in the multifamily market in Manhattan below 96^th Street and Brooklyn, demonstrating the continued confidence investors have in this asset class in prime locations.

To review Ariel Property Advisors’ full Q1 2025 Multifamily Quarter in Review New York report, which includes data on all submarkets, please click here.