Given the nature of the current market, many investors are looking for higher cap rates on multi-family properties than they have in previous years. We took a look at 15 on market multi-family townhouses on the Upper West Side, comparing the asking price with the price at a 4% cap rate and a 3% cap rate. The average asking price for 5-10 unit properties is $7.1 million, with an average asking cap rate of 2.8%. Selling these properties at a 4% cap rate would require an average discount off the asking price of 31%. The closest deal to a 4% cap rate would require a 15% discount off the asking price.

There are more deals to be done at a cap rate in 3% range. 5 of the 15 properties we looked at have asking prices that translate into a cap rate of 3-3.4%, leaving 10 properties on the market asking sub-3% cap rates . Given that investors are seeking to purchase property at cap rates of no less than 3-4%, it's likely that prices will have to come down to increase the sales volume for Upper West Side multi-family townhouses. This notion is reinforced by the average time on the market, which, for these 15 properties, is 455 days.

On the flip side, many of these townhouses are looking to appeal to buyers in more ways than just the cap rate, depending on the highest and best use of the property. Our listing at 42 West 70th Street, for example, is a 23'-wide townhouse on arguably the best block on the Upper West Side, with beautiful original details that have been expertly maintained. Given the size, location and aesthetics of the property, it's likely it would appeal to a buyer who hopes to live there and possibly convert to a single-family home. In stronger markets, single-family developers are also attracted to this type of property. In either case, cap rates are not a factor. Alternatively, some investors are attracted to multi-families with rent regulated tenants, low income, and lower pricing, and in many cases low cap rates, where they can play the long game, wait for regulated units to become de-regulated, and then significantly increase the cap rate as rents go up. This strategy has become less popular given the uncertainty of potential changes to the rent regulation laws. The bottom line is that there is always more to the story than just the cap rate, but in the current multi-family market it's informative to look at these properties purely on a numbers basis to get an idea of what pricing the market will bear.